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Updated December 13, 2022
The Economic Impact of Russia Sanctions
In response to Russia’s 2022 war on Ukraine, a broad,
temporary (Figure 1). Russia’s oil exports to non-U.S.
multilateral coalition, including the United States, the
destinations, largely exempt from sanctions until December
European Union (EU), the United Kingdom, Canada,
5, 2022, have been an important source of government
Australia, Japan, and others, imposed sweeping new
revenues.
sanctions on Russia. The sanctions—unprecedented in
terms of scope, coordination, and speed—target the
Figure 1. Economic Trends in Russia
overseas wealth and economic activity of Russia’s elites
and decision makers. The sanctions also target Russia’s
financial and energy sectors and access to western
technology, among other financial and trade tools. The
sanctions have created challenges for Russia but to date,
have not delivered the economic “knock out” that many
predicted. New sanctions on Russian oil exports
implemented in December 2022 may increase economic
pressure on the government.
Although sanctions are a foreign policy tool deployed in
several contexts, the coordinated sanctions on Russia are
significant to the global economy due to the size of Russia’s
economy—before the war, the 11th largest in 2021—and
Russia’s integration in the global economy. In addition to
its oil and natural gas exports, Russia has been a key global
supplier of several metals (titanium, aluminum, and nickel),
chemical gases used in semiconductor production, wheat,
and fertilizers, among other commodities. Many U.S. and
international firms had also established factories, joint
ventures, and retail operations in Russia, and face losses as
they exit the Russian market.
Impact on Russia’s Economy
Early in the war, the broad consensus was that the new
sanctions could devastate the Russian economy. Since the
start of the war In February 2022, sanctions have created
numerous economic challenges in Russia. For example:
Source: Created by CRS from IMF World Economic Outlook
Russia’s financial sector faces losses of hundreds
Database.
of billions of dollars;
the Russian military is having difficulties
There is some evidence that economic conditions in Russia
procuring key components for its war effort;
are starting to deteriorate at a faster rate. In November, the
many Russian factories have suspended production Russian central bank estimated a faster economic
because they cannot access foreign-made parts;
contraction in Q4 2022 (7.1%) relative to previous quarters
in 2022 (around 4%). Sanctions may be a contributing
many affected companies are placing employees
factor—it often takes time for the full effect of sanctions to
on part-time schedules or furlough;
materialize—but other factors are likely contributing as
hundreds of U.S. and international companies have
well. Most notably, the war effort itself—including the
exited the Russian market; and
mobilization of civilian production for military purposes,
Russian oil is selling below market prices.
workers drafted to military service, and deferred domestic
infrastructure projects—has created economic disruptions.
By other metrics, however, the Russian economy has
weathered the sanctions better than many expected. In
The recent expansion of oil-sector sanctions is expected to
October 2022, the International Monetary Fund (IMF)
increase pressure on Russia. In December 2022, the EU
estimated that in 2022 Russia’s economy would contract by
banned imports of most Russian crude oil and the G7
3%, less than half of its economic disruption during the
implemented a global price cap on Russian oil purchases.
global financial crisis of 2008-2010 (Figure 1).
These new oil sanctions could reduce government revenues,
Additionally, IMF forecasts suggest that the 2022 uptick of
exacerbating budgetary pressures resulting from higher war
inflation in Russia, and its decline in imports, will be
expenditures.
https://crsreports.congress.gov
The Economic Impact of Russia Sanctions
Economic Impact Outside of Russia
Impact on the Structure of the Global Economy?
Sanctions that isolate Russia are a shock to the global
The new sanctions responding to Russia’s aggression could
economy, which is still struggling to recover from the
have lasting effects on the structure of the global economy.
