Why sanctions haven’t dissuaded Russia from war, and what measures can defeat its economy in 2023?

“We can and must kill their missile and drone industry with a massive sanctions strike! I call on the G7 and the EU to immediately impose the appropriate sanctions proposed by Ukraine,” Foreign Minister Dmytro Kuleba wrote on Twitter during the latest Russian massive missile attack on Ukraine.

The sanctions epic continues. Last year, the aggressor state became the record holder for the number of global sanctions imposed on it, ahead of Iran, North Korea, Syria, and Venezuela. Still, the measures could not destroy the Russian economy in 2022.

Tactics of a thousand cuts

It is difficult to answer the question of how successful the West’s joint sanctions efforts have been. If efficiency is determined only by quantitative indicators, then – very successful. If by any other criterion, not so much.

The first economic measures to end Russia’s war against Ukraine were introduced in 2014. At the same time, the sanctions coalition began to form, which today consists of more than 40 states. The lion’s share of restrictions introduced from 2014 to 2022 targeted Russian individuals and legal entities.

After Russia’s full-scale invasion, the main goal of sanctions is the economy of the aggressor state. In the spring of 2022, the Yermak-McFaul group became a kind of headquarters for economists. As the name implies, it was headed by the head of the Office of the President, Andriy Yermak, and Stanford University professor, US Ambassador to the Russian Federation in 2011-2014, Michael McFaul.

Yermak-McFaul Group is an umbrella uniting experts and research centers in different countries. MonTheE Institute (an analytical division of the Kyiv School of Economics) has monitored the situation on the sanctions front since April of last year; almost every day, there has been news about the next package of restrictions, the isolation of Russian financial institutions from the world banking systems, and the expansion of the sanctions list against individuals and legal entities

Yuriy Horodnichenko, a professor at the University of California in Berkeley and a member of the International Academic Council, named this approach the tactic of a thousand cuts.

About half of Russia’s gold and currency reserves were blocked – more than $300 billion. Russian oligarchs’ accounts were frozen: in the EU – for €19 billion, in the USA – for $30 billion (data from the KSE Institute here and on). During the year, Moscow was forced to sell oil at a discount of $30-35 per barrel, which led to a loss of $50 billion.

Numerous technological bans led to multi-day stoppages of entire industries (in particular, aviation and automotive). As a result of the sanctions, the Russian economy is almost deprived of the opportunity to attract foreign investments.

But unfortunately, this is the case when the quantity turns into something other than quality. It cannot be said that these blows had a critical impact on the leading macroeconomic indicators of Russia’s economy at the end of 2022.

The bear is bitten but alive

The deficit of the federal budget of the Russian Federation for 2022 was about $46 billion. Is it a lot or a little? In absolute numbers, it seems a lot, but relative to the GDP of Russia – a penny? Which are easily covered by a slight increase in the tax burden or a printing press: $46 billion is only 2% of GDP.

According to IMF estimates, the drop in Russia’s GDP in 2022 is about 3%. Similar imbalances in the Russian economy were last observed in 2020, during the covid crisis. And they were not too painful for the population.

Interestingly, at the beginning of March 2022, experts interviewed by the Central Bank of Russia expected an 8% drop in GDP at the end of the year. That is, the result for the Kremlin turned out to be better than the economic risks it laid at the beginning of the all-out war. It’s sad to acknowledge, but it’s reality.

There will be no hunger riots

Did the war affect Russian households at all? Despite significant fluctuations in the ruble in December, there was no collapse of the currency. According to the Federal State Statistics Service, the real incomes of Russian citizens fell by only 1.7% in the nine months of 2022. Can we believe this reported number? It’s not a fact.

After all, population consumption decreased much more: retail turnover fell by 10% compared to last year. According to Sergei Guriyev, a member of the Yermak-McFaul group, a Russian economist, and a professor at the Paris Institute of Political Studies, the last indicator is one of the indicators of economic health.

If we look at the data of Rosstat and Russian media, in the first days of the Russia-Ukraine war, the population of the aggressor country withdrew foreign cash (dollars) from banks and bought up products from food stores. Then Russians began to save on everything except vodka (growth in sales of strong alcohol – 6%). Russians became a little poorer, but there was no critical increase in poverty.

The population of Russia perfectly understands the relationship between their economic problems and the war. If they didn’t understand, they wouldn’t have rushed to withdraw currency on February 24. But this is not an extent that could cause protests. In the Soviet times, there were product shortages, but it did not prevent weapons production. It is similar nowadays in the Russian Federation.

The overall outcome could be better. Despite colossal efforts and certain tactical victories, the main goal of the sanctions coalition has yet to be achieved.

This, of course, is not a reason to claim that sanctions do not work at all. They work but need to be more efficient in the global market conditions; their consequences sometimes turn out paradoxical.

Three paradoxes of Russian economics

Paradox one: when road maps related to restrictions on Russian energy carriers began to appear, it led to panic in global markets. And, as a result, to a significant increase in oil and gas prices. KSE Institute experts state: that oil and gas prices jumped in the first months of the full-scale war, providing almost $350 billion in income for Moscow during the year.


However, excess profits are not eternal. In January 2023, the world price of Urals oil (a brand that is the basis of Russian exports) fell, and its price has recently been approaching the $40 mark. For comparison: in July last year, it was $90.

The second paradox: the exit of most international companies from the Russian market and the sanctions restrictions led to a significant reduction in imports to Russia. The resulting changes in the foreign trade balance paradoxically strengthened the ruble. To put it simply: Russian companies had nothing to spend their freely convertible currency on.

