For almost five months, Europe and North America have been trying to punish and pressure Russia with sanctions for the Ukraine war. The war goes on, the Kremlin is unimpressed. Analysts show that not all sanctions are working.
While Russia is waging a physical war in Ukraine, the West – meaning Europe and North America – has launched an economic war against Russia. Ever stricter sanctions have been imposed on the country since the beginning of the war. For example, the assets of Russian oligarchs abroad have been frozen, as have central bank accounts. The US has imposed an embargo on Russian oil and gas imports, the EU and UK will follow on oil at the end of the year. Goods that can be used for the military may no longer be delivered to Russia, the airspace is closed to Russian aircraft, and Great Britain has also imposed high import duties on many Russian products. Added to this are the many non-governmental boycotts of international companies that have withdrawn from the country partly for reasons of sanctions and partly for image reasons.
If you ask politicians in the EU and North America, then these sanctions seem self-evident. Just as naturally, the Kremlin says that the restrictions annoy Russia, but do not really harm the country. After four months, several analysis institutes have now tried to assess the effect of the sanctions. This is the result:
The Russian economy will make a significant leap backwards this year. The gross domestic product, which measures all goods and services produced in a country, will fall by around 10 percent in 2022. Next year it should go down by another 1.5 percent. A report by the EU Commission, quoted from N-TV, and the independent US Center for Strategic and International Studies (CSIS) agree on this.
Anything but a shrinking GDP would also come as a surprise. After all, so many international corporations have withdrawn from Russia that the country can hardly replace them in a few months on its own. In the long term, this will force Russia to be more self-sufficient. Building this up will take years.
Russia reported net income of $110 billion in May. That too is not surprising. On the one hand, the country is benefiting from the sharp rise in energy prices. The US trade embargo is easily offset by gas supplies to Europe and oil supplies to Asia. On the other hand, imports have collapsed. Hardly any industrial plants or preliminary products such as computer chips are delivered to Russia anymore. According to estimates by the US Department of Commerce, the supply of the latter has fallen by 90 percent compared to the previous year. Nevertheless, as long as energy prices remain high, Russia will run a significant trade surplus.
With the sanctions immediately after the start of the war, the ruble fell in value by 45 percent. It has not only recovered from this, it even rose against the US dollar at the end of June to its highest level since 2014. It has since slipped back down a bit, but the Russian currency is still 32 percent above the pre-war level, as much as it has been since 2018 no more.
The strength of the ruble has two causes. First, the stability of the currency has been a key concern for the Central Bank of Russia in recent months. More importantly, Russia has been demanding payments in rubles from its foreign trading partners for several months. This leads to these rubles having to buy, which drives the price up. However, Russia can literally buy little from the high ruble exchange rate, because, as shown, imports are currently hardly possible. Within a country, however, the exchange rate of its own currency is irrelevant.
The production of goods in Russia is not only faltering under the sanctions, it is collapsing faster than ever before. The CSIS alone estimates the decline in car production at 85 percent compared to the pre-war level. The rating agency S
Not only Germany writes inflation records, also in Russia things went up sharply. While the annual inflation rate was 9.2 percent in February, it almost doubled to 16.7 percent in March. After peaking at 17.8 percent in April, it fell back to 15.9 percent in June. This is the highest it has been in ten years.
The steep increase in inflation is a direct result of the sanctions. The withdrawal of international corporations and the import ban of important industrial goods are reducing the supply. Since demand remains the same, prices rise.
When prices rise and supply dwindles, it’s little wonder Russians spend less. According to the Russian Ministry of Economic Affairs, consumer spending fell by around 19 percent from March to May. Real wages, i.e. taking inflation into account, were 7.2 percent lower in April than a year earlier. So the normal Russian has significantly less money at his disposal.
For May, Russia reported a record-low unemployment rate of just 3.9 percent. It is said to have steadily decreased since the beginning of the war. Foreign experts find this implausible. The withdrawal of more than 1,300 international corporations must inevitably have led to layoffs. Russian job portals are also reporting a significant drop in job vacancies and a significant increase in job applications. Before the war began, around eight million Russians – 12 percent of all workers – depended on foreign trade for their jobs.
The fact that the state has forced many workers to work short-time is likely to play a role in the official quota. In Russia, however, this is paid for by the company alone. Even if there is no more work, these Russians still have a job on paper.
Those who can are currently leaving Russia. More than 100,000 Russians have emigrated since the beginning of the war. These are mainly high-earning, highly qualified workers. One focus is on employees in the tech industry. In the hardware sector, this is hampered by the virtual ban on the import of computer chips, while in the software sector many tech specialists are annoyed by the Kremlin’s new censorship efforts. “This will be a long-term problem for the Russian economy,” estimates the CSIS, because many of the skilled workers will not be allowed to return to the country even after the war.
From a western point of view, what is probably most annoying is Russia’s continued high income from the sale of raw materials. With the kind assistance of other countries, Russia cleverly exploits loopholes in the system. For example, India has established itself as one of the largest importers of Russian oil. India doesn’t even need all the oil itself. Instead, it is refined in the country and then shipped around the world, including to the US and Europe, according to the Wall Street Journal. Despite embargoes, Russian oil is still ending up in Western countries. The same applies to the coal trade, which is often transacted via Switzerland. Although it has also issued sanctions, it cannot effectively enforce them.
Many oligarchs have also managed to at least partially confiscate their assets before the sanctions. Some were not even punished because they manufacture and supply important products for Europe and North America. An example of this is the richest Russian, Vladimir Potanin, whose nickel exports are needed in the West. Others forestalled sanctions: To date, only 13 of the superyachts owned by Russian oligarchs have been arrested. Although they have a total value of around two billion euros, this is only a fraction of the wealth of the oligarchs. More yachts than those arrested disappeared without a trace. The French “Observer” reports that many oligarchs simply switched off the automatic tracking systems of their yachts and took them through the Bosphorus to Russia as quickly as possible.
The yachts are just an example of the fact that the sanctions have brought the richest Russians at most luxury problems. They have not achieved the desired effect that they suffer and pass this suffering on to President Putin across the board.
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