Russia’s economic defenses are likely to collapse under the sanctions.

Russia has spent seven years building formidable financial defenses. However, Russia’s economy will not be able to withstand coordinated sanctions from the West over the long term.

Europe and the USA are launching reprisals against President Vladimir Putin’s sending tanks into Ukraine. This is in addition to the sanctions already imposed as a result of his decision to recognize the independence of two independent Ukrainian provinces.

“The assumption that Russia will not be affected is false. Although the negative effects of sanctions may not be immediately felt, they will have an impact on Russia’s long-term potential,” stated Christopher Granville (managing director at consultancy TS Lombard) and a veteran Russia watcher.

The West has taken steps to freeze assets and sanctions on Russian banks and businessmen. They also stopped fundraising abroad. An $11 billion gas pipeline project to Germany was frozen.

Russia dismissed the sanctions as an attack on the interests of those who imposed it. They won’t affect an economy with $643B in currency reserves and booming revenues from oil and gas.

These metrics have earned Russia the title of “fortress economy”, along with a current account surplus equal to 5% of annual GDP, and a debt-to-GDP ratio of 20%, which are among the lowest in the globe. Only half of the Russian liabilities are now in dollars, compared to 80% 20 years ago.

These statistics are the result of years of savings since Putin’s 2014 Crimea annexe.

Granville claims that Russia will receive an additional 1.5 trillion rubles ($17.2 billion) from rising oil prices. This is in addition to the tax on profits of energy companies.

He noted that this type of autarky comes with a cost: deeper isolation from the global economy, markets, and investment.

“Russia will be treated as a hostile country, cut off from global flow, investment, and other normal economic interactions that improve living standards, incomes and company profitability.”

Already, signs of economic vulnerability exist. Russian household incomes remain below 2014 levels, and in 2019, prior to the COVID-19 pandemic, the annual economic output was $1.66 trillion according to the World Bank. This is far less than the $2.2 trillion in 2013.

Sergei Guriev is an economist at France’s Sciences Po and was previously the chief economist of the European Bank for Reconstruction and Development. He pointed out that Russia’s nominal per-capita GDP was double that of China in 2013.

“In 2013, Russia was a country with high income and was actively negotiating OECD accession. He said that Russia has now returned to middle-income status.

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