One year after the Russian invasion of Ukraine, the impact of economic sanctions imposed by the US and its allies is still under debate. While the sanctions have inflicted some pain on Russia’s economy, they have not caused widespread economic collapse or halted Russia’s aggression against Ukraine.
Russia’s economy contracted by 2.1 percent last year, according to the Federal Statistics Service, less than expected despite the sanctions imposed by the European nations and the United States. The World Bank, International Monetary Fund, and Organisation for Economic Co-operation and Development all predicted declines of between 2% and 4% in Russian gross domestic product in 2022, while the Institute for International Finance (IIF) predicted a 15% fall and JP Morgan envisaged a 12% contraction.
The US and its allies have imposed a broad sweep of sanctions, focused on isolating Russia from the global financial system, reducing the profitability of its energy sector, and blunting its military edge. China and India have replaced the EU as Russia’s top customers for fossil fuels, and while exports have been discounted, commodity prices soared through most of 2022, which brought Russia a windfall.
When it comes to crude oil exports, Russian exports have actually only fallen slightly, from over 15 million tonnes per day to 14 million tonnes per day, and the sanctions simply have not hurt Russia all that much, as it has largely replaced its exports to Europe with exports to India and China.
However, the war in Ukraine has resulted in more than 8,000 Ukrainian civilians dead, millions displaced, and an estimated $138 billion in damaged infrastructure.
The Russian government has been able to finance the 2023 fiscal deficit through domestic bond (OFZ) issuance and withdrawals from the National Wealth Fund (NWF, a sovereign wealth fund). In September 2022, the Ministry of Finance resumed the issuance of OFZs, which enabled them to cover the majority of the previous year's fiscal deficit.
Whether the sanctions have been effective or not depends on the objective. Sanctions supporters say the punishments are not designed to crush Russia’s economy or end the war, so their effectiveness should be judged through a different lens. It is said that the intent of sanctions is to convey the idea that disregarding international standards and invading a democratic neighboring nation will be answered with a powerful coalition action.
The IMF recently said it expected the Russian economy to grow by 0.
0. “One Year of War in Ukraine: Are Sanctions Against Russia Making a Difference?” Council on Foreign Relations, 21 Feb. 2023, https://www.cfr.org/in-brief/one-year-war-ukraine-are-sanctions-against-russia-making-difference
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