No economic KO yet from West sanctions on Russia

Ruble trades around same rate seen in weeks before war

WASHINGTON, March 12, (AP): One month into the invasion of Ukraine, President Joe Biden stood in the courtyard of a grand Polish castle and laid out the punishing economic costs that the U.S. and its allies were inflicting on Vladimir Putin’s Russia, declaring that the ruble is almost immediately “reduced to rubble.”

Russia is now the world’s most heavily sanctioned country, according to U.S. officials. The ruble did in fact take a temporary dive and has been slipping again in recent months. But as the war nears its one-year mark, it’s clear the sanctions didn’t pack the instantaneous punch that many had hoped.

The ruble trades around the same 75-per-dollar rate seen in the weeks before the war, though Russia is using capital controls to prop up the currency. And while Russia’s economy did shrink 2.2% in 2022, that was far short of predictions of 15% or more that Biden administration officials had showcased. This year, its economy is projected to outperform the U.K.’s, growing 0.3% while the U.K. faces a 0.6% contraction, according to the International Monetary Fund.

The West’s export controls and financial sanctions appear, instead, to be gradually eroding Russia’s industrial capacity, even as its oil and other energy exports last year enabled it to keep funding a catastrophic war.

U.S. Treasury Deputy Secretary Wally Adeyemo stressed in an interview that the Western sanctions are only one “tool as part of a larger strategy” and that the U.S. continues to adjust its sanctions to outmaneuver Russia’s own shifts in strategy.

“You look at the exodus, the brain drain from Russia,” Adeyemo said. “The Russian economy is far smaller, far more closed and will look more like Venezuela, North Korea and Iran than like a major G-7 economy.”

Still, a December Congressional Research Service report drew an underwhelming conclusion from all the economic parrying, stating that “the sanctions have created challenges for Russia but to date, have not delivered the economic ‘knockout’ that many predicted.”

A closer look at what’s been done so far and what lies ahead:

What’s been sanctioned, by whom and why?

Biden last year called the West’s sanctions “a new kind of economic statecraft with the power to inflict damage that rivals military might.”

The sanctions, imposed largely through executive orders, are meant to punish Russia and block its access to the international financial systems and bank accounts that it needs to finance its war effort. Export controls also limit its access to computer chips and other products needed to equip a modern military.