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Impact of Western Sanctions and the War in Ukraine: Economic Challenges for Russia

Technological shortages, falling energy income and commercial isolation: The uncertain future of the Russian economy.

By GBPublished 9 months ago 3 min read

maybe you will ask yourself:

What effect have Western sanctions had on the Russian economy after 15 months of invasion in Ukraine?

How did the Russian economy contract during 2022 and to what extent does it differ from predictions of economic collapse?

After 15 months of the Russian invasion of Ukraine and the sanctions imposed by the West on Moscow, the question arises as to whether these measures are affecting the Russian economy. Although a turning point has been observed since the beginning of the year, the indicators forecast a discouraging future.

During the year 2022, the Russian economy contracted by 2.5%, which is a far cry from the economic collapse that many experts had predicted. This does not mean that the sanctions are useless, since most of them have slow application deadlines. The most relevant sanctions, related to energy, were scheduled to take effect after Europe found other sources of energy. However, according to data from the Russian Economy Ministry, state revenues from oil and gas fell by 67% in April this year compared to the same month last year.

This drop in revenue means that the Kremlin stopped receiving more than 1.1 trillion dollars a month to finance the war in Ukraine. In addition to the collapse of Russian hydrocarbon exports in Europe, Brussels has imposed a cap on the price of Russian crude since February this year, setting it at $60 per barrel. This led Asian buyers to demand a decrease in the Ural oil price, resulting in a 42% drop compared to the previous year.

Although Russia may look to other markets, they may not pay the same prices as Europe. Consequently, sanctions and measures such as the cap on oil and gas prices end up taking their toll on the Russian economy. Although the Russian economy has not yet fully suffered the consequences, the persistence of sanctions is expected to significantly affect and set back Russian economic development for years.

Not only does the lack of trade with the rest of the world affect Russia, but it is also virtually cut off from the West. In addition to the expulsion of Russian banks from the Swift system, the Kremlin cannot acquire Western technology. The import of semiconductors, essential in the production of automobiles, machinery and cell phones, has decreased by 74% in just one year.

The lack of cutting-edge Western technology affects important sectors of the Russian economy and also affects the arms industry, since Russian weapons are considered quite old. In addition, Russia faces difficulties in the acquisition of weapons due to public spending in this area, which has generated a budget deficit of 34 billion dollars in the first two months of 2023. This has caused Russia to deplete 82% of its deficit forecast for the year in just a few months.

The Russian tech industry is also facing problems due to a lack of skilled labor. Hundreds of thousands of tech workers have left the country

since the start of the war with Ukraine, leaving companies in the sector without qualified personnel and condemning the Russian economy to an uncertain future. In addition, Russia is making it difficult for its workers to leave the country.

In short, the Russian economy is in a bleak state due to a combination of sanctions, lack of trade, technological isolation, and arms shortages. Although it has not yet suffered the full consequences, the country's economic future looks bleak. How long will Russia be able to resist this situation? Leave us your comments and don't forget to like it.

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