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IF Insights: Have the sanctions against Russia worked?

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One of the primary objectives of the sanctions was to limit Russia's access to the global energy market and reduce its ability to export oil

The imposition of sanctions against Russia in response to its actions in Ukraine has been a contentious issue since 2022.

The debate has now resurfaced again, with a CNN report stating that Moscow’s exports of crude oil and oil products rose in March 2023 to their highest level since April 2020, jumping by 600,000 barrels a day. The numbers were reflected in the monthly report of the International Energy Agency (IEA). The rise has now lifted Russia’s estimated revenue from oil exports to USD 12.7 billion, as of April 2023.

A recent report from the Centre for Research on Energy and Clean Air (CREA) has said, “Well into the second year of the full-scale invasion of Ukraine, the EU, most of the G7 countries, and Australia have cracked down on their imports of Russian crude oil and oil products. At the same time, these countries, which are all part of the price-cap coalition whose objective is to limit Russia’s revenues from fossil fuel exports, have increased imports of refined oil products by leaps and bounds from the countries that have become the largest importers of Russian crude oil.”

While some argue that the sanctions have been effective in limiting Russia’s power and influence, the above-mentioned developments are indicating otherwise. This article will examine the evidence and determine whether the sanctions have been effective.

The Impact Of Sanctions On Russia

One of the primary objectives of the sanctions was to limit Russia’s access to the global energy market and reduce its ability to export oil. However, as suggested in the intro paragraphs, despite the sanctions, Russia’s oil exports have returned to their pre-Ukraine war levels. Russia has become one of Europe’s largest suppliers of refined fuels, with India taking over as the largest exporter to the continent. These developments suggest that Russia’s position in the global oil market has got strengthened further.

After the sanctions came into effect in 2022, Russia’s economy experienced significant disruptions. Moscow was banned from accessing more than USD 400 billion in foreign-exchange reserves held abroad, and its oil exports were restricted. International companies too have also faced penalties for conducting business with Russian entities.

The United States has imposed over 3,126 sanctions against Russia, which is a record, apart from penalizing 22 aircraft and 158 Russian ships.

G7 allies are now focusing on the financial intermediaries allowing Moscow to escape sanctions. In the global network of Russian tax evasion, the United States and United Kingdom have imposed sanctions on 54 entities and individuals.

Russian oil exports are now far less diverse and more susceptible to changes in demand in India and China, which account for 57% of the country’s total oil exports.

By December 2022, Russia had seen its industrial production fall by the most amount year over year since the COVID outbreak. However, the Ukraine war has increased munitions production by 7%.

Despite the economic pressure, Putin’s domestic approval ratings remain high, and he has continued to act aggressively toward Ukraine.

While the sanctions have been costly for some sectors of the Russian economy, Moscow has been able to adapt and find alternative sources of revenue. For example, it has increased its trade with countries like China and India, which have been less strict in imposing sanctions.

Long-Term Implications Of Sanctions

Continued sanctions could further ensure economic isolation for Russia. However, this could also lead to greater resentment towards the countries supporting the sanctions.

As we analyze the implications of the Ukraine-/Russia-related sanctions, it is imperative to understand their targeted sectors, which include energy, finance, and others. In addition, these sanctions are expected to impact the Russian economy, political climate, and relationships with other nations.

The sanctions can adversely affect Russia’s ability to attract foreign investments, leading to a decline in exports and GDP growth. Additionally, Russian businesses and oligarchs linked to the sanctioned entities need help to operate overseas, impacting their profitability and growth. Furthermore, the working-class and ethnic minorities in Russia could also experience increased financial strain due to rising inflation, job losses, and ruble depreciation.

The record revenues from Gazprom were subject to a one-time tax in 2022, but Moscow might not have that option in 2023. Russia’s oil and gas revenue in February 2023 is down 46% from last year.

Since the Group of Seven (G7) allies imposed their second price cap in February 2023 and are contemplating bringing the price of crude oil below USD 60 per barrel, it will likely remain at lower levels throughout 2023.

Energy income accounts for 40% of Russia’s budget, so when oil prices decline in 2023, the country will either have to cut back on spending on the warfront or reallocate money from other social programs.

The sanctions may result in political instability within Russia as the Kremlin seeks to cope with economic challenges. This instability could lead to increased authoritarianism and suppression of dissenting voices, further alienating Russia from the international community.

On the diplomatic front, sanctions could shape future international relations. Countries may become more hesitant to engage in actions that could lead to sanctions, thereby increasing the use of such tactics as an alternative to military intervention.

Moreover, the sanctions have not only impacted Russia but have also had adverse effects on the countries that have imposed them. For example, the EU is heavily reliant on Russian gas and has been hesitant to impose sanctions on this crucial sector. This dependency reduces the effectiveness of the sanctions and hinders the EU’s ability to respond to Russia’s actions in Ukraine.

Future Of Sanctions

As tensions between Russia and the West continue to rise, further sanctions will likely be imposed. However, the nations that have imposed the sanctions could take alternative measures, like diplomatic solutions.

Whether or not the sanctions against Russia have failed is complicated and difficult to answer definitively. While the sanctions have had a limited impact on Russia’s economy, they have been unable to produce the desired political changes in the country.

Furthermore, the long-term implications of sanctions are uncertain and could lead to unintended consequences. Therefore, as tensions continue rising, countries must explore alternative actions and work towards finding a peaceful resolution.

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