Russia invaded Ukraine in February 2022. This made many countries very angry at Russia. Those countries put strong penalties on Russia. These penalties are called sanctions.
The sanctions froze Russia’s money in other countries. They cut off Russia’s economy from the global money system. The sanctions also targeted Russia’s energy exports like oil and gas.
Western officials said these sanctions would deeply hurt Russia’s economy. They used words like “crippling” and “unprecedented” to describe the sanctions. This made it seem like Russia’s economy would not survive the sanctions.
Many thought the sanctions would make Russia’s economy collapse. The belief was that Russia would then be forced to stop the war and bring its troops home.
But 27 months later, the war in Ukraine is still going on. Russia’s economy is actually growing instead of collapsing. The International Monetary Fund predicts Russia’s economy will grow by 3.2% this year. This growth is higher than in developed Western countries.
The “crippling” sanctions have not caused shortages in Russian stores. Supermarket shelves are stocked with goods. However, prices are rising which is a problem. And some Western companies did leave the Russian market to protest the invasion of Ukraine.
Even though some Western companies left Russia, many of their products are still available there. They come through different routes. You can still find American soda in Russian stores if you look for it.
Top business leaders from Europe and America no longer go to Russia’s big economic event in St. Petersburg. But the organizers say people from over 130 countries and territories are attending this year.
Instead of collapsing from Western sanctions, Russia’s economy is finding new markets in Asian and African/South American countries. Russia is trading more with nations in the East and Global South now.
This allows Russian officials to boast that attempts to isolate Russia politically and economically have failed.
Yevgeny Nadorshin is a senior economist. He says “It seems the Russian economy adjusted to the very unfavorable external conditions. Without doubt, sanctions broke many things in how the economy operates. But a lot has been restored. Russia is adapting.
Workaround
Does this mean the sanctions failed?
Elina Ribakova is an expert. She says “The big issue was misunderstanding what sanctions can and cannot do.”
She says “Sanctions cannot make Russia disappear instantly. Sanctions can temporarily disrupt a country until it finds ways around them.”
“Russia has now found workarounds. It found alternative ways to ship goods and sell oil.”
Moscow has redirected its oil exports from Europe to China and India.
In December 2022, the G7 and EU tried to limit how much money Russia makes from oil exports. They set a price cap of $60 per barrel of oil. But Western experts admit Russia has easily gotten around this price cap.
This shows a dilemma for the US and partners. They recognize Russia is a major energy supplier. So they want to keep Russian oil flowing to avoid higher energy prices. But this means Moscow still makes money.
Elina Ribakova says “In a way, we refused to properly sanction Russian oil. The price cap tries to have it both ways – allow Russian oil but reduce their revenues. When these goals conflict, allowing oil sales wins out. This lets Russia raise a lot of money to continue the war.”
Russia has become China’s biggest oil supplier. But China is very important to Russia beyond oil. China has become a lifeline for Russia’s economy. Trade between the two countries reached a record $240 billion last year.
Just walk around St Petersburg or Moscow. You can easily see how important China has become for sanctions-hit Russia. Electronics stores are full of Chinese tablets, gadgets and phones. Chinese car dealers now dominate the local car market.
The Russian auto industry is not idle either. At a recent business expo, Russia’s Prime Minister saw a new version of the classic Russian Volga car. But this new Volga is actually based on a Chinese car model made by Changan.
At the expo, the Prime Minister asked “Where was this steering wheel made? Is it Chinese?” He seemed irritated that there were not more Russian parts.
He said “We want the wheel to be Russian.”
However, it is not the auto industry driving Russia’s economic growth.
Military spending is causing the growth.
Since Russia invaded Ukraine, weapons factories have been working non-stop. More and more Russians now work in the defense sector.
This has increased wages in the military-industrial complex.
But spending a lot on the military means less money for other things.
Chris Weafer is an expert. He says “Longer term, you are destroying the economy. No money is going into future development.”
He says in 2020, there were plans to spend $400 billion improving Russia’s infrastructure, transportation and communications. Instead, “almost all that money has been used to fund the military and support the economy.”
After more than two years of war, Russia’s economy has adapted to the pressures of war and sanctions. But the US is now threatening penalties on foreign banks helping Russia. This is creating new problems for Russia.
Chris Weafer says “Products have slowed coming into Russia. Spare parts are harder to get. Every day, banks in China, Turkey and UAE refuse to do transactions with Russia – both sending money to Russia for oil, or receiving Russian money to buy goods. Unless this is resolved, Russia will have a financial crisis by autumn.”
So it would be wrong to say Russia has beaten sanctions. Until now it has found ways around them and reduced the threat.
But the pressure on Russia’s economy from sanctions still exists.