Sanctions’ impact being felt in Russia
But Putin proclaims country has blunted ‘blitz’ from the West
NEW YORK — Nearly two months into the RussianUkraine war, the Kremlin has taken extraordinary steps to blunt an economic counteroffensive from the West. While Russia can claim some symbolic victories, the full impact of Western sanctions is being felt.
As the West moved to cut off Russia’s access to its foreign reserves, limit imports of key technologies and take other restrictive actions, the Kremlin launched some drastic measures to protect the economy. Those included hiking interest rates to as high as 20%, instituting capital controls and forcing Russian business to convert their profits into rubles.
As a result, the value of the ruble has recovered after an initial plunge, and last week the central bank reversed part of its interest rate increase. Russian President Vladimir Putin felt emboldened and proclaimed — evoking World War II imagery — that the country had withstood the West’s “blitz” of sanctions.
“The government wants to paint a picture that things are not as bad as they actually are,” said Michael Alexeev, an economics professor at Indiana University, who studied Russia’s economy in its transition after the collapse of the Soviet Union.
A closer look, however,
shows that the sanctions are taking a bite out of Russia’s economy:
The country is enduring its worst bout of inflation in two decades. Rosstat, the state’s economic statistic agency, said inflation last month hit 17.3%, the highest level since 2002. By comparison, the International Monetary Fund expects consumer prices in developing countries to rise 8.7% this year, up from 5.9% last year.
Some Russian companies have been forced to shut down. Several reports say a tank manufacturer had to stop production due to
the lack of parts. U.S. officials point to the closing of Lada auto plants — a brand made by Russian company Avtovaz and majorityowned by French automaker Renault — as a sign of sanctions having an effect.
Moscow’s mayor says the city is looking at 200,000 job losses from foreign companies shutting down operations. More than 300 companies have pulled out, and international supply chains have largely shut down after container company Maersk, UPS, DHL and other transportation firms exited Russia.
Russia is facing a historic
default on its bonds, which will likely freeze the country out of the debt markets for years.
Meanwhile, Treasury officials and most economists urge patience that sanctions take months to have full effect. If Russia can’t get appropriate amounts of capital, parts or supplies over time, that will cause even more factories and businesses to shut down, leading to higher unemployment.
It took nearly an entire year after Russia was sanctioned for seizing Ukraine’s Crimean Peninsula in 2014 for its economic data to
show signs of distress, such as higher inflation, a decline in industrial production and a slowdown in economic growth.
“The things that we should be looking for to see if the sanctions are working are, frankly, not easy to see yet,” said David Feldman, a professor of economics at William & Mary in Virginia. “We’ll be looking for the price of goods, the quantity of goods they are producing and the quality of goods. The last being the hardest to see and probably the last to appear.”
Transparency into how sanctions are affecting the
Russian economy is limited, largely because of the extraordinary lengths the Kremlin has taken to prop it up and its largest sector — oil and gas — is largely unencumbered due to European, Chinese and Indian reliance on Russian energy.
While the EU has agreed to ban Russian coal by August and is discussing sanctions on oil, there’s been no consensus among the 27 nations so far about halting oil and natural gas. Europe is far more reliant on Russian supplies than Britain and the U.S., which have banned or are phasing out Russian oil. In the meantime, Russia gets $850 million a day from Europe for its oil and gas.
The U.S. and its allies have argued that they have tried to tailor sanctions to affect Russia’s ability to wage war and financially hit those in the highest echelons of government, while leaving everyday Russians largely unaffected.
But Russians have noticed a spike in prices. Residents of one Moscow suburb said 19-liter jugs of drinking water they regularly order have become nearly 35% more expensive than before. In supermarkets and stores in their area, the price for about 2 pounds of sugar has grown by 77%; some vegetables cost 30% to 50% more.
The Kremlin and its allies on social media have repeatedly pointed to the recovery of Russia’s ruble as a sign that Western sanctions aren’t working. The ruble crashed to around 150 to the dollar in the early days of the war but recovered to around 80 to the dollar, about where it was before the invasion.