Russia’s economy shrank 4 percent year on year in the second quarter, according to data released by Russia’s federal statistics service Rosstat. The drop, while significant in absolute terms, was not as drastic as Russian and some Western observers expected. “June data suggests that the contraction in the Russian economy appears to have bottomed out as the situation in some industries is stabilising,” Sergey Konygin, an economist at Sinara Investment Bank, told Reuters.
Hungarian Prime Minister Viktor Orban said in a speech last month that the European Union’s sanctions strategy against Russia had failed. “A new strategy is needed that should focus on peace talks and writing a good peace proposal…instead of winning the war,” he said. Orban said the West’s strategy was based on four pillars: that Ukraine can win a war against Russia with the backing of NATO, that sanctions will hurt Russia more than Europe, that the rest of the world will support Western punitive measures against Russia and that sanctions critically weaken Russia. “We are sitting in a car that has flats on all four tires. It is absolutely clear that the war cannot be won in this way,” Orban said.
The last three “tyres” have created a constellation of unexpected challenges for the Western sanctions regime.
Russia’s Central Bank took swift action after the invasion of Ukraine to shield the ruble from a series of US and EU financial restrictions. Far from being reduced to “rubble”, as President Joe Biden said proclaimed In March, the ruble became one of the world’s best performing currencies this year.
Even as Moscow takes unprecedented macroeconomic steps to contain the damage of sanctions, Russian politicians are honing their tools to evade or mitigate specific punitive measures. citing a active list Maintained by Yale University’s Chief Executive Leadership Institute (CELI), proponents of the sanctions regime have noted that more than 1,000 companies have “scaled down their operations” in Russia.
Although the Western-led financial withdrawal from Russia seems daunting in its scale, the reality on the ground is far more complicated. The Russian authorities have successfully allowed a wide range of “parallel import” schemes, according to a recent DW report. From Levi’s jeans to Apple iPhones, numerous mainstream and luxury products remain available for purchase in Russia’s metropolitan centers even though these manufacturers no longer supply Russian markets directly. Such goods typically reach Russia through unauthorized imports from entities based in countries of the former Soviet Union, including Kazakhstan, Belarus, and Armenia.
Moscow has opened the floodgates to such activities by lifting restrictions on the resale of many kinds of goods bought abroad. These transactions, also known as gray market sales, have totaled $6.5 billion since May and are expected to reach $16 billion by the end of the year, according to Deputy Prime Minister and Industry and Trade Minister Denis Manturov. Other products and services also continue to be available through rebranding and copycat projects. mcdonald’s Y starbucks, which ceased operations in Russia in the months following the invasion of Ukraine, have been replaced by successor companies offering nearly identical products under a similar brand name. The courts would normally quickly put a stop to these obvious copycat companies, but Russia’s legal system is in no mood to lend a sympathetic ear to patent claims and infringement by Western companies at a time of unprecedented hostility between Russia and the West.
Perhaps the greatest long-term challenge to the West’s campaign to squeeze Russia for its invasion of Ukraine is the fact that the world’s great economic powers have not only refused to join the Washington-led sanctions regime, but continue to deepening its commercial and financial ties with Russia. Moscow. Both India Y Porcelain have stepped up the pace of their energy imports from Russia over the past half year. Has been credible reports of the former selling refined Russian oil to European and US importers. Russian profits from energy exports soared after the West’s barrage of sanctions earlier this year.
Experts say the effects of sanctions on Russia could take years to fully manifest. Even then, there is no guarantee that the predicted economic stagnation will occur on a scale sufficient to starve the Kremlin’s war machine or produce significant and positive changes in Russia’s foreign policy. Moscow, driven by the conviction that its existential interests depend on victory in Ukraine, believes it can outlast the West economically and on the battlefield. Russia has so far largely succeeded in blunting the pain of sanctions and is shifting its strategy in Ukraine from trying to quickly seize major cities to bloody Ukrainian forces in a war of attrition.
European consumers, for their part, are reeling from the dizzying heat and electricity bills as officials scramble to contain the energy crisis sparked by what experts have described as the EU’s ill-conceived plan to stop importing Russian energy. with germany supposedly reeling On the brink of recession, Europe’s mounting economic challenges have reignited concerns that EU states may begin to shed the Western sanctions regime. Even before the Russian energy giant Gazprom formally threatened cut off gas supplies to European customers, survey showed that most Europeans, including 49 percent of Germans, favored policies designed to facilitate a negotiated settlement rather than an outright defeat of Russia. As the war drags on with no end in sight, these growing trends risk splitting the West’s united front in Ukraine before the sanctions regime manages to take a decisive toll on Russia’s economy.
Mark Episkopos is a national security reporter for the National interest.