Sanctions against Russia – Russia’s economy suffers from the war – News

There is a 1.7 trillion ruble hole in the Kremlin’s budget. The sanctions worked, says an expert.

After almost a year of war against Ukraine, the Russian economy is suffering enormously. The Kremlin has not run such a large deficit in January since 1998. In 1998, the ruble crisis led to Russia’s virtual state bankruptcy. The current billion-dollar hole is inevitably linked to Russia’s war against Ukraine: The massive decline in oil and gas exports is striking in the statistics. Compared to the previous year, Russia earned only half as much.

This is a sign that Western sanctions are finally having an effect, says sanctions expert Maria Schagina from the International Institute for Strategic Studies. According to Schagina, the West announced many sanctions last year. But the most important ones, namely those in the energy sector, were only implemented in December. At the beginning of the war, Russia was able to recoup its initial losses thanks to rising energy prices.

But now this balance is becoming more and more difficult, mainly because of the oil price cap and the tightened oil embargo of the EU.

Gold reserves are tapped

Before the war, Russia had generated around half of its total annual revenue from oil and gas exports. Now the Kremlin is trying to compensate: it is selling part of its reserves in gold and Chinese yuan.

Last year, the Ministry of Finance used funds that were actually intended for the pension system to cover the deficit. Corporations like Gazprom were hit with massive taxes. Above all, however, Moscow wants to find new customers for its raw materials. It’s all part of the “economic mobilization” that Russian officials are increasingly talking about.

This will help, says Maria Schagina, but a panacea has not been found. In the case of domestic measures, the money collected only circulates in the already shrinking Russian economy. The realignment to the Asian market is in progress, but costly and time-consuming. This also weighs on the budget indirectly.

Kremlin sticks to its goals

Despite this, the Kremlin shows no willingness to deviate from its war aims. This is also reflected in the budget figures: the deficit is also due to massively higher spending. Experts assume that this money mainly goes to the army. Because Russia announced months ago that it would almost double its military budget. In order to make this possible, savings must be made elsewhere, says Maria Schagina.

Spending on infrastructure or healthcare has been cut, especially in the outskirts of Russia. Here the quality of life is already low, unlike in Petersburg or Moscow, where the Kremlin wants to protect the middle class from the consequences of the war. But the figures show that it could already be too late for that: VAT receipts have also fallen sharply. For Schagina, this is an indication that consumption among the population is declining, another ominous sign.

Collapse is not imminent

According to Maria Schagina, the sanctions are getting closer to their goal of crippling Russia’s war industry. A collapse of the Russian economy is not imminent. It is reminiscent of other strictly sanctioned regimes such as Iran or North Korea. Even in such a state, Russia could continue the war against Ukraine on the back burner. Even effective sanctions, it seems, can only be part of the solution.