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Russian Economy Damaged By Western Sanctions, Think Tank Finds

Russian President Vladimir Putin speaks at the annual meeting of the Valdai Discussion Club via video conference at the Novo-Ogaryovo residence outside Moscow, Russia. (Alexei Druzhinin, Sputnik, Kremlin Pool Photo via AP)

WASHINGTON- Although western sanctions have not forced the Russian government to completely end its aggressions in Ukraine, the true impact of the sanctions has not been fully acknowledged, according to a new report from the Atlantic Council, an international affairs think tank headquartered in Washington, D.C.

According to the report’s findings, the sanctions have both stymied the growth of the Russian economy and limited Russia’s preannounced entrance into Ukraine in the summer of 2014.

Since 2014, when the sanctions were first put in place, Russian economic growth has been well below the global average. While the global average was 2.3% per year, Russian growth was only 0.3%. The Atlantic Council estimates that western sanctions reduced Russia’s economic growth by about $50 billion per year, or about 2.5-3%.

The sanctions have deeply impacted the Russian economy because they have significantly lowered its access to foreign credits and foreign direct investments, the report said, as well as by “enticing the Kremlin to pursue a more restrictive fiscal and monetary policy than would have been ideal for economic growth.” 

Recent American sanctions have also banned U.S. financial institutions from participating in markets directly connected to the Russian Federation.

The Russian economy will not kick back into growth until it convinces the west to ease the sanctions, the report also contends.

This directly harms the twin goals of the Russian government, the authors say, which is to maintain power and enrich a narrow elite by spreading around spoils. 

Sanctions have been in the foreign policy arsenal for some time. From 1950 to 1990, sanctions became more popular as a foreign policy tool in general, becoming substantially more common in the 1990s, according to a review of data in the Global Sanctions Database. Financial and visa sanctions have become increasingly common, displacing trade sanctions which abolish or restrict trade with an entire country.

Under the Obama administration, starting in 2014, the U.S. sanctioned Russia for “violating the sovereignty and territorial integrity of Ukraine,” and “for stealing the assets of the Ukrainian people.” The west imposed financial sanctions and personal sanctions against what they described as human rights abusers and corrupt businesspersons. 

The west did not impose trade sanctions on Russia, although it did restrict the export of some technology, the Atlantic Council report said. 

In late February 2014, Ukraine’s Maidan Revolution had sent the Russia-favored Ukranian President Viktor Yanukovych fleeing Kyiv, eventually ending up in Russia, according to the Brookings Institution’s summary of the sequence of events. The Ukrainian parliament, the Rada, appointed new leadership that made known its intentions to sign an association agreement with the European Union. 

By March of 2014, Russia had annexed Crimea, which Brookings has described as the “biggest land-grab in Europe” since the Second World War.

A contested referendum took place in Crimea, the Brookings summary recounts, and then the Treaty of Accession of the Republic of Crimea to Russia was signed and ratified in March.

Russia made a historical claim to the area, the only part of Ukraine with an ethnically Russian majority, but organizations like Brookings describe the annexation as clearly in violation of international law.

Tensions have continued.

Because the Russian economy has barely grown since 2014, the authors elaborate in the Atlantic Council report, Russia has followed a foreign policy that utilizes “hybrid warfare,” which relies on techniques like cyber-attacks and assassinations, rather than outright warfare.

The list of Russia’s “hybrid warfare” and acts of aggression has included the military aggression in Ukraine, election interference, cyberattacks, assassinations, and disinformation, the Atlantic Council said.

On April 15, the U.S. expelled 10 Russian diplomats and imposed new sanctions on Russia to show “resolve in responding to and deterring the full scope of Russia’s harmful foreign activities.”

The new report, issued this week, details the impacts of previous sanctions on the Russian economy. It was published by Dr. Anders Åslund, resident senior fellow at the Atlantic Council’s Eurasia Center, and Dr. Maria Snegovaya, nonresident fellow at the Eurasia Center, and it can be read here.

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