By Petyo Rakov
Since the start of the 2022 “special military operation”, Russia has been alienated from the global community via sanctions. The European Union (EU) and the United States have, among others, sanctioned high-ranking officials and whole economic sectors, combined with a large-scale withdrawal of Western businesses. The overarching goal of these sanctions was to cripple the Russian economy, thus incapacitating war efforts. However, a year later, the war is still raging.
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Timeline and Expectations of the Sanctions
For over a year, the Russian government, Russian companies and Russian individuals have collectively been sanctioned approximately 97 times by countries and international organisations. Virtually every sanctionable field has been targeted, ranging from resource-exporting enterprises to those linked to Russian oligarchs.
The sanctions were initiated when the American government effectively froze the US-based assets of the Russian Central Bank and barred several Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) service. Washington and Brussels also banned the import of Russian crude oil, liquefied natural gas, and coal in order to decrease the ability of Russia to profit from such sales.
However, despite its financial and commercial isolation and crippling economy, Russia has not been defeated, surrendered or withdrawn from Ukraine. Moreover, it is still holding on to Crimea, Donbas and a land corridor connecting these, traversing the Kherson and Zaporizhia oblasts (regions).
Additional 2023 Packages
The unexpected continuation of the war, for over one year, has led to the need for new sanction packages from the West and the exertion of diplomatic pressure on countries that are not inclined to cut ties with Russia.
On 25 February 2023, the European Commission (EC) welcomed the adoption of a tenth sanction package. Specifically, the EU has added about 121 individuals and entities to its sanction list, including not only officials but also misinforming outlets. Additional export bans are imposed on so-called ‘dual-usage goods’.
These products can be used for civilian or military means and include snowmobiles, radars, and fork-lifts trucks. According to the EC’s estimates, these new bans and restrictions cover EU exports worth more than eleven billion euros, adding to the estimated 32.5 billion euros worth of exports already sanctioned. Thus, the EU has sanctioned 49 per cent of its 2021 exports to Russia.
Lastly, the package imposes bans on certain Russian high-revenue goods, namely bitumen and synthetic rubber. By implementing the tenth sanction package, the EU covers imports worth 1.3 billion euros, adding to the 90 billion euros worth of sanctioned imports, accounting for 58 per cent of the EU’s 2021 imports.
Besides new EU sanctions, on 24 February 2023, Canada added 129 individuals and 63 entities, “complicit in Russia’s ongoing war against Ukraine”, to the now over 1,600 parties listed under Canada’s Special Economic Measures (Russia) Regulations. Furthermore, these additions are coordinated with the partner sanctions of the EU.
Effectively, any person in Canada or Canadian outside of Canada is prohibited from directly or indirectly engaging in a dealing, regardless of its nature, with a sanctioned person. Additionally, the regulations generally prohibit the commercial exchange of certain chemical elements for use in electronics, arms, ammunition, and other weapons with Russia, Russians, and anyone situated in Russia.
Dubai Becomes the New Bypass
Dubai’s port Jebel Ali is one of the world’s biggest logistics hubs. In 2022 the facility has also become a central ‘re-exporting’ hub with regards to Russia. Physical goods are initially routed through the UAE and then exported to Russia in order to bypass the imposed embargoes.
For example, in comparison to the prior year, exports of electronic parts from the UAE to Russia have so far increased sevenfold in 2023, totalling to 238 million dollars (224 million euros). To put this figure into perspective, according to Russia’s Minister for Industry and Trade, Russian imports from the UAE in 2022 totalled 500 million dollars (471 million euros).
The export of 158 drones to Russia and the favorability of UAE as a shelter destination for assets of Russian oligarchs led to a high-profile visit from Western officials. The head of the US Office of Sanctions Coordination, an EU envoy and the directors of the UK’s sanctions directorate visited the UAE “to clamp down on suspected sanctions busting”. The EU envoy will now be tasked with presenting and ensuring strict implementation of the tenth package of sanctions.
Do Sanctions Really Damage the Russian Economy?
Some experts argue that even though the sanctions have inflicted economic pain on Russia’s economy, especially on normal citizens, these have not caused the desired behavioural changes in the Kremlin. Instead, the Russian government has taken counteractive measures.
For example, the Russian Central Bank has been hoarding reserves worth over 640 billion dollars (603 billion euros) for many years, only half of which are in sanctioned rubles. Moreover, the value of the ruble briefly increased to a seven-year high in June 2022 as a result of Russia's adjusted bilateral trade in rubles.
Lastly, Moscow and Beijing have been attempting to trade without using the dollar for years. In the first nine months following the start of the conflict, Russian payments in the Chinese yuan increased 34 times. As an energy exporter, Russia has also used its power to pressure Europe by no longer exporting gas via the Nord Stream 1 pipeline.
That being said, according to the International Monetary Fund, the real GDP ‘growth’ of Russia in 2022 is equal to negative 2.3 per cent, signifying at least some decline in the economy. It should be noted that public statistics for the IMF are provided by national statistical agencies. In this case, this would be the Russian Federal State Statistics Service (Rosstat), which prompted economic experts to question the validity and verifiability of these figures.
Concluding Remarks
Since the start of the Ukraine War, Russia has faced numerous sanctions from countries and international organizations. Despite the executed economic and diplomatic pressure, Russia has not capitulated and has taken counteractive measures. Moreover, the difficulty of accurately measuring the impacts of the sanctions puts the degree of their effectiveness into question.
Nevertheless, the West and its partners are continuing to unravel new packages of sanctions on Russia, meaning that the lasting, long-term effect of the war on the Russian state is still unknown. Critics of the sanctions argue that the sanctions are ineffective and largely symbolic. However, it should be noted that these economic and military sanctions are designed to be more long-term de-escalation solutions.
Sources: Council on Foreign Relations; European Commission; Financial Times
Written by Petyo Rakov
March 2023