News | Eastern Europe - Ukraine Crisis - EN - Die Waffen nieder Are Sanctions Working?

Costs are rising for Russian consumers, but the political backlash remains limited for now



Lutz Brangsch,

A newly opened “Stars Coffee”, the Russian replacement for Starbucks, in Moscow, August 2022. Photo: picture alliance / ASSOCIATED PRESS | Dmitry Serebryakov

Sanctions and boycotts have always been controversial as instruments of political and military conflict, and the use of economic force to achieve political objectives has a long and ambivalent history. There are two strategic aspects involved in sanctions: on the one hand, restricting the enemy’s capacity for political action or waging war, on the other hand, bringing about political instability as a result of social discontent.

Lutz Brangsch is a research fellow at the Rosa Luxemburg Foundation’s Institute for Critical Social Analysis.

Translated by Sam Langer and Joseph Keady for Gegensatz Translation Collective.

Estimates of the effectiveness of the current sanctions against Russia vary widely. There is a scarcity of detailed and reliable information about their consequences, and it is difficult to draw general conclusions from the information that is available. Although inferences can be made based on Russian employment figures and trends in certain key indicators, the question of whether and to what extent the objectives of the sanctions are being achieved is another matter.

Important indices do show that the applied pressure is leading to a clear downward trend. Compared to 2021, turnover in the Russian wholesale trade sector decreased by 15.3 percent; in retail, by 9.8 percent; in passenger transport by 5.3 percent and freight transport by 2.9 percent; and turnover in the manufacturing sector decreased by 3.3 percent — all this while prices were rising.

For its part, Russia’s government is presenting the sanctions regime, established in 2014 and continually expanding since then, as a factor in a war being waged on Russia by the West. As was already the case, Russia continues to attempt to respond to the situation with an accelerated policy of import substitution and the development of new economic sectors. Efforts are also being made to boost the development of small and medium-sized businesses through targeted programmes. High prices for raw materials on the world market mean that Russia can profitably sell these on alternative markets; there is likewise an improved supply of coal, grain, and other goods to the Russian domestic market. Russia’s goal is to obtain “technological independence” from the West.

At the same time, all possible means are used to acquire sanctioned commodities through “parallel importing” via third parties on the world market. In order to prevent news of such deals — meanwhile reputed to have reached a volume of 4 billion US dollars — from leading to further sanctions, a law has been passed that bans reporting on them.

These moves on the grey or black market are of course expensive, but so far has been offset by price increases. As with Russia’s handling of firms leaving the country, leasing contracts in the airline industry, specific payment terms in foreign trade transactions, and disputes over the settlement of claims by foreign creditors, this response to the sanctions indicates the extent to which these conditions are eroding the international legal system.

What Does the Press Say?

The Russian media’s treatment of the sanctions is ambivalent. On the one hand, there are efforts to show optimism, with reports on successful import substitution projects. The financial newspaper Kommersant maintains a site about the sanctions against Russia, as well as one that presents projects of “adaptation” to the new situation. Yet the tone remains rather critical overall.

Analyses regularly appear denouncing the slow pace and ineffectiveness of work on the relevant projects. The government is trying to expedite import substitution by stimulating demand for local products. In the next few years, for example, the state administration is to be completely equipped with a Russian-developed office software package, analogous to Microsoft Office. On the other hand, there is a lack of spare parts for computer technology.

In the overall picture, however, the sanctions’ negative impacts are more significant. Practically all areas of the economy have been affected. Aviation, car manufacturing, even mining and oil and gas production: all are suffering from the shortage of spare parts, or will be after remaining stocks are exhausted. From the Russian standpoint, the ruination of Soviet-era industrial capacities in the 1990s is also to blame for this situation. The current policy of import substitution and isolation from the Western-dominated world market is thus also understood as a form of getting even.

The tension between sanctions and counter-sanctions in the finance sector constitutes another rather opaque factor in its own right. After both sides had placed extreme restrictions on currency transfers, an opposite tendency has been observed in recent weeks. Among other things, dividend payments from large companies have already accounted for 243 billion USD flowing out of Russia in 2022. Analysts anticipate that 10 billion per month will soon follow this same path out.

For the mass of the population, the consequences of the sanctions will be felt above all in the lack of individual products and services, in rising prices and sinking incomes, and in unemployment. Despite the inflation, the relatively common practice of withholding wages from employees, with or without grounds, continues unabated.

Experts are assuming that the sanctions’ effects have not yet become clearly visible on the labour market because the latter is currently in a restructuring phase and companies want to keep all options open in terms of human resources policy. The prevailing view is that there will be a more rapid increase in the number of unemployed in the autumn.

Life Is Getting More Expensive

With the beginning of the school year, there are reports that the cost of school enrolment has gone up by 20 percent compared to the previous year, and even by 30 percent in Moscow. The price of clothing, shoes, and other manufactures is more heavily affected by the inflation than the price of groceries. People are also cutting back on restaurant meals.

Shortages are becoming apparent in the supply of medicines. Numerous pharmacies have reportedly closed in recent weeks due to the slump in demand. The volume of rent arrears in public housing is likewise growing. Due to a lack of spare parts for the vehicle fleet, the railways are having to cancel services. This in turn has consequences in terms of supplies and sales for working businesses, but also for food supply to the population.

This is precisely the reason for the current fuel and combustibles supply crisis in Abkhazia. The Ministry of Civil Protection is complaining of equipment shortages, particularly dangerous in view of the growing number of forest fires in Russia. On the other hand, there are attempts to continue running individual outlets of businesses that have left Russia — McDonalds and Starbucks, for example — under new names.

Valeria Kasamara from the influential Moscow School of Economics believes that the standard of living for the middle class will be driven down in the medium term, while those on low incomes will barely be affected by the worsening situation. This difference is explained by the fact that low-income earners’ standard of living is already at an extremely low level, and that they were already excluded from consuming the goods that are now being sanctioned. In addition, the government is trying to preserve this minimum level through various measures, such as for families with children. Assessments of future prospects are correspondingly pessimistic.

However, this is far from meaning that the goal of socially destabilizing Russia with sanctions has been reached. Since the war began, parts of the Left in Russia have been hoping that sanctions and other repercussions of the conflict might produce a “revolutionary situation” in the country. Two things speak against this likelihood.

Firstly, the majority of Russia’s inhabitants have no expectation that their condition will be improved as a consequence of the war. Reports of high approval ratings for the government’s policies may be exaggerated, but sanctions have not altered the broad acceptance of Putin’s approach. For the better-off, secondly, it is still possible to acquire sanctioned consumer goods elsewhere — in Belarus, for example. Fatalism, available detours to avoid the sanctions’ effects, and the time lag in their full impact may explain why a survey conducted in Moscow in June 2022 returned the result that 58 percent of respondents had few or no concerns about the sanctions (27 and 31 percent respectively). And even those who are worried are still unlikely to become politically active in consequence.

The current situation is actually a continuation of the trend since 2014, when Western sanctions against Russia began. Broadly, the sanctions are coming to naught. In light, too, of the cessation of diplomatic relations with Russia, the sanctions regime rather tends to confirm reservations about the West that were already prevalent in Russian society. There is an impression that the declared goal of the sanctions — ending the war — is not particularly important to the West, especially since the current regime has shattered the arms control system and the building of trust.

Both of these factors leave open the suspicion that main the thrust of the Western sanctions lies in a quite different direction from the one officially emphasized.