Ongoing sanctions on Russia are taking a toll on its economy. Yet greater enforcement should follow to really cripple Russian President Vladimir Putin’s economic and financial Achilles’ heel.  

Since Russia’s unprovoked full-scale invasion of Ukraine on Feb. 24, a range of targeted sanctions have been rightfully piled against Putin’s economy. Damaging to the Russian economy, those measures—which are unprecedented in terms of their comprehensiveness, coordination, and swiftness—have been affecting Russia’s access to financial instruments and resources as well as its trade and investment around the world.

Sanctions are a tactic rather than a strategy. Particularly, financial sanctions primarily don’t deter or punish but instead withhold money and other resources from an adversary’s use. They are only practically effective if they are massive, imposed swiftly, rigorously coordinated, and followed through upon.

In its recent assessment of the sanctions, the International Monetary Fund summed up their initial impact by pinpointing that “the sanctions announced against the Central Bank of the Russian Federation will severely restrict its access to international reserves to support its currency and financial system.”

The IMF further noted, “International sanctions on Russia’s banking system and the exclusion of a number of banks from SWIFT have significantly disrupted Russia’s ability to receive payments for exports, pay for imports and engage in cross-border financial transactions.” SWIFT is an organization that helps execute financial transactions between banks worldwide.

Indeed, sanctions of the historic scale that have been imposed against Putin’s war on Ukraine have been barraging the Russian economy measurably, leading to factory closures, job losses, a doubling of interest rates, and a decline of the ruble—all of which have been further exacerbated by rising inflation. It is still too early to assess the full effect of these sanctions, but there has already been sharp downward pressure on the Russian financial markets and economy.  

As a recent report by the Congressional Research Service points out, “Recent rounds of U.S. sanctions and related actions could have a greater impact than sanctions the United States has imposed on Russia to this point.” While at first U.S. and allied sanctions focused on the financial sector, the scope has quickly expanded to other non-financial dimensions at an increasing rate.

In a rare admission of inescapable reality, Putin acknowledged that “[Russia’s] economy will need deep structural changes in these new realities, and I won’t hide this—they won’t be easy; they will lead to a temporary rise in inflation and unemployment.” 

Putin’s economy will undergo much more turbulent periods than his wishful thinking of “a temporary rise in inflation and unemployment,” particularly given the fact that the Russian economy has severely lacked economic resilience.

According to The Heritage Foundation’s Index of Economic Freedom, an annual global benchmark study that measures and compares economic governance in countries around the world, the Russian economy has been largely in the status of either “mostly unfree” or “repressed.” Pervasive corruption and the lack of economic freedom has long diluted the foundation of the Russian economy, making it considerably vulnerable to external shocks.

We will know more how evolving sanctions impact Russia and the global economy in the coming weeks and months. Yet the overall impact of the targeted sanctions against Putin’s Russia will be quite severe inside the country while relatively limited and measured outside of it.

The impact of the Russian sanctions across the rest of the world will likely be uneven. Countries that have close economic links with Russia are at greater risk of supply disruptions, and companies that are highly exposed to the Russian economy will be affected to a higher degree, further exacerbated by the legal and reputational risk associated with doing business there.

There will be an elevated level of inflationary pressure worldwide triggered by Russian sanctions in general, but the magnitude of that depends on individual countries’ overall macroeconomic and fiscal conditions.

For instance, the United States has been already measurably suffering from rising price levels long before Russia’s invasion of Ukraine. Blaming sanctions for America’s 40-year high inflation is essentially equivalent to blaming Ukraine, a country America must help. The real underlying culprit of America’s record inflation and other economic pain is President Joe Biden’s misguided, reckless big government economic agenda.

From a broader geostrategic perspective, now is the time for Washington and its allies to pay much closer attention to the Russia-China economic relationship and ramp up necessary measures to deter Beijing from aiding sanctions-hit Russia.   

Since Western sanctions began in response to Russia’s first invasion of Ukraine in 2014, Moscow has sought Beijing’s help to lessen the blow to the Russian economy. Since then, economic engagement between the two authoritarian countries has soared. In 2021, trade volume between Russia and China was over $145 billion, up 36% from the year before.

Unambiguously, the effectiveness of the ongoing sanctions and the spillover effects on other countries necessitate deeper and greater analysis for sure. However, there is no question that the sanctions so far have started to bite Putin’s war economy.

Thus, the case for sanctions and greater pressure through them remains as strong as ever.

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