Have Economic Sanctions Against Russia Been Effective?

As the war in Ukraine enters its second year, a Tufts economist explains how Russia has coped with sanctions so far and what toll they could take over time

This week, news reports said that the U.S. and its allies will be imposing new economic sanctions on Russia, focusing on Russian individuals and entities, and closing loopholes in previously announced sanctions, as the war in Ukraine enters its second year.

Earlier sanctions imposed after Russian invaded Ukraine in February 2022 sought to limit Russia’s access to international finance, curb and control pricing for its oil exports, limit technology sold to it, and more.

To learn more about sanctions, and how they might be affecting Russia and its ability to wage war on Ukraine, Tufts Now spoke with Federico Esposito, an assistant professor of economics at Tufts whose research focuses on international trade and finance.

Tufts Now: Do economic sanctions typically work?

Federico Esposito: It’s helpful to think about the objective of sanctions. Typically it is to deter a country from doing something, or force a change in its behavior, using economic punishments. It’s easy to see if they work: the target of sanctions changes its behavior or doesn’t.

Historically, I think that economic sanctions have often worked. In the 1920s, threats of sanctions by the League of Nations against Yugoslavia, which was trying to seize land from Albania, were effective. The most famous case was the apartheid regime in South Africa, in which sanctions had a big role in achieving change. More recently, the sanctions that the U.S. imposed on Iran led it to the negotiation table with the Obama administration.

In the case of Russia, it’s been almost a year since sanctions started. Many people think that the sanctions didn’t have the desired effect, because the war is still going on. But that doesn’t mean the sanctions did not affect the Russian economy.

How has Russia worked to evade the sanctions imposed on it?

There is evidence that the Russian government has been planning this military intervention for many years; remember that Crimea was invaded in 2014. During all these years, the Russian government amassed a huge amount of reserves in foreign currencies, preparing to face economic sanctions.

Federico Esposito

“A war is always costly, so the sovereign debt—money owed by the government—in Russia will keep increasing. It’s not clear whether this is sustainable or not,” says Federico Esposito.

Russia was also transforming its economy. Ten years ago, it was importing a large fraction of goods from abroad. But right before the start of the war last year, Russia was almost self-sufficient. This is called import substitution—a gradual substitution of imported goods with domestically produced goods.

Russia was also decoupling from the U.S. and Europe economically, while receiving foreign investments from China and India, countries that Russia knew were not going to impose sanctions. Russia has also been importing more from Turkey, which is a close ally.

That’s how Russia gets around the sanctions—it had been working for years to lessen the impact of any Western sanctions.

Are the sanctions imposed by the U.S and its allies making Russia pay some sort of a price economically?

The economic burden of the sanctions has been growing, though the overall economic impact is probably lower than expected. The U.S. and Europe were expecting the Russian economy to collapse, but this hasn’t happened. There was an economic contraction, but it was relatively modest to what you would expect.

Now, that’s at least on the surface. But an interesting fact is that unemployment in Russia is pretty low, which is unexpected. You would expect unemployment to increase with the decline in production, based on the loss of business with the West. What happened, if you look at the figures, is that Russian workers have not been laid off—they were put on unpaid leave. So unemployment numbers looks good, but they really aren’t.

How much can we believe the economic statistics put out by the Russian government?

The unemployment numbers are probably just one of many tricks that the Russian government is using to lie about the economic conditions.

Another metric in international economics is the exchange rate. The exchange rate of the ruble with dollar collapsed right after the war began, but it has actually strengthened since then. But if you look below the surface, there’s an explanation: the exchange rate for the ruble is strong because of restrictions that the Russian government has put on Russian individuals to withdraw money and convert it to foreign currency, as well as the fact that there was such a strong decline in imports.

How well do you think these sanctions have worked?

They have certainly imposed a huge toll on the Russian economy. At the same time, Russia is strengthening its economic relationships with other countries like China and India. It’s not clear how much those countries will keep helping Russia, because at the end of the day, China and India are keeping their trading relationships with Russia because they are getting cheap oil, gas, and coal from Russia.

Russia has put a huge amount of money into the war effort. How does that affect its economy?

If you spend a lot of public money on the military, that certainly increases your GDP. Maybe this is one of the reasons why the GDP of Russia didn’t fall much, because it has been spending a lot of money on the military.

In the short term, that has a positive impact on GDP, but in the long run, it may be a very dangerous strategy.

A war is always costly, so the sovereign debt—money owed by the government—in Russia will keep increasing. It’s not clear whether this is sustainable or not. My guess is that at some point the country’s huge foreign currency reserves will run out, and if that’s so, it would run out of money to sustain this war effort.

Still, Russia is a big exporter, so it depends on how much China and India will keep buying natural resources from Russia. If they will keep doing that, then maybe Russia will be able to sustain this military expense.

Maybe these sanctions will eventually be effective in the sense that perhaps Russia will be in a position in which it can no longer afford the war effort, but it would likely take sanctions alone a very long time to achieve that.

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