Nine months into Russian President Vladimir Putin’s war in Ukraine, the damage done to the world’s 11th-largest economy is extensive. Leading Russian banks have been cut out of the global financial system, some $300 billion of central bank reserves are frozen, and hundreds of foreign companies have departed. Parts shortages have hobbled the auto industry and threaten commercial aviation. In the wake of Putin’s mobilization order, tens of thousands of young workers have fled the country. An OECD forecast released last week projects Russia’s economy will contract by 5.6% in 2023.
The economic punishment inflicted on Russia hasn’t stopped the pummeling of Ukraine. But sanctions have weakened Russia’s standing as a world power, dissuaded ostensibly impartial nations from aligning with its government and sowed doubts about Putin’s leadership among Russian elites. Convincing them to press for an end to the war will require the U.S. and Europe to tighten the squeeze even more.
Since February, sanctions have raised the costs of the war, by reducing Moscow’s ability to buy what it needs, while making the market perilous for outsiders. China, India and Turkey are importing Russian crude, but at a steep discount, and Russia has struggled to redirect gas exports once bound for Europe. Russia’s imports of technology it needs to sustain its war machine — let alone spark future innovation — have been effectively cut off for months. Never mind that what it can buy, when it comes to electronics components, is now often faulty. Moscow will adapt, but not swiftly.
Even so, for now the direct impact on the war remains limited. Squeezing the world’s largest hydrocarbon exporter, one with a hefty current account surplus, requires targeting those exports, a process that is beginning in earnest only now. Moreover, Russians had already suffered a grim decade, with real household disposable incomes peaking around 2012. So while the economy is expected to contract this year by 3.9%, there is less distance to fall. There’s also the inescapable fact that Putin is more than willing to sacrifice future economic growth for his personal aims and can easily silence dissent.
Sanctions rarely produce swift political change or an instant end to conflict. With Russia’s forces in retreat, it’s critical that the West ratchet up the pressure. Most obviously, the U.S. and its allies should continue to arm and financially support Ukraine. They should also encourage Russia’s worsening brain drain. At least 350,000 people have already fled Putin’s ill-advised mobilization order, causing consumer confidence to plunge. Western governments can accelerate the process by offering more humanitarian visas, added support for Russian students, and incentives for scientists and tech professionals to move abroad. Not only would Western economies benefit, but Russia’s labor and skills shortages would intensify.
Europe should further work to close sanctions loopholes. To cite one example, there’s evidence that the Russian military is importing home appliances to neighboring countries and using their microchips to make up for the loss of access to Western semiconductors. (Armenia has imported more washing machines from the European Union during the first eight months of 2022 than the past two years combined.) Rigorous action will also be needed to enforce EU crude sanctions and a U.S.-led price cap on Russian oil, which would extend a ban on selling insurance and other services to ships that fail to comply.
Above all, Western governments and their partners need to stick together. Russia’s economy is hollowing out, and the war is not going Moscow’s way. Putin still thinks Ukraine’s supporters will crack first. The West must prove him wrong.