Davit Shatakishvili, Contributing Analyst, American University, Washington D.C
On February 25, the European Union approved the 10th package of sanctions against Russia, precisely one year since the unprovoked and unjustified Russian invasion of Ukraine began. They claim Moscow is now waging war not only on the battlefield, but also by attacking civilians and non-military infrastructure. According to European Commission President Ursula von der Leyen, this is the toughest package of sanctions the EU has adopted so far. The sanctions put Russia’s economy in a desperate situation, severely restricting its potential for military or technical recovery. The EU continues to reaffirm its unwavering support for Ukraine, and says it is ready to continue providing political, financial, military and humanitarian assistance to it as long as is needed. It is interesting to discuss what the EU’s 10th package of sanctions includes, and analyze the one-year consequences that the Russian economy has faced through the unprecedentedly tough steps taken by the Western partners.
What does the 10th Package of Sanctions Include?
Sanctions were extended to exports from the EU to Russia, mainly affecting technological components and industrial goods, with a total value of 11 billion Euros, on top of the 32.5 billion Euros-worth of goods sanctioned so far. These restrictions include electronics, specialized vehicles and spare parts for aircraft engines. Components needed by the Russian military industry, such as antennas, cranes, compasses and radars, were also targeted. An additional 96 organizations linked to Russia’s military industry were added to the sanctions list. Moreover, the EU banned the export of dual-use and high-tech goods to Russia. The restriction affected 47 new electronic components used in the production of Russian drones, air defense systems and helicopters. This limitation also applies to “rare earth” elements and thermal cameras. According to the European Union, they have banned all technical products found on the battlefield. Since the entry into force of the 10th package of measures, the EU has already sanctioned about 49% of its exports to Russia.
The new package of sanctions was also applied to imports from Russia to the European Union. Prohibited goods include bitumen and related materials such as asphalt and tar. Imports of synthetic rubber and carbon blacks have also been banned. In total, the import value of the mentioned goods is about 1.3 billion Euros, which comes on top of the 90 billion Euros-worth of imported goods sanctioned so far. Currently, in total, the EU has sanctioned about 58% of its imports from Russia.
According to Ursula von der Leyen, the European Union has extended Russian sanctions to include third countries. For example, Iran’s Revolutionary Guard actively is supporting Russia’s war and is supplying Moscow with Shahed drones to attack civilian infrastructure in Ukraine. As a consequence, the EU imposed sanctions on seven Iranian companies and individuals involved in the supply of military drones and various technical components to Russia, making them subject to a ban on the sale of such goods to Russia. The European Union has announced that the list may be expanded to Iranian business entities and representatives of other countries that supply similar equipment to the Russian Federation. This should be a strong deterrent for other companies and international traders not to support the Russian aggression by helping it to circumvent the sanctions.
In addition to the military and economic restrictions, the EU’s 10th package of sanctions targets an additional 120 individuals and organizations accused of both war crimes and spreading Russian propaganda. The new restrictions also affect two Russian propaganda broadcasters. According to the European Union representatives, Moscow is actively using media propaganda and disinformation networks, and it is crucial to apply sanctions on the people involved in this process.
The package also expands controls on sanction evasion. Euro bloc leaders say they are tracking Russian oligarchs trying to hide or sell their assets to avoid the sanctions. They say they will also overview the frozen assets of the Russia Central Bank held in the European Union, and discuss the possibilities of reconstructing Ukraine with these funds. The EU plans to step up efforts to prevent sanction evasion as much as possible.
The Economic Effects of Sanctions for Russia Over the Past Year
The primary goal of the sanctions is to financially drain the Kremlin’s war machine, as well as to hold accountable the political and military elites responsible for war crimes. The last year has, as a result, been difficult for the Russian economy. On the one hand, it had to wage an aggressive war in Ukraine, and on the other, to maintain economic indicators to create the effect of normal functioning. A clear example of this is that, according to Bloomberg, last year the Russian Ruble was one of the strongest currencies of the year. Obviously, this is due to the monetary decisions made by the Central Bank of Russia at the beginning of the war, as well as the colossal assets spent on maintaining the value of the national currency.
According to the International Monetary Fund (IMF), last year the Russian economy decreased by 2.2%, and according to the World Bank (World Bank) and the International Organization for Economic Cooperation and Development (OECD), economic decline was -3.5% and -3.9%, respectively. As for the 2023 forecasts, the IMF’s projection is a slight growth of 0.3% in Russia, while the World Bank and the OECD predict a decrease, by -3.3% and -5.6% respectively. Russia’s foreign trade has also decreased. According to IMF data, last year Russian exports decreased by 16%, and imports decreased by 19.2%. The trend of export reduction is likely to continue this year and will drop by 3.4%, while import growth is expected to be 5.6%. As for the increase in prices, last year the annual inflation rate in Russia amounted to 13.8%, and according to the international organizations’ forecasts, the price level growth in 2023 will be determined in the range of 5-6%.
Last year, Russia’s budget deficit amounted to $47 billion. According to the Ministry of Finance of Russia, in the current year, the budget deficit will be within 2% of the Gross Domestic Product (GDP). However, the oil price ceiling set at $60 by the G7 and EU member states will significantly reduce Russia’s budgetary revenues. With the Kremlin’s spending remaining the same or even increasing, and its budget revenues reduced, the Financial Times estimates that Russia’s budget deficit this year will be around 4.5% of the GDP.
Over the past year, all Western countries that were dependent on Russia for energy or other products have tried to diversify their supply chains. In this regard, European countries achieved the greatest success and have almost completely stopped buying Russian energy resources, leading the Kremlin to lose its political and economic leverage over Europe. In this process, the ceiling price of oil also played an important role, significantly reducing Russia’s income from energy resources. Currently, Gazprom’s natural gas exports are at their lowest level since the collapse of the Soviet Union. The same can be said about Russian financial institutions, whose net profit decreased by about 90% last year. The above numbers allow us to draw general conclusions about the difficult consequences the Russian economy is facing.
The coordinated steps of the Western partners come late, but are still achieving their economic goals, which will hopefully have political consequences that will be reflected in the ending of the Russian aggression. The sanctions are working within their logical time-frames, with expectations about their having immediate results clearly overstated. In the past year, the 10 packages of restrictions imposed by the European Union have targeted almost all of Russia’s critically important industries, which has not only limited Russia’s technical capabilities to wage its aggressive war in Ukraine, but also calls into question its recovery potential. The G7 and other partner states also joined the European sanctions. Alongside exhausting the Russian war machine, the financial and military aid to Ukraine is actively ongoing. During the last year, many countries have been able to reduce their dependence on Russia in various fields and diversify trade and economic ties. Additionally, the Kremlin is losing its political influence not only in Europe, but also in Asia, and the empty spaces left by it are being filled by other states. Thus, Moscow’s global influence is being weakened by the day, and it is hoped that the Western civilized world will remain faithful to its principles and values, so that Russia not only suffers a severe defeat on the battlefield, but also in its aims to achieve its hegemonic intentions in the future.