Sanctions may sting if Russia invades Ukraine, despite Moscow’s efforts at sanction-proofing

When the West imposed political and economic sanctions on Russia after it invaded and annexed Crimea in 2014, President Vladimir Putin responded by banning many Western products in food, defense, and other critical sectors. Soon after, Russian state media featured clips of authorities driving bulldozers over Hungarian poultry and shoveling Dutch cheese into incinerators. That left Russians leaning into locally sourced agricultural products, which in turn ignited a Russian farm-to-table movement. Patriotic citizens sourced cheese and other homegrown products from local vendors. In place of French foie gras, Russian foodies dined on moose-lip dumplings at Moscow’s White Rabbit, which went on to earn a coveted Michelin star in 2021.

During a one-hour call with Putin on Saturday, US President Biden warned of “swift and severe” costs should Russia invade Ukraine. Though Russia indicated this morning that it was pulling some of its more-than-100,000 troops back from the Ukrainian border, it continues large-scale drills. The United States and its European allies have outlined punishing financial, technological, and military sanctions in the event of a Russian invasion. Many analysts have concluded that Russia suffered in the wake of the 2014 sanctions. Still, in the years since, Putin has been at work attempting to sanctions-proof Russia’s economy by identifying domestic substitutes for imports, reducing its exposure to US dollars, shifting trading partners to Asia, and cutting public-spending.

On Sunday, Viktor Tatarintsev, Russian ambassador to Sweden, offered an earthy version of his country’s attitude toward sanctions to the Swedish tabloid Aftonbladet. “[W]e don’t give a shit about all their sanctions,”[1] he said. “We have already had so many sanctions and in that sense, they’ve had a positive effect on our economy and agriculture.”

Some analysts look askance at Russia’s claim of success in identifying domestic substitutes for imports. In the past seven years, the Russian economy has endured low growth and inflation. A record-high percentage—a majority—of Russians fear their local economy is getting worse, according to a Gallup poll. In some parts of Russia, for example, citizens report spending 30 percent more on food than in 2014. And despite championing domestic products, Russia’s economy still depends on foreign imports, including machinery, pharmaceuticals, electronics, and cars.

To be sure, Putin has reduced Russia’s reliance on the US dollar in recent years, while increasing holdings in euros, Chinese yuan, and gold. The effort hit a milestone last year when Russia’s share of exports sold in US dollars fell below half for the first time on record. Trade with China filled much of the gap, with transactions conducted in euros. Also last year, Russia’s share of gold in its international reserves exceeded that of US dollars for the first time. These efforts have diminished the United States’ economic leverage.

As Russia’s relations with the West have grown increasingly strained, Putin has also pursued stronger Asian ties. Such alliances may offer his nation an economic lifeline in the face of harsh sanctions. Biden’s threat to cut off Nord Stream 2—the pipeline that will carry Russian gas to Europe through Germany—does not pack as much of a punch in light of Russia’s new $117.5 billion oil gas deal with China. To be fair, the deal’s implementation will take at least two years. But should Nord Stream 2 be cut off, Europe would struggle as well.

Since 2014, Russia has built international reserves worth $630 billion, which could be used to “slow a run on the rouble” and “offset any currency mismatch on private sector balance sheets,” according to Adam Tooze, a Columbia University economic historian.

Putin appears to have made some inroads in protecting Russia from the cost of doing the kind of business that leads to sanctions. But Tatarintsev’s comments notwithstanding, it’s clear that Russia is not entirely indifferent to the prospect of sanctions.

“If you look at all the efforts and time and energy the Kremlin has spent on trying to get sanctions lifted,” David Kramer, assistant secretary of state in the George W. Bush administration, recently told Voice of America, “then that would indicate that the Russians feel they have had an impact.”

[1] Translation provided by Newsweek. Google Translate’s translation was more direct: “We shit on all the sanctions.”

Editor’s note: For full Bulletin coverage of the Ukraine crisis, click here.