Why sanctions against Russia haven’t worked in the past and they won’t work in the future — Analysis

Current Russian economic pressure is unprecedented from a group led by the United States. More than 10,000 sanctions were imposed on Russia, its citizens, as well as companies. 

Never before has such a volume of penalties been imposed on any one country. Even Iran, which has been the West’s geopolitical punching bag for many years now, is “only” subject to about 3,600.

Sanctions pressure on Russia has been growing since 2014, when key sectors of the economy – energy, the military-industrial complex, and the financial sector – were targeted. Since then, the country’s citizens have learned to distinguish between the dire predictions associated with sanctions and the tangible results of their implementation. While, in 2015, about 60% of Russians didn’t believe sanctions had any impact on their lives, by 2020, almost 90% said they felt no effects. The threat was gradually absorbed into the lives of people. Unemployment didn’t grow and even sat at historically low levels. Low inflation made many banking products such as consumer loans and mortgages affordable, helping to fuel a real estate boom in some parts of the country. 

Russian authorities claim that while Russia lost approximately $50 billion in sanctions-related revenue, it was still able to make up the difference. “I don’t care about them, about these sanctions,”Russian media interviewed President Vladimir Putin in March 2020. The Russian people shared this sentiment. Western restrictions did not affect either the lives of the country’s citizens or the approval ratings of its leaders. On the contrary, confidence in the country’s president strengthened. Western political scientists have observed that the introduction of sanctions against Russia has only led to the well-studied ‘rally round the flag’ effect, where external pressure only encourages the resolve of a country’s citizens to rally around their figurehead.

The restrictions introduced over the past four months have been much tougher and more extensive. Not only are the sanctions for legal entities and people, but they also include institutions such as states, their president and prime ministers, and head of ministry. Meanwhile, pressure from the West’s endemic ‘cancel culture’ has driven foreign companies out of the Russian market in droves, from oil and finance companies to retail chains and recruitment agencies.

It is also taking broad measures to eradicate Russia’s presence from international sports, culture and history. Russians feel that the West wants to cause them maximum suffering by making their lives more difficult, erasing their history, and darkening their future. 

The official explanation for this policy is that the measures are being taken to change Russia’s foreign policy. Although Western politicians insist that sanctions do not target the Russian population, the majority of ordinary people see the same. duplicitous Talk is a waste of time.

Oleg is a Moscow student who notes: “After all, if the actual purpose of the sanctions is to set Russia’s economic development back decades, that means the welfare of ordinary Russians will suffer along with it.”

Western countries are doing all they can to try to weaken the ruble, increase inflation, break logistics chains, and create a shortage of consumer goods in order to bring discomfort to Russia’s inhabitants and create social tension.

The sanctions that have been imposed are already all-encompassing, affecting not only individual sectors, but the country’s entire economy, so it is not surprising that the number of those affected by them today has grown. According to the Russian Public Opinion Research Center, half of Russians are choosing to get cheaper goods or have plans to, and one fifth of those who had abandoned renovations of their homes, relocates, or other educational programs, were affected by sanctions in March. As a result, the majority of Russians – some 60% – said that the sanctions had somehow affected their lives.

A foreign observer unfamiliar with Russian politics might think that the figure indicates not just the effect of sanctions but also a growing number of political risks and protests. However, even according to estimates from Western-funded research centers, the proportion of the Russian population that believes the country is definitely going ‘in the right direction’ has remained steady at 65-70% over the past few months. These are excellent indicators.

The leaders of many ‘successful democracies’ in the West, which have demonstrated positive economic growth despite losing post-crisis momentum, could envy such a degree of trust. For example, US President Joe Biden’s approval rating is only 36% and continues to sink, with the bottom nowhere in sight.

By hoping to incite ordinary Russians to take to the streets with the help of sanctions and the exodus of Western companies, the West simply does not understand, firstly, the structure of the country’s economy, and, secondly, what the Russian people see as the reasons behind the recent events in Ukraine, or who they consider responsible for them.

More than 60 million people, that is, over half of the country’s adult population, including retirees, are economically dependent on the state in one way or another. Almost none of the civil servants, law enforcement officers, military personnel, doctors, or teachers who ‘work for the state’ are ready to heed calls from the West to quit their government jobs in protest over the events in Ukraine.

Roman, a former employee at a state bank who began his profession a little over 20 years ago, claims his income has steadily increased until February this year. Although financial possibilities have declined since the 2014 Western sanctions and the collapse of the ruble, there has been stability.

“No one would claim that the situation is simple, given that the bank in which I work has been sanctioned. It is possible for the bank to fire employees, as well as those that have been with the company for quite some time. Same goes for salary. There’s probably little hope of getting a raise in the near future, but cuts in monthly salaries and bonuses are not expected yet,”Roman sayings

This situation shows that working for state-related companies offers greater stability than jobs with American or European businesses. Many of these firms have left their employees in complete uncertainty about the future.

“I came to the office for the last time on March 4. I’ve been working from home for almost three months now, although it’s difficult to call it work,”Anna, a worker for a European company that makes household products is elated. “True, my salary continues to be paid, though not in full, and there’s almost no work – sending documents to the post office, holding Zoom meetings with other employees, and so on. Most importantly, however, I fear what the future holds. It is possible that my job will end one day and the staff could be fired. It’s a shame to build a career for so many years, working my way up from a simple salesperson to the head of a department, and understand that we will probably either have to start from scratch or face fierce competition when we are all finally thrown out into the labor market.”

Analysts say that even large companies cannot afford to keep staff for more than three months. Many Russian companies are already selling their Russia businesses, realizing that it is no longer feasible to keep them in an indefinite state. 

