The European Union has adopted six sanctions packages against Russia since the invasion of Ukraine in late February. Economic exchanges between Russia and the European Union have almost completely stopped, with the exception of gas and oil, which are still piped into the EU, and food, crops and certain fertilizers, which are not covered by the sanctions.
According to the Council of the European Union, which represents the 27 member states, sanctions now apply to 1,212 individuals – including Russian President Vladimir Putin, Foreign Minister Sergey Lavorv, several top politicians and 108 entities. Half of the reserves of the Central Bank of Russia have been frozen and Russian banks have been cut off from the international payment system SWIFT. The export of EU technology, aerospace engineering, electronics and luxury goods is prohibited. More than 1,000 Western companies have withdrawn from Russia.
The US, Canada, Japan, Switzerland and the UK have also imposed sanctions on Russia. In its live tracker of the sanctions, the German investigative editors of the non-profit organization Correctiv found that as of July 30, 6,891 measures had been imposed since February. There have never been so many sanctions against one country.
Josep Borrell says the West must be patient and Russia will become isolated
Russia hits ‘hard’
On Friday, EU foreign policy chief Josep Borrell told TBEN that sanctions hit Russia “hard”.
“The Russian economy is shrinking by 10%,” Borrell said. “They will go through the worst recession since the World War or the end of the Soviet Union.” He acknowledged that the European Union remains dependent on energy supplies from Russia, but said that would change in the coming months. EU member states are still buying gas from Russia, he said, “but we’ve cut the amount of imports to half – we can’t work miracles.” He said the Kremlin could no longer use the revenue to shop in the European Union, meaning EU technology for Russian tanks was now off limits. “They have the money,” he said, “but they can’t buy anything.”
Russia was finally cut off from the international SWIFT payment system
Several studies from renowned universities and economic research institutes on the possible impact of the sanctions on Russia – and on the countries that have imposed them – are now available. They all predict a drastic decline in Russia’s economic output in 2022. For example, the International Monetary Fund estimates a 15% decline.
Economic researcher Maria Shagina, of the London-based International Institute for Strategic Studies, expects a 6% decline. “Russia continues to sell oil and gas at record high prices, and it has accumulated this war chest, this fortress Russia that it had before the war,” Shagina told TBEN. “So we have this unique situation where on the surface Russia is not very much affected by sanctions. But if we look at the microeconomic level, especially the auto industry and the aviation sector, sales in those sectors are more than 80-90% In the long run, we are talking about the structural transformation of Russia because it can no longer build this western capital and access western technology, and it will go through a reverse industrialization. can Russia solve this and come up with a new economic model or cooperate with China, India? Who can deliver this is a big question mark.”
Russia ‘suffers enormously’
Julian Hinz, of the Kiel Institute for the World Economy, said trade statistics have shown that the sanctions have worked. “The Russian economy is suffering enormously from these sanctions – much more than European economies,” he said. “There’s just no comparison.”
Hinz said it would be difficult for Russia to produce domestic alternatives to imported goods, as the national industry needed preparatory products and technical know-how from abroad. He said the Kremlin would struggle to find buyers for the oil and gas who no longer go to the EU and the US. “The pipelines aren’t there,” Hinz said. “There is some pipeline capacity going to China, but that’s only about 10% of what could be sent to Europe at the same time. None of that will be able to replace the pipeline capacity to Europe.”
Borrell said Russia would become isolated. “A modern economy cannot work if the link with the rest” [of the] economic power, technological power is cut off. This will do a lot of damage to the Russian economy – not tomorrow: the war will continue, unhappily continue. But the economy will suffer a lot.”
“Putin has to choose whether he wants weapons or butter for his people,” Borrell said. “I know he doesn’t care much for his people.”
The crucial question then is whether economic sanctions will ultimately help change the political will of the authoritarian regime in Moscow. Alexander Libman, professor of Russian and Eastern European politics at the Free University of Berlin, is skeptical. He recently told German public broadcaster Deutschlandfunk that Vladimir Putin is unimpressed by damage to the Russian economy.
“Sanctions won’t change anything in weeks or months,” Libman said. “You have to be honest: Sanctions are a tool – there’s quite a lot of research on that – that generally doesn’t work. In most cases, sanctions have not influenced the behavior of the sanctioned states.”
This article has been translated from German.