It is said again and again that the sanctions against Russia are not having enough effect, and that the West is harming itself more than Putin. An analysis by the US University of Yale contradicts this assessment. On the contrary: The sanctions are devastating for the Russian economy, the authors write.
The package of sanctions by Western countries against Russia is unprecedented and, for many observers, was unexpectedly harsh after previous hesitant reactions to Moscow's aggression. According to "Correctiv", since February 22, almost 6,800 sanctions have been imposed on companies, people, institutions and other targets. With around 1,500 measures, the USA in particular showed initiative, followed by Switzerland (1,070), Great Britain (995) and the EU (870).
However, according to calculations by the state bank Vneshekonombank, Russia's gross domestic product (GDP) shrank "only" by six percent by the end of May, and the ruble is stronger than before. Doubts are therefore increasing about the effectiveness of the sanctions, and voices are getting louder that the West - above all Germany and the EU - are harmed more by the measures than they are affecting Russia.
An analysis by the renowned US University Yale wants to clear up such myths. She shows that the sanctions are "catastrophically crippling" the Russian economy and that the country "there is no way out of economic oblivion as long as allied countries keep up the sanctions pressure."
Given the lack of economic data available, it's not entirely surprising that the misunderstandings persist, write two of the authors, Jeffrey Sonnenfeld and Steven Tien, in Foreign Policy Magazine. Many of the "overly optimistic" economic analyses, forecasts and projections have in common the crucial methodological flaw that they refer to Russian government publications.
For the analysis, an expert team from the Yale scientists therefore resorted to alternative sources. These include high-frequency consumer data, communications from Russia's international trading partners, data mining and cross-channel controls.
One finding of the analysis is that while Europe can be blackmailed by its dependence on gas imports, an embargo would hit Russia much worse. According to the analysis, 83 percent of its gas exports went to the EU in 2021, but only 46 percent of its imports came from Russia. According to Gazprom figures, Russian gas production has already fallen by more than 35 percent year-on-year this month.
China cannot fill the gap because most Russian pipelines lead to Europe and only 10 percent of Russian capacity is liquefied gas, the analysis notes. Last year, China imported less than 10 percent of Europe's volume, and an emerging pipeline could only add about the same amount in the future. In addition, the pipeline construction to China causes enormous costs.
While oil is easier to transport, exports don't make Russia rich either. The situation reflects Putin's dwindling economic and geopolitical power, write Tien and Sonnenfeld. Knowing that Russia had no other options, China and India pushed through a massive $35 rebate on Urals oil. Previously, Moscow had never granted more than $5, the researchers write - not even during the 2014 Crimean crisis.
At 35 days, oil tankers also travel five times longer to East Asia than to Europe, and the development of oil fields is heavily dependent on Western technology. All of this makes Russian oil production more expensive and means that the already high break-even point continues to rise.
Even the Russian Ministry of Energy has revised its forecasts for long-term oil production downwards, write Sonnenfeld and Tien. There is no doubt that, as predicted by many energy experts, Russia is losing its status as an energy superpower and with it its strategic economic position as a once reliable supplier of raw materials.
Due to the deficits mentioned, Russia will not achieve a budget surplus due to the high energy prices, but rather a deficit of 2 percent this year, according to the finance minister, according to the analysis. Sonnenfeld and Tien write that Putin's spending frenzy is to blame. "In addition to dramatic increases in military spending, Putin is resorting to apparently unsustainable, dramatic fiscal and monetary interventions, including a long list of Kremlin pet projects, all of which have helped Russia's money supply nearly double since the invasion began."
In this context, the study refers to an article in the "Moscow Times" on page 61, which headlined that spending on the Russian president had risen by 40 percent in two months. Janis Kluge from the German Science and Politics Foundation (SWP) calls this "nonsense". Putin's personal expenses are minimal, and the authors "apparently have never looked at the Russian budget," he tweeted.
Kluge also criticizes the Yale paper's style for not being helpful. Otherwise, the myths listed are actually wrong and he basically agrees with everything. It is also wrong to say that the sanctions are not having an effect. "But you should remain cautious in the analysis, otherwise there will be disappointment at the end."
Reference is often made to Moscow's enormous foreign exchange reserves, which Putin could use to sit out the sanctions for a long time. But of the approximately $600 billion, $300 billion have been frozen, the scientists write, while Europe and Japan are restricting access. The remaining 300 billion shrank rapidly, by 75 billion dollars since the beginning of the war.
Tien and Sonnenfeld also dismiss the strong ruble exchange rate as propaganda. It is "an artificial reflection of unprecedented, draconian capital controls, among the most restrictive in the world. The restrictions make it impossible for virtually any Russian to legally buy dollars, or even access much of their dollar deposits, while demand is fueled by forced purchases by large exporters is artificially inflated."
The official exchange rate is misleading anyway, as the ruble is trading at dramatically lower volumes compared to the pre-invasion period due to low liquidity. Much of this former trade is reported to have migrated to the unofficial ruble black markets.
Although Russia would like to be self-sufficient, its industry cannot do without imports, such as components and machines. After all, they accounted for 20 percent of GDP before the invasion. According to the analysis, however, imports have already collapsed by 50 percent.
Despite paying lip service, China is not helping Putin out of a tight spot here either. According to the latest monthly releases from China's Customs Administration, Chinese exports to Russia fell by more than 50 percent from the beginning of the year to April, falling to $3.8 billion from over $8.1 billion a month, the agency said Analysis. Chinese companies appear more concerned about violating US sanctions than losing marginal positions in the Russian market, Tien and Sonnenfeld write.
War and sanctions have expelled more than 1,000 global companies from Russia, which accounted for around 40 percent of GDP and provided 12 percent of workers (5 million), according to the analysis. Half a million people have already left the country, many of them highly qualified professionals.
The domestic market has also been hit hard by the sanctions. Without the capacity to replace lost companies, products and talent, Russian domestic production has come to a complete standstill, the analysis concludes. The erosion of the domestic innovation and production base has led to rising prices and consumer fears.
Although Russia is groaning more under the sanctions than it cares to admit, the Yale researchers call for further measures in the energy and financial sectors as well as individual sanctions. "There is no way out of economic oblivion for Russia as long as the allied countries maintain and increase sanctions pressure on Russia."
