In response to Russia’s aggression against Ukraine, the European Union provided weapons and ammunition to Kyiv and imposed numerous economic sanctions intended to cripple the Russian economy. It was predicted that inflation and a shortage of goods due to the sanctions would lead to severe economic depression in Russia.
However, despite the immediate impacts of the sanctions, such as a shortage of spare parts for Russian airlines, Russia’s economy has proven resilient.
According to projections from the International Monetary Fund, Russia’s GDP is expected to grow over 2.5% this year, outpacing the European Union’s growth and more than doubling the 1.1% growth seen in 2023.
As the war enters its third year, the Europeans have approved their third package of sanctions, which now includes measures to prevent Russia from using third countries to circumvent the sanctions. This move is based on the belief that such tactics have enabled the Kremlin to avoid a predicted economic collapse.
Russian President Vladimir Putin initially admitted problems in the economy, but now the country is resisting. Photo: AP
The keys
There are several reasons for Russia’s economic resilience. Notably, Russia has managed to continue exporting its gas and oil, particularly to China and India, which have increased their purchases of Russian hydrocarbons.
In an attempt to counteract this redirection of oil and gas that Europe had previously bought, the G7 agreed on a cap for the price of a barrel of Russian crude oil. Despite this, Russia has managed to bypass the restrictions by using ghost fleets of oil tankers and performing high seas transshipments to obscure the oil’s origin.
Despite the European ban on the export of semiconductors and other essential materials for Russia’s military industry, Russia has managed to maintain production by sourcing these materials from third countries.
While non-compliance with the sanctions regime can result in criminal penalties in the United States, in Europe, violations typically only result in minor fines.
Effects
The sanctions have had some effect, although not as large as originally anticipated. The European Commission estimates that Russian merchandise exports have dropped by 30% from 2022 and that the ruble has lost 43% of its value against the euro in the past year and a half.
Statistics from the European Union reveal that 58% of European exports to Russia and 61% of imports are prohibited, while Moscow’s income from gas exports has dropped by 24%.
Ironically, Russian military spending has served as a fiscal stimulus, but it could also herald a deeper economic decline. Russia spent over $30 billion in 2023 on war efforts, and if Europe succeeds in significantly reducing Russia’s oil export income, the economic damage could be substantial.