Russia, sanctions: are they working or not?

The question of the effectiveness of economic sanctions the West has imposed on Russia following the invasion of Ukraine it is carving out a rather significant space also within the electoral campaign in view of the elections of 25 September in Italy. In particular, for several days the leader of the Lega Matteo Salvini has argued that the sanctions are not working, given that Russia “is earning“And we – understood as Italy and Europe – are”on your knees“. It is true that the serious energy crisis is a direct consequence of the reactions to the war in Ukraine, and it is also true that Moscow is gaining from the oil and gas price increases, but summarize the consequences of the sanctions for Russia with “it is gaining“Is at least an understatement.

How does the ceiling on the price of Russian oil wanted by the G7 work?

It will hit the crude oil transported by ship and block the one bought at a price higher than the limit imposed by the group of seven. Moscow threatens to stop selling oil and there are fears that China and India could undermine the measure with their purchases

What sanctions are there?

The European Union has so far adopted seven sanctions packages, the latest on 21 July. There are several. There are individual sanctions – such as the freezing of financial assets and travel ban – against members of the Russian elite and the government, the so-called oligarchs. There are trade sanctions, which involve the ban on exports of various technologies – such as software, microprocessors and oil refining technologies – that prevent the Russian military from modernizing. There is the oil embargowhich, however, will not be operational until 2023. They are there sanctions that have reduced the movement of people and goods to and from Russia, which consist in the ban on overflight of all Russian aircraft, and in the closure of ports to the entire Russian merchant fleet. And finally, there are sanctions on the financial systemincluding the exclusion of ten large Russian banks from Swift’s system, the communication platform used by most banking institutions to handle international transactions.

Why is the ruble so strong?

The Russian currency is strengthening a lot, despite the sanctions imposed by the West. But according to many analysts, these are trends driven by capital control and other measures desired by the Kremlin

Are they working?

Since at the moment the only sources of data concerning the Russian economy are the Russian Central Bank and Rosstat (i.e. the state statistical agency), which among other things have stopped publishing some data, we cannot be sure of the quantification of the effect of sanctions on the Russian economy. However, there are some pretty clear signs that sanctions have had a negative impact on Moscow deeply negative effect. On the one hand, most Western companies have closed their branches in the country. McDonald’s, which closed its 850 restaurants, is emblematic. This indicates an outflow of direct investments noel country that we are unable to quantify, but certainly significant.

Secondly, the companies that despite everything are continuing to operate on Russian territory are in crisis, and because of that they can no longer import raw materials from the countries that have sanctioned that why they can no longer sell their goods in these same countries. Rosstat data indicate a total industrial decline of 0.5% compared to 2021, which appears contained as a general figure, but increases if we consider individual sectors. For example, the food sector and the automotive sector fell by 3.6% and 60% respectively. It is true that war-related sectors, such as pharmaceuticals and steel, are thriving, but even in this case, Russia he had to ask North Korea for help with the purchase of weapons.

As for the gross domestic product, there are different estimates. The European Council on Sanctions says that is expected to drop by 11% owhile the spokesman of the Russian government Dmitry Peskov spoke of the 2.9%. The most reliable estimate seems to be that of the International Monetary Fund, which speaks 6%. It is undeniable that Russia is resisting sanctions well, thanks in particular to gas and oilwhich allowed the Kremlin to receive money from sanctioning countries despite the sanctions, but it is just as undeniable that being so isolated is very bad for the economy.