“The United States and its allies imposed unprecedented economic sanctions on Russia in the wake of its full-scale invasion of Ukraine. The swiftness and intensity of the penalties crashed the ruble, forced the Russian stock market to close, and sent Russians to line up at ATMs to withdraw dollars from their bank accounts.
The Russian economy was in free fall. Until it wasn’t, exactly.
The country’s central bank responded by sharply hiking interest rates to 20 percent and imposing strict capital controls. Those interventions, along with Russia’s still-intact ability to sell its oil and gas abroad, helped create a buffer against the economic chaosafter the initial sanctions shock. The measures were “straight out of the country’s economic crisis playbook,” said Adam Smith, a partner at Gibson, Dunn & Crutcher, who worked on sanctions during the Obama administration.
The economic crisis playbook did its job, and calmed the immediate crisis. The ruble stabilized. That allowed Russia to declare victory over the sanctions onslaught. “The strategy of the economic blitz has failed,” Russian President Vladimir Putin said in April.
At least, that is what Russia would like to claim. Russia’s efforts to shore up its currency mask the profound economic disruptions and transformations that sanctions are unleashing within Russia right now. The West’s sanctions are isolating Russia, cutting it off from key imports that it needs for commercial goods and its ownmanufacturing to make its economy work. That means high-tech imports like microchips, to develop advanced weaponry. Butit also means buttons for shirts.
Right now, there is “this false sense of stability,” said Maria Shagina, a visiting fellow at the Finnish Institute of International Affairs.
Russia is facing a deep recession, one the Bank of Russia says will be “of a transformational, structural nature.” The Finance Ministry has predicted the Russian GDP will shrink by about 8.8 percent in 2022. Inflation is expected to clock in as high as 23 percent this year. Russia is looking at a looming debt default. All of this will mean hardship for ordinary Russians, who are already seeing their real incomes shrink. Some tens of thousands have tried to flee, especially those in tech, prompting a potential “brain drain.” And these are the things we know; Russia will cease publishing a lot of economic data, a tactic, experts said, Moscow has used before to obscure the effects of sanctions.
These sanctions, said Yakov Feygin, a political economy expert at the Berggruen Institute, are pushing Russia — a modern economy, integrated around the globe — back decades and decades.
“They’ve stabilized it, they’ve taken emergency measures. That was to be expected. But that’s not going to help them in the long run,” Feygin said of Russia. “You’re not going to see people queuing for food for quite a bit. But with the current course of things, it’s still very possible.”
The US and European allies have continued to pile on more penalties, refining and sharpening the sanctions, all in an effort to ratchet up the pressure on Moscow. The EU has proposed a phase-out of Russian oil products,and depending on the final details, that might further erode the Kremlin’s lifeline. And the US could take additional steps, like threatening secondary sanctions that go after countries like China or India, to deter them from buying cheap Russian energy. That comes at a cost, and not just for Russia.
Even without more escalation, the sanctions regime against Russia is one of the most aggressive in history, untested on an economy of Russia’s size and as entangled in the global financial system.
Whether the sanctions are “working,” then, depends on what they are intended to achieve. One thing is clear:Over time, these sanctions will likely make it harder for Russia to rebuild its tanks, manufacture cruise missiles, and finance a war. It will also make it harder to produce food and make cars. And it still may not stop Russia from pursuing its campaign against Ukraine, all with unpredictable consequences for the rest of the world.”