When Russia invaded Ukraine back in February, sanctions sounded like the right idea: Squeeze Russia’s economy until the fallout renders it unable to continue fighting the war.
But in reality, things have played out a little bit differently.
What happened: According to the International Energy Agency (IEA), Western sanctions have had a limited impact on Russia’s oil exports, which is also its biggest money maker.
- In fact, the IEA has raised its forecast for Russian crude production as it benefits from energy prices that have soared since the start of the war.
Why it matters: In recent months, we’ve learned how reliant the global economy is on Russia’s energy exports—Europe has been slow to find alternatives to Russian gas and to the extent they have, other countries have been more than happy to pick up the slack.
- As the West looks to implement partial bans on Russian energy, Russia has limited supply to drive up prices and rerouted exports to India, China and Turkey to mitigate financial losses.
- Those energy exports have made it possible for Russia to continue funding its invasion of Ukraine.
Yes, but: If it sounds like Russia’s doing just fine, it’s not. The World Bank predicts the country’s economy will see the largest decline since the collapse of the Soviet Union.
- Russia has no problem selling stuff, but it's having a lot of trouble buying stuff across other industries affected by sanctions, according to Economist Paul Krugman,
Bottom line: Russia may be able to coast on its energy money for a while longer (the IEA also increased its global oil demand forecast), but it remains to be seen how long the country will withstand fast-growing inflation, slowing trade, and the impact on Russian business.