By Thomas Hodgson

Since Russia’s invasion of Ukraine in February, the United States has banned Russia from making debt payments using foreign currency held in American banks, excluded Russian oil from its economy, and has targeted innumerable companies as well as individuals for their provision of political and economic support to the Russian Federation. The European Union has, from December, pledged to ban imports of Russian oil arriving by sea, entirely banned transactions with the Russian Central Bank, and has disqualified Russia from the use of the financial messaging service SWIFT. As such, this represents a coordinated effort on behalf of the western powers to restrict Russia’s financial capacity to wage war in Ukraine.

Prior to addressing the efficacy of these efforts, it is pertinent to outline the aims and objectives of sanctioning the Russian economy, as given by the sanctioning governments:

1. To impose severe consequences on Russia for its actions.
2. To thwart Russian abilities to continue their aggression.
3. To restrict Russian industry’s ability to acquire key goods.

Dealing with each in turn, it is possible to make judgements as to whether current efforts to curtail the Russian war machine are ‘working.’

Focussing on the first of these aims – the imposition of very loosely defined “severe consequences on Russia” – I believe it would be appropriate to qualify this in terms of sanctions impact upon the daily lives of normal, everyday Russians. Demonstrably, access to western-owned branded commodities has become next to impossible in the Russian Federation, McDonald’s, Coca-Cola, Starbucks, Heineken, and Apple are 5 in over 1000 firms to have ceased trading in light of the conflict. White goods, such as cookers and fridges, as well as medicines, have simultaneously seen sharp upticks in price, with there being anecdotal evidence of shopkeepers altering pricing every few hours in accordance with the forex situation. Payment services such as Mastercard and Visa have withheld their use in the Russian Federation. In view of this, it remains difficult to make value judgements as to whether sanctions in this instance are ‘working.’ One relies on anecdotal evidence again: some accounts refer to mass unemployment, while much scholarship suggests a sense of Russian blitz spirit in rallying around the leadership amidst perceived western “intrigue against Russia”.

More concretely, the notion that western sanctions have reduced Russia’s capability to continue to wage war is one I find ridiculous. While unquestionably underperforming in the Ukraine, spending on the Russian military is currently projected to increase to $77.7 billion as of September, with projections for 2023 speculating a rise to $82.6 billion. Moreover, the basic arithmetic of Russia’s 5977 strong arsenal of nuclear warheads somewhat undercuts policymakers’ efforts to reduce military capacity.

And to address the third aim cited by the European Union – the restriction of Russian industrial capacity: statistically, as of July, the Russian Federation recorded a nearly negligible year-on-year 0.5% shrinkage in industrial output. Breaking this data down further, extraction of raw materials increased by 0.9%, ‘manufacturing’ decreased by 1.1%, and production of energy declined by 0.5%.  While on a level, this points to the conclusion that Russian industry has been broadly unaffected by sanctions, this would be dishonest, with myriad examples of critical supply chain issues being documented by national intelligence agencies. For example, British reports have attested to the Russian front lacking basic essentials such as food and fuel. American intelligence suggests that there have been instances of soldiers falling victim to frostbite on account of their inadequate clothing. Alongside this, social media has brought to light evidence of Russian looting, from which one can draw their own conclusions as to its cause. I remain sceptical, however, about as to whether this can be attributed to the success of western sanctions, or merely evidence of further systemic deficiencies within the Russian military-industrial complex.

It is interesting to consider the reasons for Russia’s perceived economic overperformance in this war considering such sustained efforts to cripple their economy. On the one hand, Russia, among other outsider states such as China and Iran, have made concerted efforts to reduce their dependency on the dollar. In Russia’s case, an alternative internal payment system to replace SWIFT has been developed – SPFS. Likewise, pre-COVID, Russia’s central bank was the largest purchaser of gold internationally, diversifying its holdings away from the sway of the dollar. In April 2018 alone, Russia dumped nearly half of its US treasury debt. As such, Russia has entered a hot war in Ukraine with nearly a decade of preparation. While western commentators suggest that sanctions have reduced Russian commodity leverage over Europe, and that chipping away will simply take time, I remain definitively sceptical.

In conclusion, the results of efforts to sanction the Russian Federation are a decidedly mixed bag. While its GDP fell by 7% in the second quarter of 2022, and inflation hit double digits by March, it would be dishonest to fail to mention the remarkable economic resilience of the Rouble amidst such adversity, as it rebounded from 30% depreciation in March to become the year’s best performing currency. Likewise, the current Russian account surplus sits at $167 billion dollars; triple on a year previous. In terms of putting a stranglehold on Russia’s ability to wage war, however, one can draw a certain summary: sanctions have so far failed to end the war in Ukraine and have so far failed to topple the Putin regime. While the impact of short-term disruption has fallen rather short of the mark, perhaps it is too early to draw resolute conclusions, with strain predicted to intensify in 2023 and beyond.

Image Source: Wikimedia Commons