Categories: Economic News

International sanctions work: Russia feels economic pressure

Inflating the value of the ruble, seen against the US dollar on a screen in St Petersburg, Russia, is one way the Kremlin hides the impact of international sanctions on Russia’s economy, a new study finds . (© Dmitry Lovetsky/AP Images)

Business pullbacks and sanctions imposed in response to President Vladimir Putin’s unjust war in Ukraine are deeply weakening Russia’s economy, despite Putin’s claims and Kremlin economic statistics to the contrary.

More than 30 countries have imposed sanctions against Russia, cutting energy imports, blocking financial transactions and halting shipments of key imports such as semiconductors and other electronics. As a result, more than 1,000 foreign companies have stopped their operations in Russia.

Meanwhile, imports into Russia have fallen by more than 50% this year. Consumer spending has plummeted and Putin is running a budget deficit. Russia’s economy is undoubtedly facing massive repercussions from Putin’s brazen war with Ukraine. But the Kremlin’s propaganda machine is working overtime to paint a fictitious picture of economic stability.

“Moscow has been gathering economic data to support President Putin’s insistence that all is well and that the Russian economy is strong,” Secretary of State Antony Blinken told reporters July 27 in Washington. “It’s just not true.”

A recent economic analysis by Yale University’s School of Management and Chief Executive Leadership Institute details the true economic toll of international sanctions and business withdrawals. Here are some key facts that debunk the Kremlin’s latest myths about the country’s economic stability and performance.

(State Dept./M. Gregory)

MYTH: Russia can simply redirect natural gas exports to Asia.

FACT: Russia’s energy infrastructure limits a shift to Asia.

Exporting large quantities of natural gas to non-European countries is not an option for Russia in the short term. More than 90% of Russia’s gas is transported by pipeline, and most of Russia’s pipelines connect to markets and refineries in Europe.

MYTH: The Russian economy and domestic consumption are strong.

FACT: Economic pressure limits Russians’ access to international goods.

Russia has seen the withdrawal of global companies and luxury brands, and the loss of many of its best and brightest workers as a result of the sanctions. Foreign car sales in Russia have fallen by about 95%, Yale study authors say foreign policy. Their analysis found that the flight of foreign investment led to a mass exodus of 500,000 people, mostly highly skilled and educated workers.

The sanctions, along with the withdrawal of companies and talent, have created a domino effect on the economy, which will only grow and increase over time. Meanwhile, consumer spending and retail sales have fallen roughly 20% in the past year.

MYTH: Russia replaces reduced imports from the West with imports from Asia.

FACT: Imports from Russia have fallen by 50%, including those from China.

While Russia’s overall imports are down more than 50% this year, the value of imports from the People’s Republic of China (PRC) also fell sharply, from more than $8.1 billion per month to $3.8 billion from January to April 2022, according to the study’s authors. to say.

The lack of imported supplies means that Russian manufacturers have to recycle technology components that they cannot produce domestically. Russia has used microchips taken from refrigerators and dishwashers in military equipment. At home, purchasing managers are cutting back on new orders and consumers are losing access to products that were once a part of their lives.

MYTH: The Kremlin has plenty of cash on hand and can rely on cash reserves.

FACT: Putin’s depleted reserves cannot sustain Russia’s economy.

Russia’s past energy exports allowed the Kremlin to amass significant sovereign wealth. Half of those funds are now frozen abroad, thanks to restrictions imposed by the United States, Japan and European partners in response to Putin’s continued aggression.

The value of Putin’s remaining foreign exchange reserves has plummeted by $75 billion since the February 24 invasion. And while Putin claims the ruble remains strong, the Yale analysis shows the Kremlin is artificially inflating Russia’s currency with restrictions that make it “impossible for any Russian to legally buy dollars or even access most of their dollar deposits”.

“Headlines arguing that Russia’s economy has recovered are simply not true,” the authors conclude. “The facts are that, by any metric and at any level, the Russian economy is faltering.”

Although Putin insists that everything is fine, the facts show otherwise. The economic weight of the sanctions is real and important.


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