On April 6, the United States, the European Union and the G7 agreed to implement measures aimed at “increasing the economic consequences of Putin’s regime from the invasion of Ukraine.”
On April 8, the EU Council imposed two packages of sanctions in response to the Russian Federation’s military aggression – economic sanctions and restrictive measures against 217 individuals and 18 legal entities, and the United Kingdom joined the personal sanctions.
Also on April 8, new sanctions were imposed on Russia and Belarus by the United States.
At the same time, the public discourse continues to periodically feature theses about the ineffectiveness of the “sanctions” imposed on Russia itself.
Rejecting frankly Russian propaganda materials, we will try to assess whether the measures taken by Ukraine’s partners to influence Russia in the economic dimension are achieving their goals.
Can sanctions stop the war?
In order to assess the effectiveness of sanctions and their adequacy to stop Russia’s war, it is necessary to determine their purpose.
The position of the EU representatives – sanctions should “increase pressure on the Russian government and its economy, as well as limit the Kremlin’s resources to resort to aggression.” That is, to create conditions that would prevent Russia from continuing the war against Ukraine.
In turn, during a briefing on April 4, Jake Sullivan outlined for the first time the US sanctions strategy:
“Sanctions have no immediate effect, they will act over time to reduce economic power, hit the major industry, Russia’s sources of income, fueling the war and kleptocracy. Sanctions are not the only measure, but an important element. ”
Thus, Ukraine’s partners agree that the strategy of sanctions policy is to create conditions under which the available economic resources will not allow Russia to resort to military action.
What does this mean in practice?
First of all, sanctions should affect Russia’s capabilities:
- produce or buy spare parts, and structural elements for the manufacture/renewal of weapons;
- produce or purchase structural elements for the production and processing of fuel;
- provide logistics, including the purchase and/or production of logistics equipment;
- quickly treat the wounded;
- to provide food needs for warfare (from growing to supplying food);
- to provide socio-economic living conditions necessary to support the government’s course to solve problems by military means.
It should be borne in mind that Russia was systematically preparing for a full-scale war with Ukraine, so it has a certain margin of military and technical resources to continue it. Only our military directly on the battlefield can directly reduce this resource. Sanctions, as we see above, are aimed at reducing Russia’s ability to continue the war – by preventing the aggressor from quickly regaining lost military and financial resources, as well as creating an unfavourable socio-economic background for further aggression in Russia itself.
This impact is realized through a combination of targeted and comprehensive measures.
Targeted measures are aimed at achieving a rapid effect of impact on specific actors that ensure the continuation of hostilities. Such measures concern personal restrictions for decision-makers on access to financial and economic resources (accounts abroad, corporate rights, etc.), as well as depriving Russian defence companies of producing new and repairing existing weapons, especially high-tech weapons).
As a result of such targeted measures, more than 20 enterprises of the Russian military-industrial complex have already completely or partially suspended their activities. In particular, the only tank manufacturer Uralvagonzavod stopped working, the production of air missiles at the Vimpel plant stopped, and the capacity for further production of Caliber and Tornado missiles was critically limited due to a lack of French and German components.
Comprehensive measures are aimed at demonstrating to the Russian people the cost of supporting the government’s aggressive policy. Prices to be paid by every citizen of Russia: in the form of loss of access to certain Western products and services, restrictions on travel, increasing the average check for expenses in the store, complicating the situation in the labour market, and finally – deteriorating living standards. Deterioration is the price for Russia’s military aggression against Ukraine.
Complex measures manifest themselves over time. They cannot quickly deprive Russia of a “physical” opportunity to wage war against Ukraine, such as restrictions on the military-industrial complex, but they are aimed at changing the strategic horizon for Russia – development trends that will force Russia’s leadership to adjust its actions in the economy in the medium term.
Concentrated action in time
Trade sanctions have a two-pronged effect on both the sanctioned country and the country that implements them. The increase in prices and the cost of living is already being felt not only by Russians but also by citizens of Ukraine’s partner countries. This creates internal political constraints for the leaders of some countries, whose societies are still in the process of realizing the fact of war against them, and not only Ukraine.
“Our special military operation is designed to put an end to the reckless expansion and reckless course of full domination of the United States and other Western countries in the international arena,” Russian Foreign Minister Sergei Lavrov said on April 11.
The gradual introduction of comprehensive sanctions against Russia is determined not only by electoral factors (France – the second round of presidential elections on April 24; the United States – elections to the House of Representatives on November 8) but also by strategy.
Each new package of sanctions is based on an assessment of the reaction of the Russian leadership to previous and responded anti-crisis measures.
The gradual increase in the sanctions burden is taking place in such a way as to ensure the most effective and targeted reduction in the resilience of the Russian Federation.
Thus, on the eve of the introduction of another package of sanctions by our partners, Dmitry Peskov in an interview with British TV Sky News on April 7 sceptically said that the sanctions against Russia did not become an “existential threat” because Russia began preparing for them a year ago.
But the next day, April 8, immediately after the new sanctions were imposed, Dmitry Medvedev said the opposite – that the sanctions could be seen as an act of international aggression aimed at undermining Russia’s economic security and state sovereignty and pose a real threat to it.
For the first time since the start of the war against Ukraine, the Russian side has assessed the impact of sanctions.
In our opinion, this is due to the first manifestations of their impact on the socio-economic situation in Russia.
