The Cost Of  Russian Sanctions

by David Reavill

For over nine years, the United States has issued a steadily increasing set of Sanctions against the Russian Federation. It all began in 2014 when the break-away republic of Crimea voted to leave Ukraine and join Russia. The United States objected to the referendum by issuing its first set of sanctions.

When President Biden came to power, the scope and reach of sanctions took on an immediate urgency. Three months after his inauguration, the President issued Executive Order Number 14024.

This EO meant that all Russian assets that were deposited, for instance, in a US Bank, could not be moved or transferred back to Russia.

Immediately the US Treasury seized $30 billion of Russian citizens’ funds. And just recently, the US appears to have captured the $300 Billion of the Russian Central Banks reserves held here in the US. This Executive Order was signed on April 15, 2021, ten months before Russia invaded Ukraine.

Immediately upon Russia’s invasion of Ukraine, these sanctions were dramatically enhanced. President Biden cut off all Russian oil and gas imports to the United States.

The Europeans instituted new, stiffer restrictions on Russian exports to the EU. As one American diplomat put it, this was economic “shock and awe,” a reference to the overwhelming victory of the US Armed Forces over Iraq in that War. President of the European Commission, Ursula von der Leyen, predicted that the Russian Economy would be reduced to “shambles.”

And that, of course, was the objective. Led mainly by the United States, NATO and the EU attempted to degrade the Russian economy so they could no longer wage War.

In the most recent press report by the US Treasury Department, this country has targeted Russia with over 300 Sanctions. In the words of the Treasury Department: The United States:

“…is strengthening the unprecedented global sanctions and other restrictive economic measures to degrade further the Russian Federation’s capacity to wage war against Ukraine.”

Indeed, Treasury is spot-on when they say this is an “unprecedented” effort to economically bring Russia to its knees. The entirety of the European Union, the G7, NATO, and the United States have applied the most severe economic restrictions ever against Russia.

Even the economic boycott against South Africa’s policy of Apartheid in the 1960s pales compared to the sanctions currently applied to Russia.

In addition to seizing Russian financial assets, the US lead coalition has sought to cut off sales of Russian commodities such as petroleum, agricultural products (such as wheat and grains), and petrol-based fertilizers. Additionally, the US has sought to isolate Russia from the Global Financial Markets, chiefly by ousting Russia from the SWIFT Settlements System.

So, how are they working 18 months into the War and 14 years into the overall Sanctions? US Treasury Secretary Janet Yellen expressed the objective well when she wrote:

“From the beginning of President Putin’s illegal and unprovoked war, our global coalition has focused on supporting Ukraine while degrading Russia’s ability to conduct its invasion.”

Have the Sanctions “degraded Russia’s ability to conduct its invasion?” Despite President Biden’s off-hand comment that “Putin is losing the war,” that doesn’t appear to be the case. The much-touted “Spring Offensive” by the Ukrainian Army has carried over to mid-summer without significant gains in the territory or defeated Russian troops.

The Russians have dug in a well-fortified line of defense throughout their capture of towns and villages. And reports are that Ukrainian forces have been unable to penetrate those defensive lines. There are rumors that the Russian troops may be driving forward in the Northwest part of the extended battle-front.

Admittedly, here in the US,  there are differing points of view on how the War is proceeding, but one fact remains – Sanctions do not appear to be “degrading” the Russian effort to fight this War. It is reported that Russia has been firing 60,000 artillery shells daily.

At the same time, the United States has exhausted the supplies of its most effective artillery weapons, 155mm shells used by most US Field Guns. Before the Ukraine war began, the US produced fewer than 15,000 of these shells per month, or about the same number Russia shoots off before lunch on any given day.

Interestingly, some countries have avoided the US Sanctions to support Russia in its war effort. Most controversial among these has been Iran’s move to supply fighting drones to Russia. Whether these are produced in Iran or Russia is an open question. But there can be no question that these drones have been one of the most critical weapons in Russia’s arsenal in fighting Ukraine.

Economic Impact

However, this is a discussion principally centered on an Economic Strategy: the US Sanctions on Russia, and it’s in the Economic sphere that we see some of the most curious results. As Treasury Secretary Yellen put it, the objective of the Sanctions was to degrade Russia’s ability to fight the War. And to do that by degrading Russia’s economy.

One would expect to see those results in the most recent economic reports coming out of Moscow. But that’s not the case. In the information from the International Monetary Fund, Russia’s economy is gaining strength, not losing it. While it’s true that Russia was in an evident recession last year, with GDP falling by more than 2%, that looks to have reversed this year. Twice the IMF has raised its estimate of Russia’s economic growth for 2023.

In its most recent assessment, Russia’s GDP is increasing by 1.5%. A rate that would yield a Russian GDP (using the Purchasing Power Parity calculation of GDP) of $5.5 Trillion, among the highest in Europe.

What’s more, while most of Europe (especially Germany) is projected to fall into recession next year, the IMF expects Russia, on the other hand, to have a very respectable 2% economic growth. Better than most of the European nations and twice the level predicted for the US. That’s right. The IMF has cut American GDP Growth to just 1% or half the Russian growth rate next year.

Now the national calculation for GDP is a highly complex equation, incorporating hundreds of thousands of data points. But one remaining item is a glaring distinction between these two economic superpowers. And that is their respective National Debts.

Russia is fighting this War in Ukraine without incurring significant debt. In the latest IMF figures, again from the IMF, total Government Debt in Russia stands at just over $300 billion (US). Russia’s debt to GDP is a mere 15%, or more than 100% lower than the US Debt level.

The current US Government Debt, according to the US Debt Clock, stands at $32 Trillion, a number that whirs across so fast you can hardly read it. Our debt to GDP stands at 118%. The interest on that debt now exceeds $1 trillion annually, an expense that reduces our projected economic growth. Russia does not have this debt bomb, a debt bomb that’s exploding here in the United States.

So, the United States implemented a massive Sanction Package to slow the Russian economy. Fate, and poor policies, applied an even more enormous debt bomb that is slowing the American Economy.