Russia Sanctions Focus Should Be on Enforcement and Compliance, Panelists Say
Sanctions and export controls on Russia are having an effect and policymakers should exercise patience and focus on enforcement going forward, experts said during a Jan. 31 discussion at the Atlantic Council. The event was a discussion of the impact of sanctions and export controls on the Russian economy.
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Metrics often communicated to the public, including GDP and real income, don't paint the full picture of how well the sanctions are working, said Vladimir Milov, vice president of the Free Russia Foundation. Instead, he advocated the use of first order metrics such as consumer demand, tax revenue and individual business performance, as well as a focus on the longer term picture. Before 2014, "Russians were already 10-15% poorer" due to sanctions following the Russian annexation of Crimea. People don't have savings, he said. The 2% real income drop in 2022 is what gets reported, but retail trade fell by over 10%. "Russians stopped spending money," Milov said.
State revenues outside the energy sector have fallen steeply and the future is grim without signs of an economic rebound, said Charles Lichfield, deputy director of geoeconomics at the Atlantic Council. Extractive industries have been a lifeline but have now started to be affected because of price caps. Russia has a limited ability to pivot and build infrastructure for alternative exports because of the lack of revenue, he said. Even though the sanctions are working, many commentators, including himself, were too eager to predict immediate success, Lichfield said. The unprecedented nature of the sanctions made people think that they would work immediately.
In addressing concerns that sanctions are hurting average Russians, Leonid Volkov, Russian opposition figure Alexei Navalny's chief of staff, said Russian propagandists previously used the sanctions as a scapegoat. The Russian government "could steal more and blame sanctions ... but after the war people have started to connect the dots," Volkov said. The Kremlin was not united. Russia's decision to invade Ukraine was made by "a very small group of allies ... and people know that," Volkov said. The Russian people have done a surprisingly good job connecting their economic precarity with Western sanctions and Russian state behavior, he said. "Even the true believers know what is happening."
There will not be an overnight collapse, Elina Ribakova, deputy chief economist at the Institute for International Finance, said, but a long-term eroding of the Russian economy will take place. Restricted by export controls, the Russian economy will find long-term input substitutes, but those alternatives will be substandard and come at inflated costs, she said.
The key focus going forward should be on sanctions compliance and enforcement, Milov said. The sanctions already in place are sufficient, but Russia has proven capable of circumvention and evasion in a number of areas, he said.
One area of sanctions expansion the panel considered was targeting Russian state employees. Although 1,200 Russian individuals have been sanctioned, both Milov and Volkov advocated expanding individual targeting to mid-level bureaucrats who think "only those at the top are getting hit, and we can keep doing our jobs."