On September 11, 2022, Russia will hold a “single voting day” – elections of 14 heads of the federation, voting in the parliament of the federation, elections in 6 parliaments of the federation, elections in 11 administrative centres of the federation and local elections in Moscow. Further strengthening of sanctions policy and the deployment of sanctions by then could significantly shake the government’s position.
Chairman of the Accounting Chamber O. Kudrin at a meeting of the budget committee of the Federation Council on April 12 said that the official forecast in 2022, Russia’s GDP decline will be more than 10% . The day before, the World Bank released a report predicting a drop in Russia’s GDP to 11.2%.
According to Rosstat , the increase in prices in March 2022 was 9.95% . According to Rosstat and price comparison services, the largest increase was in: pasta – by 9-20%, oatmeal – by 9-23%, buckwheat – by 15-55%, rice – 16-52%, meat – by 5-7%, eggs – by 7-20%, sunflower oil – 10-13%, sugar – by 65%, cabbage – by 65%, onions – by 53%.
In March, new cars rose by an average of 40%, premium cars – by up to 60%, and Russian-made Lada cars rose by 28%. However, more importantly, even KAMAZ, which is involved in the production of weapons, is also heavily dependent on imported spare parts.
Pharmaceutical products due to logistical problems and shortage of packaging materials have risen by 25-50%, and for some items – up to 77%.
Since the beginning of Russia’s military aggression against Ukraine, prices for durable goods have risen: TV by 32%, household appliances by 30%, smartphones by 19%, and resorts in Turkey by 72%.
Sberbank and VEB forecast inflation at 27.5-29.7% this year. The Central Bank reports that inflation expectations have risen sharply: citizens expect inflation at 18.3% (the highest level in 11 years), and entrepreneurs expect 41.9% inflation in the next 3 months (the highest in the history of observations since 2000).
The ruble exchange rate today is an indicator of trade parity, which allows meeting military needs through a favourable exchange of goods and products. In fact, the ruble has ceased to be a freely convertible currency in Russia, making its real value unpredictable. Thus, Russia can no longer increase its military potential at the expense of foreign products in a predictable and favourable manner.
Significant public debt significantly affects the state’s ability to adapt to new circumstances. That is why the share of public debt, including foreign debt, significantly affects the military potential of the state. Expenditures from the National Welfare Fund according to the draft law as of April 1, 2022, are similar to the crisis of 2008-2009.
According to Kommersant, Russian Railways, which also provides arms logistics, has defaulted on some obligations. On April 11, D. Peskov made a technical default with reference to the Russian government.
Equally important is the state of affairs in Russia in the field of employment, as it is one of the most important indicators of the country’s defence capability, according to Global Firepower, in the ranking of which Russia ranked second. by army capacity. Thus, real wages will fall by 28.4% in 2022 (Sberbank). Unemployment is projected to rise to 10% in 2022 (up to 4.3 million additional unemployed). The ratio of unemployed to vacancies continues to grow: from 3.9 (February 14-20) to 5.6 (March 21-27) according to the portal HH.ru. While Russians are looking for additional work, 66% of Russians plan to find additional part-time work according to the Avito portal. Every 5th Russian company is forced to lay off employees or send them on administrative leave – the survey “Share Accounting”. Russian industry has also significantly reduced hiring plans – the corresponding figure has fallen to the lowest levels of the crises of 1998 and 2008-2009.
(according to the Gaidar Institute for Economic Policy). The “brain drain” in the IT sector is estimated at 200-300 thousand people since the beginning of the war.
Socio-economic tensions are also deteriorating. Thus, according to the FOM poll as of March 30, more than 30% of respondents believe that the sanctions were greater than expected, and more than half of Russians believe that the sanctions will affect their financial situation. About a third (29%) of Russians say that sanctions have already created problems for them personally and their families and more than 65% believe that the sanctions apply to the general population (according to the Levada Center as of April 1).
Another important indicator of Russia’s defence capabilities is oil production and consumption. As a producer of petroleum products, Russia’s economy and defence capabilities depend heavily on oil prices. So, for the last seven days, the discount for the sale of Russian oil has reached a new historical discount of $ 34.8. According to Deputy Prime Minister O. Novak, oil production at the end of April may fall by 4-5% compared to March. As a result, oil cannot be sold and consumption capacity is insufficient in the domestic market, indicating problems in the industry.
Aluminium production can also be considered a dual-use area. After all, aluminium is used in both civil aviation and missile production. UC Rusal lost the alumina supply chain from Ukraine and Australia, which has already led to losses and delays in the production of aluminium and derived products.
One of the important elements of modern wars is cyber defence. According to the TADVISER survey as of March 29, the Russian IT industry does not have the technical resources or the appropriate software solutions to ensure the functioning of the already established cybersecurity system and the development of new software. According to Russian experts, it will take at least 4-5 years to build the appropriate solutions. And given technological progress, Russia’s backlog may be even greater.
Thus, with each subsequent package limiting the impact of sanctions on Russia’s ability to wage war against Ukraine, it becomes more pronounced. Yes, they do not have a quick effect, but even in a month and a half of war, we see the extent to which Russia’s capabilities and capabilities to strengthen its military capabilities are being curtailed – and the economic achievements of recent decades are being levelled off.
Expert for the Institute of Information Security for “Ukrainian line”