The West Tried To Destroy Russia's Economy. It Didn't Work.

As the Kremlin shifts production into a war economy, Western predictions of an economic collapse look premature.

When the first round of sanctions were imposed on Russia a day after its full-scale invasion of Ukraine in late February 2022, Western leaders claimed the measures would suffocate the Russian state’s ability to fund its war machine, depriving factories of imported materials essential for the production of tanks, fighter jets and missiles. Since then, several more rounds of sanctions have followed, resulting in the heaviest set of economic sanctions and export controls imposed on a major economy in modern history.

Oil incomes were slashed through price caps and European countries seeking alternative energy sources.

Assets owned by oligarchs and politicians implicated in the invasion were frozen and confiscated.

Western companies were forbidden from trading with Russian businesses, with penalties imposed on any circumnavigating the measures.

The punishments, economic by nature, were designed to starve the Russian economy, and, perhaps, even facilitate a change in government. To some of the more sanguine architects of the sanction regime, the decline in living standards precipitated by the departure of Western companies, such as Starbucks and McDonalds, who abandoned hundreds of key chains across the country, would galvanise the Russian people into opposition. So accustomed were they to cheap, Western material goods, the argument continued, that they have would no choice but to take to the streets and demand an end to the fighting to restore their prior living conditions.

Two years later, however, Russia’s economy has not collapsed. In fact, it has defied expectations and rebounded. Factories across the nation are now humming, churning out new tanks and armoured personnel; oil and gas sales remain relatively strong, despite harsh sanctions; and the Russian people are finding new employment in service of the war machine, joining the swelling ranks of the military. Putin, meanwhile, has tightened his grip on power, thwarting any hopes of a coup materialising from the disgruntled elite, who have seen their status and prestige in the West erased.

More humiliatingly for Western officials, the Russian economy in 2023 outpaced both the United States and Europe in terms of growth, increasing in size by 3.6%, despite being cut off from major global markets. And the economy is expected to continue growing in 2024. While the Russian government's forecast of a 2.3% increase in GDP is slightly below the 2.6% forecast released by the International Monetary Fund, it is significantly higher than the projected performances of Western countries like the UK or Germany, which risk plunging into an economic recession following high energy costs and slow consumer spending, some of which have been amplified by the very same sanctions imposed on Russia.

These figures aren’t particularly surprising. History has proven that war economies often insulate populations from the worst aspects of economic sanctions, as governments inject a massive fiscal stimulus into the defence industry, jolting the economy into action and increasing employment.

Russia has also offset much of its lost trade with Europe by greatly increasing trade with China and India, using its neighbours as transport hubs to circumnavigate Western blockades and import blacklisted materials, such as semiconductors used in missiles and drones. China, in particular, has dramatically expanded its purchases of Russian oil, taking advantage of the discounts offered by the Kremlin as it’s been shunned elsewhere. In exchange, Chinese firms are likely providing Moscow with critical technology that may include microelectronic components for use in the war effort. North Korea, a well-armed pariah state, has meanwhile been augmenting Russia’s supply of missiles and artillery ammunition through their dormant arsenal.

Compounding this is the lack of consensus amongst Western nations, who have struggled to enforce many of the economic sanctions in the face of domestic opposition, a stark reminder that nations will always prioritise their own interests over an international objective, even if leading politicians claim otherwise.

Austria and Hungary, for example, rely heavily on Russian gas and oil for their energy needs and have since objected to bringing about more stringent measures to tackle loopholes allowing companies to import Russian gas supplies. Belgium, a country dependent on Russian metal alloys for domestic manufacturing, has also interjected into the debate, using their diplomatic weight to keep open loopholes that have allowed Russian companies to continue trading valuable aluminimum with Belgian firms.

The inability of the Western coalition to strictly enforce the sanction regime against the Russian state is an apt reminder as to how decades of adhering to neoliberal economic orthodoxy has destroyed Western industries, forcing Europe, and, to a lesser extent, America to become reliant on foreign imports to sustain their economic growth. Instead of diversifying their economies, Western countries decided to relegate such managerial tasks to Asia and the Middle East, bringing them into the vulnerable position they now found themselves in. At fault is the hubris of Western politicians, who long dismissed the assumption that globalisation would weaken the national security of their nations. Now, they’re faced with the prospect of a long-drawn-out conflict with a nation that has enough men, resources and energy to bunker down and bleed their opponents dry.

But, what might be most consequential is that Western nations severely underestimated the resolve of the Russian people to suffer through harsh economic conditions. In a country as nationalistic as Russia, national pride always prevails over the allure of cheap, Western materials. For most Russians, defence of the motherland takes precedence over the luxury of drinking a latte from Starbucks or watching the latest TV show on Netflix. Ironically, the Western elite’s infatuation with globalism and the anti-national sentiment it harbours seems to have blinded many to the fact that the power of commerce is not as evocative as once thought.

While Russia has undoubtedly suffered a hit to its domestic industries and economic performance, the wound does not presently seem fatal. The Kremlin, faced with little internal dissent, can likely maintain this frozen conflict for the foreseeable future. And with European capitals already murmuring about sitting down for negotiations, all Moscow needs to do now is wait.