Fresh U.S. sanctions unveiled on Friday are unlikely to alter this reality, given Russia’s resilience amid escalating confrontations in the arenas of global commerce and finance.
Russian President Vladimir Putin has managed to weather U.S. and European attempts to cripple his economy thus far by increasing defense spending and by forging partnerships in Asia to replace the trading ties lost in the West.
Amidst the prolonged stalemate of the conflict, China, which refrained from joining U.S.-led sanctions against Russia, emerged as a crucial ally for Putin. Chinese authorities intensified their purchases of discounted Russian oil while supplying Russia with significant quantities of industrial components, luxury items, and technological goods. Additionally, India has emerged as a keen purchaser of Russian oil.
“This marks the first geopolitical crisis where not all major Asian economies are aligned. The West’s economic leverage is no longer decisive. With India and China’s support, Russia can stay afloat,” remarked historian Nicholas Mulder of Cornell University, an expert on sanctions.
The Biden administration made a move on Friday to disrupt this pattern, announcing a new set of sanctions following the death of Alexei Navalny, the Russian opposition leader, while in prison. U.S. officials claim that their initial actions have already undermined the Russian economy, and they expect the additional measures to exacerbate this impact, targeting over 500 individuals and entities.
These sanctions encompass crucial entities within the Russian military’s supply chain, including Suek, an energy producer, and Mechel, a mining operation, both ranked among the country’s 50 largest companies. Furthermore, more than two dozen entities outside Russia, which aided the Kremlin in circumventing sanctions, were singled out, along with Gazprom Space Systems, responsible for managing a satellite network utilized by the Russian armed forces.
Moreover, U.S. authorities escalated their control over the Russian oil industry by sanctioning Sovcomflot, the state-owned shipping company.
The U.S.-led financial sanctions and export bans imposed in response to Russia’s invasion of Ukraine have indeed made it more challenging and costly for Putin to wage war. However, in the long run, these measures are anticipated to leave Russia economically poorer, technologically lagging, and more reliant on state intervention to drive economic activity, according to U.S. officials and independent economists.
Despite the significant impact of financial and trade restrictions, an economic collapse has not materialized, nor have these measures persuaded the Kremlin to abandon its aggressive agenda.
“People overestimated the power of sanctions. Russia has not suffered nearly as much as optimists expected,” noted Henry Farrell, author of “Underground Empire: How America Weaponized the World.”
In response to Western pressure over the past two years, Putin has transformed Russia into a garrison state, directing resources towards military endeavors even as civilians grapple with economic challenges.
“To pay for this brutal war, the Kremlin is mortgaging the future of the Russian people,” remarked U.S. Deputy Treasury Secretary Wally Adeyemo during a speech at the Council on Foreign Relations in New York.
However, the current situation has diverged from the expectations of the White House and its European allies.
Following the initial Russian attacks on Kyiv, the U.S. and its European counterparts severed ties between Russian banks and the global financial system, restricted the country’s access to advanced technologies, and imposed sanctions on oligarchs supporting Putin’s regime. These actions had rapid and severe repercussions, with the ruble plummeting against the dollar and Russia defaulting on its foreign debt for the first time since 1918. However, the impact waned over time, with Russia rebounding and outpacing the United States in economic growth last year.
The conflict has reshaped Russia’s trade relationships, particularly in energy and technology products. Despite these challenges, Russia has found support from China, which has significantly increased bilateral trade, filling gaps left by disrupted supply chains.
Additionally, Turkey, Malaysia, and the United Arab Emirates have provided Russia with necessary goods, albeit at higher costs and potentially lower quality.
Russia’s sustained economic resilience has been buoyed by substantial defense spending, fueling production for the military and stimulating economic activity. However, this shift towards a war economy has not been without consequences, including inflation, brain drain, and labor shortages.
Despite these challenges, Putin’s ability to sustain military spending is bolstered by Russia’s success in circumventing restrictions on oil sales and managing a modest budget deficit.
With India and China continuing to support Russia through oil purchases, some economists believe Putin can maintain this course for an extended period.