They are working? :npr

Last year, the United States and many of its allies imposed a massive level of sanctions on Russia for its invasion of Ukraine.

Prominent Russians, including oligarchs and officials close to Russian President Vladimir Putin, as well as the country’s banking, energy and manufacturing sectors and access to world trade. everyone has been targeted.

However, despite the sanctions, considered without precedents in terms of range, speed, and coordination, Russia’s economy is still functioning and the Kremlin is still waging war against Ukraine. That has led to questions about whether the sanctions are effective. Although they may not have forged the type of economy turmoil in Russia initially predictedAnalysts say these measures are causing damage and could have a more profound impact in the future.

“The short answer is yes”: sanctions are effective, says Edward Fishman, who led the State Department’s sanctions policy after Russia invaded Crimea in 2014. But he says it depends on what Western nations are aiming for with the measures. .

“They’re not trying to get a psychological change in Putin. They’re not trying to make Putin, you know, wake up in the morning and decide that Ukraine wasn’t worth…the effort,” he says. “What they are really trying to do is create wear and tear on Russia’s military-industrial complex and its economy in general.”

cut off russian banks

The United States, Canada and European countries affected Russia hit hard with financial sanctions shortly after its invasion of Ukraine in late February. Several of Russia’s largest banks have been cut off from the SWIFT system, a messaging service that connects financial institutions around the world. Several banks were later subject to total blocking sanctions.

“I think that in my time, the idea of ​​imposing blocking sanctions on Sberbank, which is by far the largest bank in Russia, was unthinkable, let alone sanctions on the Central Bank of Russia,” says Fishman, now a scholar in Columbia University Center for Global Energy Policy. He believes the moves likely surprised Putin.

Sanctioning the Central Bank of Russia froze almost half of its over $630 billion in foreign exchange reserves. Economists thought that Russia’s economy would turn into a pancake.

Moscow erected a financial fortress

But Elina Ribakova, an economist at the Institute of International Finance (IIF) in Washington, says the central bank has spent years implementing policies to defend its financial system from this type of scenario. She says Russia has used excess energy revenue to build a “special piggy bank.”

The strategy, which analysts dubbed “Russia Fortress,” was aimed at making the Russian economy sanctions-proof, but few economists thought it would work.

“This Fortress Russia strategy, which was talked about and laughed at by some people at the start of the 2022 sanctions, proved to be at least partially effective,” he says. “We were expecting a much deeper contraction, myself included.”

Ribakova says the preparation, along with a skillful response from central bank officials, helped control the immediate financial crisis brought on by the sanctions, allowing Russia to retain more than $250 billion in foreign exchange reserves.

Still, the International Monetary Fund estimates Russia’s economy will contract 3.4% this year, instead of growing as much in 2022 as was expected before the war.

Maria Demertzis, a senior fellow at Bruegel, a Brussels-based economic think tank, says there would probably be a bigger drop if it weren’t for oil and natural gas sales, which account for about half of the government’s budget.

“Given also the incredible increase in both gas prices, particularly gas, and oil, the revenue that has flowed into the Russian authorities and into the Russian treasury has been exorbitant,” he says. “And that, of course, allowed the Russian economy to keep going.”

But the outlook for Russia’s oil and gas revenues could change soon. In September, Putin cut off most of the natural gas it flows to Europe, Russia’s biggest customer. And there is a new European Union ban on most Russian oil importsas well as a price ceiling for Russian oil.

Oil imports to China, India and Turkey help offset some of the impending loss, but they are paying reduced prices for Russian oil.

Russia is looking at corporate flights

Meanwhile, the Russians are seeing their modern economy suffer tangible setbacks. According to a review, more than 1,000 international companies have halted operations or withdrawn entirely from Russia. by the Yale School of Management. Fleeing companies take capital investments, technology and expertise with them.

Imports of Western-made components have declined, which is having an impact on manufacturing, in particular. Columbia’s Fishman says the country’s major rail and auto manufacturing sectors have seen output cut in half, also leaving Russian consumers with lower-quality products.

“Moscow has had to relax the rules to allow domestic cars to be built without airbags and anti-lock brakes because they can’t get these components domestically,” he says. “They used to buy them in Europe and the United States, and they can’t do that anymore.”

Russia is also struggling to get semiconductors, which according to IIF’s Ribakova are critical to many industries, from agriculture to aviation. “Even in the military, Russia is dependent on foreign-produced chips, for example, and other types of technology,” she says. “You need that to continue fighting the war.”

Russia is trying to establish alternative supply routes from places like China, Turkey and Kazakhstan, but they can’t replace high-tech imports like semiconductors.

Bruegel’s Demertzis says all sanctions will be a drag on Russia. She says the economy is in terrible shape, but Russia will survive.

“They’re not going to be wiped off the world map,” she says. “But it’s going to be a much, much poorer country” in the future.