West May Have Underestimated Russia’s Ability to Weather Sanctions

The United States and Europe might have miscalculated just how resilient Moscow has been to sanctions in the short run.

When the West applied aggressive sanctions against Russia after its invasion of Ukraine, it hoped to crush the value of the ruble and send inflation soaring. Before that, the U.S. and allies also had hoped to deter Russia from its incursion by dangling the mere threat of punishing sanctions — but in some respects, it has fallen flat on both fronts.

The ruble is up more than 30% this year against the U.S. dollar and is trading at 54.20 to the dollar. That growth came after the value of the ruble immediately cratered following Russia’s invasion and was at one point worth less than a penny.

Additionally, while the U.S. cut off Russian energy exports and Europe vowed to begin cutting back in hopes of smothering the Russian economy, Moscow has been able to find other buyers and is now retaliating itself.


Last week, Russia slashed the amount of gas it pumps into Europe via its Nord Stream I pipeline 60% in a retaliatory fashion. It was also reported that some White House officials have been privately expressing concerns that the sanctions have backfired in a sense and are hurting the U.S. economy through higher inflation and supply chain problems more than anticipated.

Bruce Jentleson, a professor of public policy and political science at Duke University, said there were two calculations made by the U.S. and allies in sanctioning Russia. The first of which was that the mere threat of being sanctioned so heavily would act as a deterrent to the Russian invasion. The threat alone did not work, as Russia punched its way into Ukraine in February.

The second calculation was that the sanctions would be so strong they would represent a sort of “shock and awe” for Moscow. The West hoped that the aggressive sanction regime would devastate the Russian economy so much and so swiftly that it would cause Putin to rethink the war and bring him to the negotiating table.

“The jury is still out on the medium- to longer-term effect of sanctions, but their calculations of short-term effects, both deterrent and immediate shock and awe, were way overestimated,” Jentleson told the Washington Examiner.

The targets of sanctions typically already have certain plans in place to insulate themselves prior to the sanctions kicking in, and Russia has taken some countermeasures to do so.

For example, the Russian central bank quickly hiked interest rates from 9.5% to 20% in the immediate aftermath of the invasion, and the government imposed strict capital controls to force buying of the ruble and limit selling, including requiring Russian exporters to convert a percentage of their excess revenues into rubles.

Despite the West’s attempts to choke off its revenues, Russia has continued to reap major profits from its energy exports, thanks largely to the higher prices of oil and gas globally and a rise in purchases from non-Western nations.

Europe is still buying substantial volumes of Russian oil and gas, to be sure.

France has increased imports of Russian fossil fuels since the war began, and in the first hundred days of the war, Russia’s top five buyers, in terms of euros spent, included Germany, Italy, and the Netherlands, according to research published earlier this month by the Europe-based Center for Research on Energy and Clean Air.

Meanwhile, Russia has also been diverting more oil and gas to destinations outside of Europe. China, India, Saudi Arabia, and the United Arab Emirates have all taken advantage of discounted Russian oil and increased their imports since the war began.

India alone bought 18% of Russia’s crude exports in the first 100 days, according to CREA, and China increased seaborne imports to around 1.1 million barrels per day in May.

Russia has sold its oil at a discount to Brent crude of as much as $37 per barrel since the war began, but because of higher Brent prices, it’s earning more per barrel now than at the beginning, a top State Department official recently said.

“I can’t deny that,” Amos Hochstein, senior adviser for energy security, recently told a Senate committee when asked about Russia’s higher oil revenues.

“Commodity prices are currently sky-high, and even though there is a drop in the volume of Russian exports due to embargoes and sanctioning, the increase in commodity prices more than compensates for these drops,” said Tatiana Orlova, lead emerging markets economist at Oxford Economics.

There might also be some sanctions fatigue as the war drags on. If the war wears on through the summer and inflation continues to plague Western economies and cause them pain, Russia might be hoping that leadership in the U.S. and Europe might try to pare back the sanctions over domestic discontent.

Still, Russia will likely not be able to sustain these countermeasures indefinitely.

“The combination of the sanctions and the Ukrainian military strategy and U.S. and Western support for that could put enough pressure on Russia that they’re willing to negotiate,” Jentleson said.

Currencies can also be overvalued, and a too-valuable ruble can actually hurt the Russian economy.

First Deputy Prime Minister Andrey Belousov said there have been talks about targeting an “optimal” exchange rate of 70-80 rubles per dollar in order to encourage economic growth, Bloomberg reported.

Additionally, Russia has been working to weaken the capital controls it implemented after the U.S. and Europe hit its economy with sanctions. The Russian central bank has also been slashing interest rates, which are now back to prewar levels.

It is yet to be seen how effective U.S. and European sanctions will be on Russia in the long run, though in the short run, it is becoming more apparent that they didn’t have as devastating an effect as initially thought and are causing consumers in the U.S. to feel more economic blowback than expected.

Reporting from Washington Examiner.