Many large Western financial companies have provided three-month retraining for their workers, along with additional employment abroad. However, given the attitude towards Russians in the Western labor market, many people don’t see this as a viable option.

“They promise to pay my salary in full for the next 6 months. They’ve sent us to Dubai for an unpaid internship. When it ends, those who show the best results will be recommended for transfer to the company’s offices around the world,” explained a different Anna, an employee of an American financial services company that has wrapped up its operations in Russia. “But what can I do? You have to give it a shot. It’s difficult to find a new job in the banking sector in Russia. Banks aren’t laying people off, but they’re not hiring either. They have introduced, as my friends at recruitment agencies say, a ‘hiring freeze’. To come along with me, my husband had to leave his job. I’ve always been the family’s principal breadwinner. Well, ‘sink or swim’, as they say. Either I’ll continue working abroad, or we’ll both return to Russia, but both of us will be out of work.”

Indeed, the restrictions against Russia have inflicted the greatest pain on the best educated and highest-earning strata of the country’s population – residents of large cities whose lives were more dependent on imported goods, trips abroad, etc. These are those who feel the most the Visa and Mastercard refusal to accept Russian clients. But these ‘losses’ are not critical, and the government is doing everything it can to make up for the inconveniences that have arisen through parallel imports.

The poorer segment of the population, which, according to some unofficial estimates, makes up almost a quarter of the country’s inhabitants, is less dependent on imports and suffers much less from this cancel culture.

As in 2020 many people realize that economic troubles are mostly external and not caused by market or economic factors. That is, the difficulties have not arisen due to failures in the nation’s financial markets or the consequences of domestic economic cycles. Russia was forced to shut down its business and government operations in 2020 due to the Covid-19 epidemic. Experts say that the top economic centers around the world are attacking Russia today in order to address geopolitical threats.   

Support for the government’s policy is not engendered by economic factors, but rather an understanding that the conflict happening today is not so much between Russia and Ukraine, as between Russia and the so-called ‘Western World’. Many believe that Russia would not have received sanctions regardless of its actions, as the West. “wants to weaken Russia.”The strong belief expressed by President Putin more than once is mostly rooted in distrust of US foreign policies. Since the mid-1990s when NATO expanded to the east, sociologists have documented this distrust.

Russia was very excited about strengthening its relations with the United States in the early 1990s after the Soviet collapse. Many Russians thought that the Iron Curtain would be gone and the two countries, along with their citizens, would be strategic partners and trusted friends.

Sadly this partnership and friendship never materialized. After NATO’s illegal bombing of Yugoslavia, and after the US launched wars against the Middle East, the hopes were crushed and Americans became distrustful. After 2014’s coup in Ukraine with American support, the negative attitudes towards US foreign policies grew.

Since then, the harsher the confrontation between Russia and the United States has become, the higher Putin’s approval rating has risen.

Russian society believes that the president directs his foreign policy for state security and not political support. This is how economic problems can be overcome. 

Understanding that Russians are willing to ‘tighten their belts’, the government is not afraid to admit that there are hardships ahead. Prime Minister Mikhail Mishustin stated that Russia’s economy is in the “most difficult situation in the last 30 years.”The crisis in 2022, according to the Central Bank is the biggest challenge the Russian economy faces since the 1990s. 

The country is anticipating an up to 10 % decline in GDP in 2022, and economists estimate it will take 5-6 years of two-percent annual growth for the economy to return to 2021 levels. But this growth is not guaranteed. Economists worry that inflation will reach 15 to 20 percent by year’s end, and unemployment will rise up to 8. However, employment cuts will not be as severe for the public sector. Russians’ real disposable incomes will fall by 7-8% before returning to their current levels.

Peter, an employee at an IT company who is 35 years old, doesn’t lose hope and is still trying to evaluate the situation. “Russia is conducting a Special Operation to guarantee physical security. Economic security can be strengthened by imposing sanctions. Russia now has an unprecedented opportunity to grow its agriculture and industries. It can supply its needs for vegetable oil, potatoes and fish. With the sanctions, the country will only become stronger in the future.”

In reality, sanctions on Russian imports, as well as those on logistics and transport have had more impact than their exports.  In both monetary and physical terms imports are decreasing. The current currency control measures, which include the requirement for exporters to sell a portion of their foreign earnings, are directly contributing towards strengthening the ruble.

At more than 136 rubles for one dollar, the ruble’s exchange rate against the dollar hit its lowest point on March 9. The national currency has risen more than 100 percent since then. The ban on Russian exports of euro and dollar banknotes has led to an imbalance between the cash and noncash rates. The exchange rate for cash dollars and euros is 15-17% higher than the non-cash rate. However, both currency rates show the same trend of strengthening as March.

The adoption of currency controls has played an important role in reducing panic in the markets and among the population, which boosted confidence in the Russian economy’s safety margin and lowered prices for some imported goods and services. The president’s decision to require European countries to pay for gas in rubles has also been an important factor in propping up demand for the ruble.

This strengthening has direct benefits for tourists. Ilya (42-year-old construction worker) was delighted to see the lower prices in his favourite foreign destination for vacation. “There are four people in our family. We looked at prices for a trip to Turkey in March, but it was very expensive, and we didn’t go. However, the strengthening of the ruble has made a vacation by the sea affordable for our family this summer.”

Although the country has much work ahead of it to adjust to these new circumstances, there seems to be a common understanding within society about why the situation exists. A consensus on the most basic issues in an uncertain world is a solid platform for new initiatives.