Western sanctions take toll on Russia’s wartime economy


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When Russian President Vladimir Putin launched last month a new council for coordinating supplies for the Russian army, he seemed to recognize the scale of the economic problems facing the country, and his sense of urgency was palpable.

“We have to be faster in deciding questions connected to supplying the special military operation and countering restrictions on the economy which, without any exaggeration, are truly unprecedented,” he said.

For months, Putin claimed that the “economic blitzkrieg” against Russia had failed, but Western sanctions imposed over the invasion of Ukraine are digging ever deeper into Russia’s economy, exacerbating equipment shortages for its army and hampering its ability to launch any new ground offensive or build new missiles, economists and Russian businessmen said.

Recent figures show the situation has worsened considerably since the summer when, buoyed by a steady stream of oil and gas revenue, the Russian economy seemed to stabilize. Figures released by the Finance Ministry last week show a key economic indicator — tax revenue from the non-oil and gas sector — fell 20 percent year in October compared to a year earlier, while the Russian state statistics agency Rosstat reported that retail sales fell 10 percent year on year in September, and cargo turnover fell 7 percent.

“All objective indicators show there is a very strong drop in economic activity,” said Vladimir Milov, a former Russian deputy energy minister who is now a leading opposition politician in exile. “The spiral is escalating, and there is no way out of this now.”

The Western ban on technology imports is affecting most sectors of the economy, while the Kremlin’s forced mobilization of more than 300,000 Russian conscripts to serve in Ukraine, combined with the departure of at least as many abroad fleeing the draft, has dealt a further blow, economists said. In addition, Putin’s own restrictions on gas supplies to Europe, followed by the unexplained explosion of the Nord Stream gas pipeline, has led to a sharp drop in gas production — down 20 percent in October compared to the previous year. Meanwhile, oil sales to Europe are plummeting ahead of the European Union embargo expected to be imposed Dec. 5.

The Kremlin has trumpeted a lower-than-expected decline in GDP, forecast by the International Monetary Fund at only 3.5 percent this year, as demonstrating that the Russian economy can weather the raft of draconian sanctions.

But economists and businessmen said the headline GDP figures did not reflect the real state of the Russian economy because the Russian government effectively ended the ruble’s convertibility since the sanctions were imposed. “GDP stopped having any meaning because firstly we don’t know what the real ruble rate is, and secondly if you produce a tank and send it to the front where it is immediately blown up, then it is still considered as value added,” said Milov, who wrote a report explaining the situation for the Wilfried Martens Centre for European Studies published this month.

Deeper problems were also lurking in the Russian banking sector where most accounting has…



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