The third paradox: a slight drop in GDP – about 3%. The economy expert Sergei Guriyev is convinced that this macroeconomic indicator is not sufficiently informative during the war, as the aggressor state compensates for the decline in GDP thanks to military state orders.

The industry is increasing the production of, for example, shells. The cost of these “goods” is added to the total gross product. However, this has nothing to do with actual economic development and prosperity.

All defense expenditures in the Russian budget are classified. A member of the Yermak-McFaul group, former First Deputy Chairman of the Central Bank of Russia Sergei Aleksashenko believes that Russia’s military spending in 2022 will reach 5% of GDP*. This is the highest volume for the entire post-Soviet period.

The international sanctions still need to hit the macro indicators of the Russian economy. In particular, Russia’s partnership with Asian countries (China, India, Turkey) makes it impossible to form a global cartel of oil buyers.

The main problem is that Western states act slowly and often need more time to make decisions. The embargo and price restrictions on Russian crude oil were only implemented in December 2022. But even this restriction will not cause severe damage to the Russian Federation.

The main problem

Russia’s economy will degrade without the latest technologies, industrial imports, and a creative class. But there is a risk that this process will be so slow that it will not have severe consequences for the combat capability of the Russian army next year.

The planned budget deficit for 2023 is at 2% of GDP. Forecast inflation is 5.5%. GDP decrease – 2.5%. Collapse is not expected. However, there is an essential factor.

The GDP level in war conditions is just a formal indicator. As well as the file called “Federal Budget of Russia.” This is, instead, a kind of instruction for the Russian media on what to share with the masses to appease them. 

In September of last year, journalists from the Bloomberg news agency got hold of a report discussed at a closed meeting of the Russian government. The information was dedicated to the impact of international sanctions on the Russian economy. According to the document, Russia is approaching a long and deep recession.

It describes three scenarios of the development of the internal crisis. The basic scenario predicts a decrease in GDP by 8.3% compared to 2021, and the stressful scenario – is a fall of 11.9%. The impact of sanctions on various sectors of the economy is analyzed. The loss of 200,000 IT specialists is expected. The risks associated with the lack of imports in the agricultural sector, transport, the chine-building industry, etc., are described.

The economic bloc of the Russian government is not prone to self-deception. The aggressor state tries to act rationally: it looks for internal reserves and develops various strategies. This means only one thing for Ukraine and Western countries: the sanctions must be so strict that they exceed Moscow’s expectations.

And that’s the problem. We will remind you that at the beginning of the all-out Russia war, the Central Bank expected from the world community a sanctioned strike with a capacity of 8% of the Russian GDP. But instead of a real blow, the Kremlin received a light slap.

Black gold

The Russian military machine runs on oil and gas. According to the KSE Institute, the sale of these energy sources provides 40% of the federal budget. The role of black gold, which accounts for about 70% of the country’s exports, is vital. If you imagine that these minerals will suddenly disappear from the depths of Russia, then the state itself will also disappear. But let’s return to actual events.


Since December 5, EU countries (with some exceptions) and G7 have stopped buying Russian oil. All other players can purchase oil for no more than $60 per barrel. And the embargo and price restrictions on oil products should start on February 5, 2023.

But, first of all, “all other players” are primarily compelling Asian economies. Secondly, the West needs to ensure that the restriction mechanism will work perfectly.

Insurance companies are supposed to issue policies only to those tankers that transport oil purchased at the right price. However, forming a considerable shadow market cannot be ruled out.

Thirdly, the price ceiling of $60 per barrel is not critical for Russia. In November of last year, when the members of the sanctions coalition discussed the marginal cost, world prices for the Urals mixture, due to purely market reasons, had already collapsed to the mark of $53 per barrel.

Greece and Malta (owners of merchant fleets) generally insisted on a price ceiling of $65-70. At the same time, the cost of Russian oil, according to the KSE Institute, ranges between $10-15 per barrel. Therefore, the European friends of Ukraine were ready to secure the right to keep profits for the state sponsor of terrorism. And, in the end, they fixed it.

The Baltic states took the most constructive position insisting on a ceiling of $30-35. According to estimates by Forbes Ukraine, at such a price, the losses of the Russian budget could amount to more than 8% of GDP. This would be the first real economic blow to the aggressor state.

But the reality is different: the price ceiling for the Russian mixture is approved at $60 per barrel. When this decision was made, President Volodymyr Zelenskyy said in a video message at the international symposium “The European Idea”: “Limiting the prices of Russian oil is a bribe. It is more like an attempt to portray something than to do something.”

There is hope

After each massive Russian shelling of the civilian population, Ukrainian diplomacy insists on strengthening the existing sanctions against Moscow. Measures that seemed impossible yesterday (blocking of gold and currency reserves, disconnection of the leading Russian banks from the SWIFT payment system) are now a completed stage. The world needs to move on. Sooner or later, the price range for Russian oil will decrease.

Let’s recall that Moscow’s oil and gas revenues always caused a deep crisis in the “energy empire.” This was the case in 1986, 1998, 2008, 2014, and 2020. At the same time, now – when $300 billion of international reserves of Russia are blocked, and the balance has been reduced from the beginning war for another $70 billion – there will be almost no opportunities to support the economy in stagnation.”

The economic death of the Russian imperialist regime is nearing, but more efforts are needed. The global crisis is deepening, and Ukraine suffers from a cruel war. Since Russia doesn’t leave its idea to capture and keep Ukrainian territories, heavy weapons supply and severe sanctions pressure (such as lowering the price ceiling of Russian oil to $30) are the only way to stop it.

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