Sanctions against Russia. When does the economy end?

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Sanctions against Russia. When will the economy end?

Researchers say the Russian economy is suffering enormous damage from Western sanctions, despite Moscow downplaying their impact.

In response to the Russian invasion of Ukraine at the end of February 2022, the European Union imposed six packages of sanctions and agreed on a seventh against the Russian Federation. Sanctions did not include: gas, oil supplied through pipelines, food, grain and some types of fertilizers.

Half of the reserves of the Central Bank of Russia were frozen, Russian banks were disconnected from the international payment system SWIFT. The export of Western technology, aviation technology, electronics and luxury goods is prohibited. In addition to the EU, the United States, Canada, Japan, Switzerland and the United Kingdom also imposed sanctions against Russia. In its Sanctions Monitor, the Correctiv research network has counted 6,825 individual restrictive measures taken by the international community since the start of Russia's Russian war of aggression against Ukraine. Under EU sanctions, in particular, 1212 people fell, including Russian President Vladimir Putin himself, people from his inner circle, oligarchs and 108 firms and enterprises. There have never been so many sanctions against one country in history.

When and how will sanctions work?

In this regard, the main question is: how do these sanctions work and do they lead to a change in the aggressive course of the Kremlin? EU High Representative for Foreign Affairs and Security Policy Josep Borrell told DW on July 29 that the restrictions are hitting the Russian economy hard. “Russian economic production is shrinking by 10 percent. They will survive the worst recession since the end of World War II,” the politician is sure.

These words are confirmed, for example, by a study conducted by scientists from the American Yale University. The panel of experts, in particular, used consumer data and indicators of Russia's international trade and transport partners to measure economic activity in the country five months after the invasion of Ukraine.

The study says that Russian imports have largely collapsed since the start of the war, and that the country is facing major challenges in securing critical inputs, components and technology. “Russian domestic production has fallen into complete decline, unable to replace the lost enterprises, products and professionals who left the country,” the scientists stated.

As a result of the exit of nearly 1,000 global companies, Russia has lost businesses that account for almost 40 percent of its gross domestic product, according to the study. The Russian state budget has become deficit for the first time, and the Kremlin's finances are “in a much more difficult situation than is commonly believed,” the researchers note.

Meanwhile, according to the authors, Russian financial markets – taking into account future prospects – demonstrate the worst performance in the world, which limits the ability to attract new investments to revive the economy.

The results of a number of studies on the possible consequences of sanctions and their impact on Russia also suggest a sharp decline in the economic performance of the Russian Federation in 2022. The EU estimates the fall of the Russian economy at 10 percent, and researcher Maria Shagina from the International Institute for Strategic Studies (IISS) in Zurich suggests a decline of six percent, based on the latest estimates from the International Monetary Fund (IMF).

Biased statistics

The sanctions are, in fact, causing huge damage to the Russian economy, according to a Yale University study. To prove the opposite to their citizens, the Russian authorities resort to specially selected statistics. “Since the invasion of Ukraine, the Kremlin has increasingly rigged economic data, selectively discarding unfavorable indicators and releasing only those that are more favorable,” the Yale University study says. trustworthy but unscrupulous experts in making forecasts that are overly, unrealistically favorable to the Kremlin.”

“Russia continues to sell oil and gas at record prices, filling up its military budget, which it already had before the war. Therefore, we have a unique situation where it seems that Russia is not particularly affected by sanctions,” Maria Shagina told DW. “However, at the microeconomic level, things look very different, especially in the automotive and aviation industries. You can see declines of 80 to 90 percent there.” Russia must change its economic model because it no longer has access to Western financial sources and markets, says Shagina.

The Russian economy is suffering more than the Western

Julian Hinz of the Kiel Institute for World Economics firmly believes that the notion that the West is more affected by its own sanctions than Russia is wrong. The import substitution promoted in the Russian media is a very complex process, since the Russian industry is in great need of both Western raw materials and technologies, he told DW.

It is also difficult, the economist says, to find new buyers for oil and gas that is no longer supplied to Europe or the US: “To be honest, propaganda is wishful thinking because there are no pipelines, for example. There are several pipelines to China, but this, perhaps ten percent of the capacity that was used for export to Europe.” According to Hinz, the sanctions will have their full effect in the long run.

What's next for the Russian economy?

The authors of the Yale study said that Russia has no way out of the “economic abyss” provided that Western allies remain united on sanctions. “The defeatist headlines that the Russian economy is bouncing back are simply not true – the facts are that, by any measure, at any level, the Russian economy is stalling and now is not the time to stop,” the study says.

“The effects of the sanctions are just beginning to show: supply chain problems are intensifying and demand is falling rapidly. In the long term, the Russian economy will become more primitive as it partly separates from international trade,” the German Institute for International Affairs and Security said in a report .

Sanctions rarely lead to different policies

Whether economic sanctions will change the political will of an authoritarian regime in Russia remains an open question. The damage done to the economy is hardly impressive for Vladimir Putin, Alexander Lipman, head of the Free University of Berlin's Institute for Eastern European Studies, told Deutschlandfunk. “In any case, the sanctions won't change anything for weeks or months. You also have to be honest: in most cases, the sanctions did not affect the behavior of the states subjected to restrictions,” says Lipman.

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