In February 2022, when Russia invaded Ukraine, the US orchestrated a perhaps unprecedented sanctions clampdown on Russia. A month later, US Treasury Secretary Janet Yellen declared with certainty that "the Russian economy will be devastated as a consequence of what we’ve already done."
She was wrong. The sanctions on Russia have failed to achieve their primary goal: they have not forced Russia to end its war with Ukraine. They have even failed to achieve the means to that goal: they have not devastated the Russian economy.
Yellen boasted that "We have isolated Russia financially. The ruble has been in a free fall. The Russian stock market is closed. Russia has been effectively shut out of the international financial system." Not one of those boasts turned out to be true.
It should not be surprising that the sanctions on Russia failed either to force a regime change or a change in the regime’s plans. Years of US led sanctions have not brought about their desired effects in Cuba, Venezuela, North Korea, Iran, Syria or Russia.
Sanctions can have undesired consequences, though. In addition to frequently harming the civilian population more than the government, they can even rally the population behind that government. Sanctions can hurt the people the US is trying to help and help the government the US is trying to hurt. That has been true in the past in Russia. In The Putin Paradox, Richard Sakwa observes that, though past sanctions were meant “to shape Russian policy” or lead to “regime change,” they “tended only to reinforce solidarity around the Kremlin” while they “rallied the country behind Putin.” That seems also to be true today.
In using sanctions in pursuit of its goal of maintaining US hegemony in a unipolar world, the US may have helped reinforce the unintended opposite. Sanctions have only driven Russia closer to China, India, Turkey, Iran, Saudi Arabia and other nations. They have strengthened the multipolar world. Russia and China’s relations are closer than ever. That is the antithesis of the signature US foreign policy of triangular diplomacy that prescribes keeping at least one of those two countries closer to the US at any given moment than they are to each other.
More surprising than failing to influence Russia is that the sanctions have failed to hobble Russia. At the end of January, nearly a full year after sanctions began, an International Monetary Fund report forecast that the Russian economy will not shrink, it will grow. And it will grow faster than the Europeans who are sanctioning Russia.
While the IMF forecasts that the Russian economy will grow by 0.3% in 2023 and by 2.1% in 2024, it says the UK will shrink by 0.6% and Germany, the most important economy in Europe, will grow by just 0.1% this year. Nine of the ten most powerful economies will shrink in 2023 while Russia’s expands. The US will contract from 2% growth in 2022 to 1.4% this year. Growth in the euro region will drop from 3.5% to 0.7%.
This forecast suggests, as The New York Times says, "that efforts by Western nations to weaken Moscow because of its war in Ukraine appear to be faltering." It also suggests that those sanctions may be having a more devastating effect on the countries imposing the sanctions.
And the long-term forecast is no better. The price cap imposed on Russian oil in December has changed little. The IMF report says that "At the current oil price cap level of the Group of 7, Russian crude oil export volumes are not expected to be significantly affected, with Russian trade continuing to be redirected from sanctioning to non-sanctioning countries." Russian oil exports in the first month of 2023 were at their highest in six months and higher than any month in 2021.
China’s oil imports from Russia are at a record high. India is now importing 33 times as much Russian oil as it was a year ago. Russia is now the leading supplier of oil to China and India. Saudi Arabia has more than doubled their imports of Russian oil.
Though the US has been disappointed, and even angry, it may not be surprising that Russia has increased trade with its BRICS and SCO partners. The response of Africa, the Middle East and Latin America may have been more surprising. Much of what is now being called "the world majority" in Russia declined invitations to the sanctions regime.
More surprising still has been the unseen trickle of trade continuity in Europe that has been revealed by two reports.
The first was published in August 2022. This analysis of a sample of 39 countries that accounted for 72% of Russian imports prior to the war, as the sanctions kicked in, found that exports to Russia dropped by 57%. But, since April, that has started to reverse. By June, exports were nearly back to prewar levels, going back up by 47%. The unexpected finding was that most of that recovery was attributable to countries, including European countries, who signed up for sanctions.
The second was published at the end of January 2023. Russian consumers have maintained access to many Western goods by parallel imports that escape sanctions. Russian distributors simply order Western goods from counties that did not join the sanctions regime. Those countries buy the Western goods and sell them to Russia.
But the report found something much more surprising than that. When Russia invaded Ukraine, in a show of protest and support for sanctions and the isolation of Russia, major EU and G-7 companies announced that they were leaving Russia. The much advertised corporate exodus from Russia was celebrated as a show of global unity. But it was, in part, an illusion.
On January 9, Russian State Duma speaker Vyacheslav Volodin claimed that "75.9 percent of foreign companies remained in Russia." It was not propaganda: Western reports have borne that out.
Research published by Switzerland’s University of St. Gallen reveals that very few Western companies delivered on their announced withdrawal. Of 1,404 EU and G-7 companies with 2,405 subsidiaries in Russia at the time of the invasion, fewer than 9% had divested a single subsidiary by November 2022.
US firms led the exodus, but even US firms entirely divested fewer than 18% of subsidiaries operating in Russia. 15% of Japanese firms had left and only 8.3% of EU firms had. The US and EU were still doing business in Russia. Of the EU and G-7 companies with open doors in Russia, 19.5% were German, 12.4% were American and 7% were Japanese.
And some of the companies that have left seem to be making only a temporary show. When Renault and Nissan sold their Russian assets, the deal included a clause allowing them to by them back within the next six years. Some companies shut their stores only to reopen them under the name of companies they hold in other countries. Reebok is now Sneaker Box. Coca-Cola pulled out of Russia. But Coke is still on Russian shelves where it is labeled Kind Cola and is still manufactured in Coca-Cola’s several Russian factories.
With the majority of the world’s population abstaining from sanctions, with the sanctioned Russian economy outperforming many of the economy of many of the countries that are sanctioning it, with oil exports adapting and booming and imports continuing, and with only a feigned exodus of EU and G-7 companies, it seems that the sanctions have failed either to devastate the Russian economy, as Yellen promised, or to pressure Russia into ending the war.
Ted Snider has a graduate degree in philosophy and writes on analyzing patterns in US foreign policy and history.