Russia’s economic resilience against sanctions has frustrated the West as the war in Ukraine drags into its third year — but the lessons learned from the experience will be valuable, one economist says.
“The primary lesson is that seeking complete isolation of a large, complex and globally-integrated economy is costly and unattainable,” Elina Ribakova wrote in the Financial Times on Tuesday.
Despite sweeping Western sanctions over the invasion of Ukraine, Russia posted a GDP growth of 3.6% in 2023 after contracting 1.2% in 2022. The International Monetary Fund expects the economy to continue growing and rise 2.6% in 2024.
Russia’s economy has managed to keep humming because Russian President Vladimir Putin has been preparing for sanctions since 2014. Moscow and Beijing have also launched alternative payments systems to skirt the widely used SWIFT system.
Although official statistics from Russia should be “approached with caution,” Ribakova said the country’s economy appears to have stabilized thanks to wartime spending. The West has also not stopped completely buying Russian energy products.
“It took coalition governments almost a year to reduce purchases of Russia’s oil and gas — and many of their corporates are still actively engaged in trade with Russia,” said Ribakova, who is a non-resident senior fellow at the Peterson Institute for International Economics. She is also a director of the International Affairs Program and the vice president for foreign policy at the Kyiv School of Economics.
Failures in Russia, lessons for the future
Even so, the West can glean valuable lessons from its experience sanctioning an economy as large as Russia, said Ribakova. That’s especially since the US may one day impose trade restrictions against China over a potential conflict in Taiwan — a self-ruled territory Beijing claims as its own.
Like Russia, China has integrated itself into global markets and is unlikely to be caught off guard, she added.
“In the case of China, the US would need to look for vulnerabilities while remaining realistic about the limitations of sanctions,” wrote Ribakova in FT.
She added there must be steeper penalties for those who evade sanctions.
“The experience with Russia is an invaluable opportunity to sharpen sanctions as a foreign policy tool,” she wrote Ribakova.
Secondary sanctions are working
Chinese banks are tightening compliance checks with Russian businesses because they fear getting caught up in the West’s increasingly restrictive sanctions against Russia.
These include secondary sanctions the US authorized in December, which target financial institutions that help Russia skirt restrictions.
Three of China’s Big Four state banks have halted payments from sanctioned Russian financial institutions, Russia’s Izvestia news outlet reported on February 21.
The Kremlin has acknowledged issues with Chinese bank transactions, with spokesperson Dmitry Peskov saying earlier this month that authorities are “working” on addressing them with Beijing.
