Vladimir Putin is waiting for the West. Since 2014, when the United States and its Western allies imposed sanctions on Moscow following the annexation of Crimea and the downing of Malaysia Airlines flight MH17, Russia’s president has been trying to build an economy capable of withstanding much tougher penalties.
The West this week kept some of its sanctions firepower in reserve after Russian troops invaded Ukraine CNN. Even so, the measures announced by the United States, the European Union and the United Kingdom will put this “economic strength” of Russia to the test.
Fears of what sanctions could do tumbled Russian stocks 33% on Thursday. They have since recouped some of those losses, but the ruble continues to trade near record lows against the dollar and euro.
Russia’s $1.5 trillion economy is the 11th largest in the world, behind South Korea. Since 2014, its gross domestic product has barely grown and the population has gotten poorer. The ruble’s value also fell, reducing the value of the Russian economy by $800 billion.
During the same period, Moscow tried to shift its oil-dependent economy, limited government spending and foreign currency stocks away from the dollar.
Putin’s economists have sought to increase domestic production of certain goods by blocking equivalent products from abroad. Meanwhile, Moscow has amassed a war chest of $630 billion in international reserves – a huge amount compared to most other countries.
David Lubin, an economist at Citi and an associate fellow at Chatham House, said this “strong economy” requires building large foreign currency reserves that can be spent if sanctions hit.
“Russia has followed this pattern assiduously,” he wrote recently.
Some of these reserves are already being implemented. The Russian central bank said on Thursday it was intervening in currency markets to support the ruble. And on Friday, it said it was increasing the supply of banknotes to ATMs to meet growing demand for cash. Russian state news agency TASS reported that several banks have seen an increase in cash withdrawals since the invasion of Ukraine, mainly from foreign currency withdrawals.
While building a war chest, Putin’s austere strategy also limited economic growth, investment and productivity, and prioritized state-owned enterprises over private enterprises.
Incomes for ordinary Russians have regressed to levels last seen in early 2010, and new foreign direct investment is minimal. Russia has also failed to diversify beyond oil and gas, leaving it heavily exposed to swings in global commodity prices.
Facing the ‘fortress’
Less than 24 hours after Russian troops attacked Ukraine from the North, South and East, US President Joe Biden unveiled sweeping sanctions aimed at crippling Russia’s economy and turning Putin into an international “pariah”.
The US penalties target Russia’s two largest financial institutions, Sberbank and VTB, and prevent them from processing payments through the US financial system. Russian state-owned companies will not be able to raise capital through American markets. The sanctions cover nearly 80% of bank assets in Russia.
The United States is also trying to disrupt Russian military and industrial companies by preventing them from buying critical technology such as advanced computer chips.
The European Union, the United Kingdom, Japan, Australia and other countries have announced their own sanctions against Russian companies and individuals, a coordinated action unprecedented in terms of scope and potential economic impact. US, UK and EU officials went further on Friday and sanctioned Putin himself.
“I don’t think we’ve seen anything like this, and it’s much, much more severe than the 2014 sanctions,” said Iikka Korhonen, head of the Bank of Finland’s Institute for Emerging Economies and an expert on Russia’s banking and financial systems.
Still, Russia has been preparing its economy for this moment. And with global oil prices of $100 a barrel producing huge amounts of revenue for the state, Moscow can ensure that wages and pensions are paid.
“They can manage for a while,” Korhonen said. “But the longer that goes on, it means the growth will be slower.”
More sanctions?
The United States and the European Union have so far avoided attacking Russia’s massive oil and natural gas exports, and the coalition has failed to reach a consensus on cutting Moscow from SWIFT, a high-security messaging network that connects thousands of financial institutions across borders. Worldwide.
Some experts argue that such measures should be considered now to deter Putin from further attacks. Ukraine has appealed for Russia to be removed from SWIFT, a request that was supported by Lithuania, Estonia, Latvia and the United Kingdom, but resisted by other European countries – notably Germany.
Both measures could come with significant economic impact for the West. Natural gas prices are extremely high in Europe, and cutting supplies from Russia could increase even further. Reduced Russian oil exports would also drive up oil and gasoline prices.
But with Russian troops advancing on the capital Kiev, it’s a price some say the West should be willing to pay.
“We don’t have five years to slowly degrade the Russian economy. We need to do this now,” said Tyler Kustra, assistant professor of politics and international relations at the University of Nottingham in England.
Source: CNN Brasil

I’m James Harper, a highly experienced and accomplished news writer for World Stock Market. I have been writing in the Politics section of the website for over five years, providing readers with up-to-date and insightful information about current events in politics. My work is widely read and respected by many industry professionals as well as laymen.