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On February 24, the day the Russian military launched its full-scale invasion of Ukraine, the United States imposed an unprecedented raft of sanctions on Russia. These measures, designed to unplug Russia from the global economy, have severed Russia’s two largest banks and their subsidiaries from the U.S. financial system, prohibited 13 major firms critical to the Russian economy from “raising money through the U.S. market,” blocked the property of Russian elites close to Putin, and suspended exports of high-tech goods produced in America or using American equipment to Russia.
As Russia continues its horrific assault on the Ukrainian people, the West has responded with additional sanctions, which have included expelling seven significant Russian banks from SWIFT, freezing the assets of Vladimir Putin and his senior advisors, and preventing Russia’s central bank from accessing $403 billion of its $630 billion in foreign currency reserves. Furthermore, the US, EU, and UK have banned exports of dual-use goods to Russia, closed off their airspace to Russian flights, and sanctioned over 1,000 Russian individuals with ties to the Kremlin, including high-profile oligarchs such as Roman Abramovich. Moreover, the US has stopped importing Russian oil and gas, the UK announced it will phase out Russian oil by the end of this year, and the EU plans to wean itself off Russian energy before 2030.
These punitive actions have dealt an immediate blow to the Russian economy. Goldman Sachs predicts Russia’s GDP will shrink by 10% this year and inflation will soar to 20%, thus plunging Russia into an economic crisis not seen since the tumultuous 1990s. The ruble has already plummeted by 50% against the dollar, which has triggered bank runs as middle-class Russians scramble to protect their savings by converting their rubles into dollars and purchasing valuable goods such as foreign cars and iPhones. Tens of thousands of young, educated Russian professionals have left Russia altogether. Videos on social media have emerged of ordinary Russians waiting in enormous lines to buy household staples such as sugar, whose price rose by an average of 14% this week due to the ruble’s collapse.
Russians have also witnessed the exodus of more than 450 multinational companies from their country over the past month. McDonald’s, Coca-Cola, PepsiCo, Starbucks, Samsung, Sony, Apple, Microsoft, IBM, Visa, Ikea, Netflix, Renault, Adidas, Nike, Shell, BP, Boeing, and numerous other big-name brands have either terminated or heavily scaled down their business operations in Russia. These departures have not only left tens of thousands of Russian workers unemployed— they signal Russia’s return to the isolation it faced during the Soviet era.
Although the current sanctions regime has left a dent in the Russian economy, it hasn’t yet stopped the Russian war machine. The Russian military continues advancing in eastern Ukraine, slaughtering Ukrainian civilians, and reducing Mariupol to rubble. Ukrainian intelligence has received warnings that the invaders are planning a colossal rocket attack on Kyiv. Negotiations between Russian and Ukrainian officials have been taking place every day, but it is ultimately up to Vladimir Putin to end his bloody campaign, and there are no clear indications that he intends to do so.
Instead of waiting to see whether Putin will reverse course while innocent people keep dying, the West should ratchet up its sanctions package by targeting Russia’s energy sector: the fundamental engine of its economy. Indeed, energy export earnings make up “over 40% of Russia’s total budget.” European leaders should follow President Biden’s lead in placing an embargo on Russian oil and gas. Even though Europe receives around 27% of its oil and 40% of its gas from Russia, energy producers such as the U.S., Canada, Saudi Arabia, the United Arab Emirates, and even Iran or Venezuela could help fill in the gap. After all, Russia is still earning hundreds of millions of dollars each day from hydrocarbon exports to Europe, which are undoubtedly helping finance its brutal invasion.