Are economic sanctions against Russia proving ineffective?
Freddie Walker
Economic sanctions against Russia had the clear intention of inflicting a substantial cost for the invasion and ultimately dissuade Russia from its actions in invading Ukraine. Clearly, they have failed in this goal as the conflict enters its seventh month and Russia shows no signs of tempering its military goals. While the long-term damage to Russia is certainly significant, forecasts that the Russian economy will only shrink by 3.5% this year will certainly prove disappointing, with western countries themselves already falling into a recession (Robertson, 2022). Sanctions, and the war more generally, have severely contributed to the huge rise in energy prices, particularly natural gas in Europe. This has led to a test of resolve, pitting western voters and consumers, whom politicians need the support of to continue supplying Ukraine with weaponry and aid, against the Russian economy. Unfortunately, the signals are not encouraging, with a marked fall in Europe in support for Ukraine, mainly in response to the severe pain of rising food and energy prices. Therefore, we must question whether sanctions are achieving their initial goals, and whether they are the best route to provide support for Ukraine and defeat Russia. The Russian economy has certainly suffered severe damage due to western sanctions. This has mainly come in the form of consumer spending due to a multitude of western brands exiting the Russian economy. The most famous example has been McDonald’s, which ca me to the country as the Soviet Union collapsed. Western pressure was immediately reflected as the Russian rouble fell to record lows of 120 to the US dollar immediately following the Russian invasion. The central bank had to respond immediately by lifting interest rates from, 9.5% to 20%. Western countries blocked some Russian banks from the SWIFT payment system, which allows banks to send and receive money, and targeted the $600bn of reserves held by Russia’s central bank. Photos showing Russians queuing to withdraw money led many to believe that the sanctions were beginning to take effect. Analyst Jahangir Aziz said that the two pillars of the Russian economy the ‘fortress FX reserves of CBR and Russia’s current account surplus’ would be destroyed (Rojas, 2022). In reducing the imports of Russian coal and oil western countries aimed to stop the flow of money into Putin’s war chest. Many even predicted a ‘complete collapse’ in the currency, with those more cautious still going as far as expecting it to ‘weaken quite severely’. These fears have not been realized as Rus sia has found willing buyers for its energy in countries such as China and India. However, the long- term risks to Russia’s economy are high. It is estimated 50,000 -70,000 technology workers left the country in the first month after the beginning of the war (Gilchrist, 2022). This represents an existential threat to the Russian economy, as technological innovation is crucial for long- term economic growth. Additionally, with controls on imports, Russia will struggle to procure vital technological equipment in the long run. The immediate risks to Russia’s economy appear to have subsided, with Russia improvising on the loss of foreign brands, and finding new eager buyers of the coal and oil. McDonald’s serves as a perfect example, with Russia rebranding the stores as ‘Vkusno I T ochka’, meaning ‘Tasty and that’s it’ (Roth, 2022). This example is indicative of how Russia is working around sanctions and providing its citizens with alternatives to western brands. Meanwhile, the
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