COVID-19 pandemic. The sanctions have likely
The sanctions could create (or deepen) fractures in the
contributed to disruptions in global supply chains, higher
global economy, resulting in disparate economic blocs and
global commodity prices, and a slowdown in global
schisms that could undermine the international rules-based
economic growth. The IMF forecasts that global economic
economic order that the United States has prioritized since
growth will slow from 6.0% in 2021 to 3.2% in 2022 and
World War II. On the other hand, a coalition of like-minded
2.7% in 2023, but it is difficult to assess the effect of
economies, led by the United States and Europe, could
sanctions separate from other contemporaneous factors,
create opportunities for significant new economic
including the war, tighter monetary policy (higher interest
agreements.
rates) in many advanced economies, and COVID-19 related
Sanctions also could accelerate efforts by various countries,
supply disruptions primarily in China.
particularly China, to reduce their reliance on the U.S.
United States
dollar in international transactions, and Western cross-
border payments infrastructure more generally. The freeze
The United States has never had a substantial economic
of Russia’s central bank assets, in particular, could make
relationship with Russia; Russia (and the USSR prior to
countries reconsider their holdings of and use of the dollar.
1992) has accounted for less than 3% of annual U.S.
If de-dollarization efforts gain traction on a broader scale,
exports and imports since World War II. However,
U.S. borrowing costs could increase and sanctions could
sanctions may have significant effects on specific U.S.
become a less effective policy tool.
companies and sectors engaged with Russia. For example,
there may be concerns about the exposure of particular U.S.
Policy Questions for Congress
financial institutions to Russia, the availability of raw
materials from markets outside of Russia, and the
Sanctions have imposed some costs on Russia, disrupted
competitiveness of U.S. firms. Concerns also focus on
global energy markets, and created economic opportunities
whether reduced Russian energy supplies could lead to
for countries outside the sanctions coalition, including
higher gas prices and exacerbate inflation.
China. Most U.S. sanctions imposed on Russia in 2022
were implemented by the Biden Administration through
Europe and Energy
executive orders.
Among the coalition imposing sanctions, the EU has been
As Congress exercises oversight of U.S. sanctions on
Russia’s strongest economic partner and faces the greatest
Russia and considers the role of the legislature in
economic disruption. Europe has been dependent on energy
formulating U.S. sanctions policy, possible policy questions
imports from Russia, especially natural gas, and EU
include:
sanctions on Russia exempted certain energy-related
exemptions through December 5, 2022. Natural gas from
What is the ultimate goal of sanctions on Russia?
Russia to the EU has have fallen by more than half since the
Are the sanctions advancing the United States and allies
war started. European governments are stockpiling fuel and
towards these goals?
providing emergency financial assistance to households and
businesses. The expansion of oil sanctions could further
Are decision-makers in Russia responsive to economic
destabilize global energy markets.
pressure?
Food Security
Are more sanctions needed?
The sanctions include exemptions to minimize
Under what conditions should sanctions be lifted?
humanitarian costs. For example, the war has disrupted
How long can the United States sustain multilateral
global grain and fertilizer markets, increasing concerns
cooperation on sanctions? What would be the
about global food insecurity. U.S. and EU sanctions do not
consequences of weakened cooperation?
prohibit the exportation of agricultural commodities from,
to, or involving Russia. Transactions involving agricultural
Should the United States provide economic support to
trade are exempt from financial sanctions.
U.S. companies and industries affected by sanctions?
Countries Outside the Sanctions Coalition
How should the United States engage with countries
Current sanctions on Russia are multilateral but not global,
increasing economic engagement with Russia?
and Russia is seeking deeper economic relationships with
Should Congress codify sanctions implemented through
countries outside the sanctions coalition. For example,
executive orders?
Russia’s exports to Brazil, China, India, and Turkey have
increased by at least 50% since the 2022 war started,
relative to the previous year.
Rebecca M. Nelson, Specialist in International Trade and
However, Russia’s ability to engage in cross-border
Finance
transactions remains hindered by the sanctions. The extent
to which countries outside the sanctions coalition are
IF12092
willing to risk potential fallout with the United States, the
EU, and others by significantly increasing economic
engagement with Russia is also unclear.
https://crsreports.congress.gov
The Economic Impact of Russia Sanctions
Disclaimer
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