Since February 2022, Western countries have introduced a very wide range of economic sanctions against Russia. The measures adopted have nevertheless been less severe than sanctions regimes previously imposed on Iran, North Korea and South Africa.

The architects of the Russia sanctions package adopted had high hopes. They believed they would cripple the economy and force the Kremlin to stop its war on Ukraine. Some sanctions have worked to obvious effect, while others are working but their effect is not visible in official statistics. There are also sanctions that initially worked but are no longer having impact, and others that never worked in the first place.

Sanctions measures (or practices that count as sanctions) so far implemented fit into five groups:

1. Limitations on financial operations (payments and access to capital)
2. Limitations on the exports of Russian goods
3. Limitations on imports of goods to Russia
4. Limitations on the import to Russia of technologies and equipment
5. Individual sanctions and sanctions against citizens (prohibitions on travel, use of the banking system, use of transportation)

Effects of Sanctions

The quickest effect came from financial measures. The freezing of Central Bank reserves, together with sanctions against the largest banks, and banning Russia’s access to Western financial markets had a very strong impact. Within ten days, the ruble lost 60% of its value against the dollar (falling from 74 rubles to the dollar to 120) and inflation reached ten percent per month. But the Central Bank introduced draconian currency control measures that quickly lowered the demand for foreign currency.

Within weeks, inflation was sharply down and the ruble strengthened significantly, reaching 50 rubles to the dollar. At the same time, sanctions were not applied to many medium-sized and small banks. As a result, they could continue processing payments in dollars and euros. Large banks were not restricted in processing payments for oil and gas. Russian banks and companies later shifted payments for a significant share of imports and exports to other currencies, limiting dollars and euros to 20% of the overall volume.

Efforts by the US to impose secondary sanctions on Chinese, Turkish, UAE and banks from CIS countries to limit payments for the import of restricted goods have been only partially successful. Russian banks have learned how to work with medium-sized and small partners that are not on the US radar.

Although the Russian economy is heavily dependent on raw materials exports (oil, gas, nickel, palladium, fertilizers etc), there was never a possibility of restricting these without triggering a spike in world prices and, in the case of oil, the risk of a global recession.

The imposition of a western price cap on Russian oil and efforts to reduce purchases of other Russian raw materials have not been effective. Russian oil producers simply re-oriented exports to other markets (China, India, Turkey) albeit with a discount that started at 25% and has narrowed to 8–10%.

As a result of sanctions, Russian GDP contracted by 16.3% annualized in Q2-2022. Retail sales fell 9.5% and sales of non-food goods were down 16% on the previous year. However, the Russian authorities turned the situation around in 18 months by doubling military expenditure. It reached 4.8% of GDP in 2023 and required sharply increasing the federal budget deficit. The investment in defense explains the overall growth of GDP (see below).

Restrictions on the export to Russia of western technologies and equipment have undoubtedly achieved results. An increasing number of major industrial projects have been stopped or delayed. These include Gazprom’s Baltic Sea chemical plant, several LNG projects as well as the production of icebreakers and other ships, a new passenger aircraft and the modernization of thermal power plants.

Some technological sanctions have had or will likely impact the regime’s ability to reproduce some modern or even mass-produced types of weaponry without loss of quality.

Individual sanctions and sanctions against citizens have not caused an outcry in the elites against Putin. Nor have they resulted in obvious tension in society. If anything, they have helped the Kremlin to consolidate part of the elite as well as society.

The four main factors restricting the effectiveness of western sanctions remain:

1. The absence of clear aims
2. Weak administration
3. Weak communications policy
4. The lack of support from China, India and other countries with major economies