WASHINGTON (AP) – A month after invading Ukraine, President Joe Biden stood in the courtyard of a large Polish castle and laid out the punitive economic cost that the US and its allies would inflict on Vladimir Putin’s Russia, declaring that the ruble it was “reduced to rubble” almost immediately.
According to US officials, Russia is now the most heavily sanctioned country in the world. In fact, the ruble has submerged in the meantime and has slipped again in recent months. But as the war nears its year-long mark, it’s clear the sanctions haven’t had the immediate impact many had hoped.
The ruble is trading at roughly the same rate of 75 per dollar as in the weeks leading up to the war, despite Russia using capital controls to prop up the currency. And while Russia’s economy contracted 2.2% in 2022, that was far short of predictions of 15% or more presented by Biden administration officials. According to the International Monetary Fund, the UK economy is expected to outperform the UK this year with growth of 0.3%, while the UK faces a 0.6% contraction.
Instead, the West’s export controls and financial sanctions appear to be gradually eroding Russia’s industrial capacity, even as its oil and other energy exports enabled it to fund a disastrous war last year.
Big American multinationals like McDonald’s, Citibank and General Electric have fled the country, and some of the country’s wealthiest citizens are being banned from entering the US Coffee, as Russia has adapted.
US Deputy Treasury Secretary Wally Adeyemo stressed in an interview that Western sanctions are only a “tool as part of a larger strategy” and that the US would continue to adjust its sanctions to outmaneuver Russia’s own shift in strategy.
“You’re looking at the exodus, the brain drain from Russia,” Adeyemo said. “Russia’s economy is much smaller, much more closed, and will look more like Venezuela, North Korea and Iran than a big G-7 economy.”
Still, a December report by the Congressional Research Service drew a disappointing conclusion from all the economic parrying, noting that “sanctions have presented challenges to Russia, but to date have not resulted in the economic ‘knockout’ that many predicted.”
A closer look at what has been done so far and what lies ahead:
WHAT WAS SANCTIONED, BY WHO AND WHY?
Biden last year called Western sanctions “a new breed of economic statecraft with the power to wreak havoc that rivals military might.”
The sanctions, largely imposed by executive branch orders, are designed to punish Russia and block its access to the international financial systems and bank accounts it needs to fund its war effort. Export controls also restrict access to computer chips and other products needed to equip a modern military.
At the same time, the US and its allies committed billions to provide arms, ammunition and other military assistance and direct financial aid to Ukraine.
More than 30 countries including the US, EU countries, the UK, Canada, Australia, Japan and others – representing more than half of the world economy – are part of the unprecedented effort. They have imposed price caps on Russian oil and diesel, frozen Central Bank funds and restricted access to SWIFT, the dominant system for global financial transactions.
Aside from attacks on key institutions and economic sectors, the West has directly sanctioned around 2,000 Russian companies, government officials, oligarchs and their families. The sanctions deprive them of access to their American bank accounts and financial markets, prevent them from doing business with Americans and travel to the United States, and more.
Unlike the nationwide sanctions on Iran and North Korea, the restrictions on Russia target specific industries, companies and individuals. This approach was designed to keep Russian oil and natural gas flowing in order to limit disruption to the global economy in general. But energy exports also allowed Russia to replenish its finances and stave off a sharp decline.
A developed country of its size – the 11th largest economy in the world in 2021 – has never faced such financial pressures. Daniel Fried, a former deputy secretary of state for European and Eurasian affairs, said that “politics of this kind is always a shot in the dark.”
“They’re looking for hits for the Russian economy, it doesn’t happen overnight,” Fried said, noting that military aid is far more important since Ukrainian troops have performed better in repelling Russian attacks than US and European officials had anticipated.
SHOW DIFFERENCES
While Western governments largely agreed on the need to punish Russia, there were differences in the length to which countries were willing to go.
European and Asian countries are more dependent on Russian oil and natural gas than the US. This made it difficult for the alliance to ban Russian exports and forced compromises that lasted for months.
Ultimately, in December, the countries agreed on a $60 price cap, which some critics say came too late and was too high to significantly harm Russia.
Experts and administration officials said sanctions would become more effective if more pressure was put on sales of oil and other energy products from Russia.
For Marshall Billingslea, Deputy Treasury Secretary for Terrorist Financing in the Trump administration, the sanctions were far from bulletproof and easy for the Kremlin to circumvent.
“Russia has been punching holes in government sanctions,” Billingslea said.
Tom Firestone, a sanctions attorney, said it would take more time for sanctions to run their course.
“Anyone who expects massive sanctions on Monday and overthrows the Russian regime on Tuesday is not reasonable,” Firestone said. “It’s a big economy that has big reserves. It has a variety of trading partners. What we are seeing and what the government is saying is that they are on the right track and Russia’s ability to act is being severely constrained.”
Russia is also seeking deeper ties with countries that have refused to join the sanctions effort. Its exports to Brazil, China, India and Turkey have increased by at least 50% year-on-year since the war began, according to the Congressional Research Service.
HOW RUSSIA WAS AFFECTED
“Russia is a different country today than it was a year ago,” says Adeyemo, “and they gave up almost 30 years of economic progress in one year.”
But at the level of everyday consumers, the picture is mixed.
Shopping centers have many shops with shutters, but Russian entrepreneurs are helping to fill in the gaps. A Russian startup has created a reasonably compelling analogue of McDonald’s.
Some sectors have suffered badly from sanctions and the exodus of foreign companies.
The automotive sector in Russia, for example, is particularly affected. A market analysis by the Association of European Businesses, which represents European companies in Russia, says that January sales of new cars were 63% lower than a year earlier.
Nonetheless, Russia continues to export lumber, aluminum and other commodities to the United States based on America’s need for the products.
Russian goods imported into the US totaled $14.5 billion in 2022. That’s less than 1% of all US imports and about half of the $30 billion imported from Russia in 2021.
The Justice Department last year created a task force to target the ill-gotten gains of Russian oligarchs, which the US says are enabling Moscow’s war on Ukraine.
As part of that effort, the department has seized two luxury yachts – in Fiji and Spain – said to be owned by oligarchs. Prosecutors have also filed indictments against oligarchs accused of violating sanctions, including Oleg Deripaska, an aluminum tycoon and close associate of Putin. Deripaska remains at large.
WHAT’S NEXT
The US government is far from finished.
Expect the Treasury to impose another major round of sanctions on Russia on Friday around the anniversary of the invasion, with a likely focus in 2023 on logistics and manufacturing companies.
Sanctions Advocate Daniel Pickard said it was certain that sanctions “will continue to be used more frequently in this and other governments. It allows the President to take action without having to consult Congress and can be adjusted in light of changing events on the ground.”
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Associated Press writers Aamer Madhani and Eric Tucker in Washington, Jim Heintz in Moscow, and Martha Mendoza in Santa Cruz, California contributed to this report