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Sanctions on Russia Are Working—Just Not How Some People Thought
Economic pressure is more of a slow squeeze than a sudden shock.
DO SANCTIONS WORK? THE KREMLIN would certainly like you to think not—indeed, it hopes you’ll think they are actually counterproductive, helping Russia achieve economic independence while undermining Western economies. Take as an example a front-page article in the government-owned Russian newspaper Rossiiskaya Gazeta, a stodgy cross between newspaper of record and breathless propaganda outlet. No subtlety was evident in the crowing headline: “They got what they deserved. The consequences of the departure of European companies from Russia.”
Claiming that Western companies had lost something like $110 billion in the first year of the war by being barred or withdrawing from business with Russia, the article glossed over the Kremlin’s recent moves to effectively seize the assets of Western companies including dairy manufacturer Danone and brewery Carlsberg. Instead, it sought to reassure its readers that a self-destructive West was doing more harm to itself than anything else.
Whether Russian readers will take this line at face value is questionable. The irony is that there are many in the West who, for a variety of reasons, seem to want to believe it.
The sanctions against Russia that the United States and its allies have imposed since Vladimir Putin’s invasion of Ukraine in February 2022 were heralded as “unprecedented.” Yet as Russian troops continue to occupy southeastern Ukraine, claims that this “proves” that they are ineffective—or downright counterproductive—continue periodically to be aired. The fact of the matter is that sanctions do work, but not in the way some of their more enthusiastic and less realistic boosters claimed at the time.
The Russian economy has weathered the sanctions relatively well, in part because of the deft fiscal footwork of technocrats such as Elvira Nabiullina, chair of the Russian Central Bank. Russia’s GDP is actually set to grow by a respectable 1.2 percent this year, after a contraction in 2022. However, that is largely on the basis of massive government spending, not just on the war but on various social benefits to try and keep a restive population quiet. This cannot go on for ever, and Nabiullina is clearly worried that an overheating bubble economy may burst.
The sanctions’ impact is slow but systemic. In a sanctioned environment, for example, the market is not fungible. In other words, when one company is no longer selling you widgets, you can’t simply switch to another without extra costs or dislocation. You were, after all, presumably buying from the first company because it was the cheapest, or the most reliable. Besides, if you are desperate, you may well find your second- or third-choice supplier turns the screws on you.
This means that Russia’s supply chains are thus seriously disrupted, often by the loss of a single link. A classic example is the car industry, which is now in crisis and surviving largely because of government support. For a while, it was in effect producing cars to 1980s standards because it could not source crucial components for airbags and anti-lock brakes. Even now, while industrial paints may be available, they have trouble getting the appropriate undercoat, without which the paint would just flake away in a Russian winter.
There are still ways in which manufacturers can find substitutes, but this is typically a slower, more complex, less reliable, and pricier process. Drone and missile producers may still be able to get microchips, for example, but not the best, and often by using intermediaries or smugglers, who will naturally gouge the price as much as they can.
Instead, the Russian market is now wide open to China, which will gladly take full advantage of this opportunity, but at costs to Moscow that go beyond the purely economic. At the very time that Western governments are beginning to worry about the security implications of Chinese cars, for example, which may be rolling electronic espionage assets, they are now flooding the Russian market.
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Nor are Russia’s crucial oil and gas exports unaffected. To be sure, they are still being sold, but at a serious discount. As a result, budget revenues from oil and gas sales almost halved in the first half of this year. Money is still coming in—there is no realistic way the West can prevent this, so long as so many buyers still want Russian hydrocarbons—but at a far lower rate than the Kremlin had hoped.
The problem is that the debate over sanctions was unhelpfully framed at the outset by those boosters who suggested sanctions would bring Putin to his knees in a matter of months or predicted that they would cripple the Russian economy. Daleep Singh, the deputy national security adviser for international economics, even claimed that Russia’s economy would quickly slide into “freefall.”
Of course that didn’t happen. Russia is not Iran or North Korea, and even those regimes could weather years or decades of sanctions. These kinds of sanctions are not going to bring about rapid changes in policy: That was always an unrealistic expectation. Instead, they work in the long term, in three main ways.
First, sanctions erode the Kremlin’s capacity to wage war. Again, they cannot cripple Putin’s war machine, but they can reduce its capacity to replenish its stocks of high-tech systems. Even as Ukraine is increasingly fielding a twenty-first-century army, Russia is falling back on stocks of twentieth-century Soviet hardware.
Second, sanctions eat away at Putin’s war chest. On paper, his financial reserves still look healthy, but more than $330 billion in Russian assets are frozen abroad. Besides, everything is costing more, and the Kremlin is being forced to offer the public more sweeteners, especially ahead of the September regional elections and next year’s presidential election. Of course, it can simply rig the vote, but the more blatant the electoral fraud, the greater the risk of public unrest.
Finally, sanctions undermine Putin’s triumphalist narrative to both his people and, more importantly, his elites. Articles like the one in Rossiiskaya Gazeta are being pumped out precisely because people are noting that prices are rising, that once familiar goods are no longer on the shelves in their stores, that brands are disappearing from their malls, and that spare parts for their Western appliances and vehicles are hard to find. Even flying is becoming more of a worry, as Russian airlines are forced to cannibalize their planes or buy counterfeit spares.
Russia’s economy prospered because of its deep connections to global markets, technology, and investment. It is increasingly being locked away from all three. It also benefited from some first-rate human capital, and so many of its best and brightest have fled in a new exodus. The damage being done is deeply scarring and will take years to heal, even after the sanctions are lifted.
Of course, authoritarian regimes will force their citizenry to bear the costs of sanctions, and channel funds into war or whatever their priorities may be. This does not come without serious costs, though, even if these are often indirect, from worsening health to declining productivity.
Sanctions do have serious costs for the West, to be sure, but we are in a much better position to bear them. Much of the debate over whether they work is pretty sterile and distorted not just by the way their impact was seriously overplayed at the start, but also equally unrealistic demands from those who would want to see Russia wholly isolated. The fact of the matter is that the sanctions regime is doing all it realistically could—and that is a lot. The more the Kremlin’s propaganda sheets deride their effects of sanctions, the more it is likely that they fear they are working.