It’s been almost two full years since Russia invaded Ukraine, prompting the West to impose unprecedented sanctions on Russia’s economy, which happened to be Europe’s main energy supplier at the time. To this day, Russia remains the world’s most sanctioned country, far surpassing other ‘revisionist’ states like Iran, Syria and North Korea.
One month after Russian tanks rolled across the border, President Biden announced that “the ruble was almost immediately reduced to rubble” and “the Russian economy is on track to be cut in half”. Likewise, the French Finance Minister Bruno Le Maire foresaw “the collapse of the Russian economy”. Russia “was ranked the 11th biggest economy in the world before this invasion,” Biden added. “Soon, it will not even rank among the top 20”.
How have these predictions panned out?
Not well. As an article in the FT notes, “Russia grew faster than all G7 economies last year and the IMF forecasts it will again in 2024”. So not only has the Russian economy failed to collapse – let alone be cut in half – but it’s actually growing at a steady clip. According to the IMF, Russia grew 2.6% in 2023, as compared to 0.8% in France, 0.5% in Britain and –0.3% in Germany.
A big problem for the West is that the stuff Russia sells – oil and gas – is extremely useful. So one way or another, countries are going to try to get their hands on it. This includes Europe. As of Q3 2023, Russia still accounts for 12% of the EU’s natural gas imports – and more than 20% of its fertiliser imports. In fact, EU imports of Russian LNG have jumped 40% since the invasion began so that EU countries now account for the majority of Russia’s LNG exports.
Another big problem is that Russia has a strong ally in China, the world’s second most powerful country and the main geopolitical rival of the US. While China has refrained from supplying lethal aid to Russia for sound strategic reasons, it absolutely wants to avoid a scenario where the Russian state falls apart. As I wrote of the Chinese last summer, “they can’t tolerate a defeated Russia but can easily live with a weakened one”.
Indeed, there’s strong evidence that China is helping Russia to evade Western sanctions. Since the war began, Chinese exports to Russia have grown 40%. And its exports to Russia’s neighbours have risen even more. China is now selling 63% more goods and services to Kazahkstan, and its exports to Belarus and Georgia have more than doubled. Did they suddenly unearth massive new markets in central Asia, or are they just selling sanctioned products through the back door?
Interestingly, the pattern is similar when you look at German exports (shown above). Shortly after the start of Russia’s invasion, the total value of goods sold to Kyrgyzstan, Armenia, Georgia and Kazakhstan went through the roof. As economist Robin Brooks notes, “it’s obvious this stuff is going to Moscow”.
If there’s strong demand for something, preventing people from supplying that thing is always an uphill battle. This is why prohibition didn’t work: people still wanted alcohol and as a result bootlegging became widespread. It’s the same with sanctioned products. The Russians still want them and are willing to pay hard currency, so sellers find a way around the sanctions.
Of course, the relative ineffectiveness of the sanctions against Russia’s economy isn’t the worst part. The worst part is they’re hurting Europe – including Britain.