More Evidence That Economic Sanctions Aimed at Russia Don’t Work

This article reports that Russian oil exports rose 7% in 2023 compared with 2021, the year before the War in Ukraine began.

Almost all the data coming out of Russia these days is similarly positive. The Russian economy is projected to have grown about 5% (annualized) in the fourth quarter of 2023 compared to about 2.1% for the U.S. economy. The Russians have been able to sell any oil or natural gas that Europe won’t buy to China, India, and other willing buyers.

The Russian economy has been put on a war footing over the past two years and they are now producing high-tech and high-value-added goods that they used to import. The Russian ruble is stable and only slightly below the level it held in February 2022 when the war began.

All of this is happening in the face of U.S. economic sanctions that have been a complete failure. The only problem the Russian economy has at the moment is a labor shortage due to the fact that the economy is so strong that workers are hard to find.

Russia’s central bank has deftly handled potential inflation problems by raising interest rates just enough to moderate inflation without actually slowing down the economy.

The U.S. sanctions were always bound to fail. They can work against smaller countries like Iran that do not have large hard currency reserves and do not have alternative channels for trade. But they always fail against much larger countries such as Russia that have many trading partners, large hard currency reserves (including about 3,000 metric tonnes of gold), and sophisticated alternate payment channels.

Oil export sanctions can be the easiest to get around. You simply find an old tanker (not necessarily the latest and greatest), repaint it, change the name, change the flag and send it on its way with radio and GPS transponders in the off position. It’s not the neatest form of oil exporting, but it works fine. Marc Rich proved this in the 1990s when he helped Iraq avoid U.S. sanctions.

Meanwhile, the sanctions have hurt the U.S. economy and Western Europe. Germany is now de-industrialized and in recession, while the U.S. will soon be heading into recession if we’re not there already. I warned the U.S. government about the fact that sanctions would backfire in the early 2000s and repeated the warnings more recently in lectures at the U.S. Army War College.

The U.S. government may not listen, but the Russians do. They know how to run rings around sanctions and they’re proving it again.

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