On February 25th, 2022 the day after Russia invaded Ukraine, the EU announced a sweeping scheme of sanctions on the Russian state, including trade embargoes and financial restrictions, along with asset freezes and travel bans for powerful members of the Russian government. This marked the start of an unprecedented campaign by Western states including the US, Canada, and the UK along with the EU to stymie the Russian economy and, by extension, its war effort. The EU implemented its eleventh round of sanctions on Russia in June. The Atlantic Council estimates that close to 13,000 punitive measures have now been imposed. $350bn worth of Russia’s foreign currency reserves – more than half its total – has been frozen. The US and UK have ceased their imports of Russian oil and gas, and Russian coal no longer enters the EU. Most Russian banks have been denied access to SWIFT, the global payments system which facilitates foreign trade. And at least 15 superyachts belonging to Russian oligarchs have been seized.

The West hoped this barrage of sanctions would devastate the Russian economy, and in the early days of the war in Ukraine, it almost did. Inflation spiked and Russian citizens queued to withdraw cash from banks all over the country. Swift action by the Russian central bank – hiking interest rates to 20% and restricting the withdrawal of deposits – defused the crisis, but fears remained, and in March 2022 the Institute for International Finance forecast a 15% contraction in Russian GDP. The Russian economy defied this prognosis, however. It shrank by only 2.2% in 2022 according to the International Monetary Fund. This year, it is predicted to grow.

Why has the Russian economy withstood sanctions?

One reason why Russia’s economy has exhibited greater resilience than expected is the spike in global energy prices, which has propped up the value of Russian exports. Oil and gas prices skyrocketed following the invasion, in part due to Russian President Vladimir Putin’s decision to limit gas flows through the Nord Stream pipeline. This meant that although the volume of Russian gas and oil exports fell following the imposition of embargoes, the value of those exports remained relatively stable.

Perhaps the most important factor which limits the effectiveness of Western sanctions against Russia is that the rest of the world has not cooperated. While Western states have sought to decouple from Russia, others – most notably, China and India – have strengthened trade ties. According to energy consultancies Vortexa and Kpler, China imported 43 million barrels of Russian crude oil in March 2023, a new record. India now imports sixteen times more Russian oil than it did before the war, and total bilateral trade between the countries has doubled during the war. A further problem is that Russia is being enabled to circumvent sanctions by several of its neighbours. Kazakhstan, Georgia, and Armenia, among others, are suspected of acting as clearinghouses for illicit exports to Russia. Risk Consultancy Corisk estimates that the value of annual excess exports from the West to Kazakhstan alone stands at €3.7bn. Kazakhstani demand for raw materials used in the manufacture of military equipment exploded following the imposition of sanctions which prevented Russia from importing these products itself. Poor infrastructure makes it difficult to verify the final destination of these imports, but evidence from the battlefield suggests they are ending up in Russia.

A final reason why the Russian economy has not collapsed under the weight of sanctions is that war boosts productivity. The military-industrial complex in Russia has sustained a healthy level of output in the manufacturing sector, where a fall in the production of cars and electronics has been offset by a rise in the production of wartime goods like weaponry and medical equipment. Defence spending now accounts for more than a third of public expenditure in Russia, a $100bn boon to the economy.

Have the sanctions been successful?

Whether the Western regime of sanctions is judged a success or a failure depends on what its aim is understood to be. If the sanctions were supposed to trigger a collapse of the Russian economy and scupper the invasion of Ukraine, they have obviously failed. The Russian central bank evaded a crisis and the economy has proved adaptable in the short term. If the sanctions are judged instead by their long-term effects, however, they may ultimately be vindicated. As Europe explores other ways to meet its demand for energy, the price of Russian oil and gas will fall and its balance of payments will suffer. The boost to the economy from enormous defence spending is also bound to disappear eventually, revealing yawning gaps in Russia’s industrial output. Finally, trade embargoes will have a cumulative effect on Russian manufacturing, with the shortfall of spare parts becoming more and more problematic as capital depreciates and needs replacing. These long-term effects may combine to stunt the Russian economy for decades, limiting its ability to fund any military operations in the future. There is one more potential benefit of the sanctions: witnessing the extent of the economic troubles which the West has caused Russia may dissuade other states which harbour expansionist aspirations from invading their neighbours – especially those which lack the economic reserves and diplomatic cache of Russia.

In the meantime, if Western sanctions are to help swing the war in favour of Ukraine, they must be augmented. In particular, it is critical that the back-door routes for illicit exports into Russia through its neighbours be blocked off. If goods cannot be properly traced once they enter these territories, it may be necessary to impose trade restrictions on any state which does not pledge not to export sanctioned materials to Russia. This would be a drastic move, but the alternative is that the current regime of sanctions yields results only once it is too late for Ukraine to benefit from them.