The biggest ever sanctions have failed to halt Russia’s war machine

The Russian Sukhoi Su-34 fighter-bomber relies on parts from the West. (Photo: Reuters)
The Russian Sukhoi Su-34 fighter-bomber relies on parts from the West. (Photo: Reuters)

Summary

Western officials say the restrictions have been damaging but acknowledge the impact has been slower than hoped.

Two years after Russia’s invasion of Ukraine, Western sanctions have failed in their most important task—stopping the Kremlin’s war machine.

Western officials and experts say the financial, economic, military and energy sanctions imposed on Russia since February 2022 have damaged Russia’s economy and arms-production capacity, and will create serious problems for the Kremlin in the coming years. But they acknowledge the restrictions have hit more slowly than they hoped.

This week, Western countries are adopting new sanctions against Russia. For the first time, the European Union will target companies from mainland China when its measures are announced on Saturday, officials say, shifting from efforts to persuade Beijing not to undercut sanctions to a more forceful approach.

The U.K. on Wednesday sanctioned six Russians it said were involved in the death of leading opposition figure Alexei Navalny, disclosed on Feb. 16. Washington plans to announce U.S. measures over Navalny’s death on Friday.

For Russia, dodging sanctions has become a priority. The Kremlin has directed Russian intelligence services to find channels for evasion and backfilling, Western officials say. Moscow has increased trade with China, India and other countries not subscribing to the Western measures, helping it sell energy and secure the supply of critical imports for the war.

Russia has used shell companies and neighboring countries to buy components used in weapons. And it has obtained a large number of old vessels operating under opaque ownership to circumvent a Western-imposed oil price cap.

Moscow’s avoidance of sanctions has created an elaborate cat-and-mouse game. Western officials design measures to hurt Russia, but the Kremlin eventually adapts, forcing the U.S. and European policymakers back to the drawing board. It is a competition the Kremlin can’t afford to lose. Western officials believe Russia cannot produce enough ammunition on its own to achieve its aim of subjugating Ukraine.

However, with Ukraine on the defensive and U.S. support for Ukraine facing political opposition, sanctions haven’t prevented Russia from vastly increasing military spending this year.

Iran and North Korea have delivered drones and missiles to Russia, while China and Turkey have helped provide Moscow with a regular supply of Western-made dual-use goods its military depends on to conduct the war.

Unlike with past sanctions against Iran or North Korea, Russia’s economic weight has made it hard to isolate. So has the fact it exports not just oil and gas but resources including uranium and titanium that Western economies rely on.

U.S., British and EU officials have visited capitals around the world to persuade neutral countries not to undercut sanctions on critical military and dual-use goods. The effort has had some success in places including Central Asia but less with giant economies including India, Brazil and China, which have shunned sanctions on Russia.

“The medium-term prognosis for the Russian economy is not good," said David O’Sullivan, the EU’s Russia sanctions czar. “But the time frame is not necessarily in sync with what is needed on the battlefield."

After Russia’s invasion of Ukraine, the U.S. and its partners saw sanctions as the third pillar in supporting Ukraine, alongside economic and military aid for Kyiv. They hoped the measures, which have been unprecedented in scale, would deprive Russia of modern, high-tech weaponry, curb Russian revenue and inflict enough economic pain to persuade the Kremlin to seek peace.

Results have been mixed. U.S. and European officials say that their sanctions have deprived Russia of around 400 billion euros in revenue they would otherwise have had since February 2022.

Justin Bronk, senior research fellow at British security think tank the Royal United Services Institute, said that sanctions have forced Russia to rely on tanks that are inferior to vehicles they were producing before the invasion. Restrictions are also hampering the military’s ability to fight at night, which depends on Western technology.

Russia was able to access Western microchips for missiles only at higher prices than before the war, or it was depending on lower quality Chinese ones. There is a big question mark over Russia’s stock of spare parts for its most effective bombers and other aircraft.

Western officials on Wednesday said that sanctions were hurting Russia’s military industry and would prevent the Kremlin from producing enough ammunition for its war needs.

Yet a study from the Kyiv School of Economics published last month found that roughly 95% of the 2,800 foreign components found in Russian weapons on the battlefield since the war started were Western. Over 70% came from U.S. firms.

In relatively few cases was Russia buying components from Western vendors. China and Hong Kong accounted for roughly 69% of the entities making final sales to Russia of components, the study said. However, sanctions enforcement in the EU, where it is divided among several national authorities, has helped Moscow maintain critical supplies.

Western officials say China has become increasingly emboldened as the war has progressed and Chinese companies are providing Russia with chemicals to make explosives and other components that are helping it make more weapons. Chinese firms have also discussed sending drones to Russia, the officials said.

Companies should face multibillion-dollar fines, “where there is a proven case that they knew or should have known that their components might end up with the Russian military," said Elina Ribakova, the director of the International Program at the Kyiv School of Economics.

The Kremlin, meanwhile, is setting up a full-blown war economy. Russia has boosted its military budget by nearly 70% this year, to a post-Soviet record of over $100 billion. A vital U.S. $60 billion aid package for Ukraine has been sitting in Congress for months.

In the first half of 2023, Russia’s federal budget’s oil-and-gas revenue fell by 47% from the same period in 2022 as the oil price cap and the loss of Russian oil-and-gas exports to Europe kicked in.

Yet Russia has been able to undermine the price cap by amassing a ghost fleet of oil tankers that allows it to export most of its oil without relying on Western ships and insurance.

Russia earned $15.6 billion from its oil exports in January, up from a low of $11.8 billion last summer, according to the International Energy Agency.

American officials have recently ramped up efforts against Russia’s shadow fleet, increasing the discount Russian oil is selling at and slimming its profits, according to the IEA.

But the U.S. still worries about the impact on global oil supplies of enforcing the price cap too aggressively.

“We want the oil to flow. We just want it to flow at the lowest price possible," a senior U.S. Treasury official said.

“There is no doubt the West was too cautious in certain respects, especially around targeting Russia’s oil revenues and using U.S. secondary sanctions" against foreign firms, said Edward Fishman at Columbia University’s Center on Global Energy Policy, a former senior U.S. sanctions official. “Those mistakes are now coming back to bite us."

Many Western officials and economists expect Russia’s economy to hit more severe trouble as early as next year, offering Ukraine hope if it can sustain its resistance and the U.S. elections don’t kill off Washington’s support.

After Russian gross domestic product grew by 3.6% last year, according to official data, the International Monetary Fund now expects 2024 growth of 2.6% before slowing sharply next year. Most of the economy’s expansion has been from the government’s spending spree on the war and a fiscal stimulus designed to keep the domestic population placated.

That has overheated Russia’s economy, fueling a growing property bubble. Inflation has been running at over 7%, spurring the central bank to raise interest rates to 16% to cool the economy. Many firms face acute labor shortages as Russians have left the country or been sent to the front lines.

For Russia in the short term, “the rise in oil prices helped counteract the effect of sanctions," said Richard Portes, a professor at the London Business School. But over the years ahead, Putin is “running out of reserves…and he’s facing a catastrophic capital flight and brain drain."

Andrew Duehren and Max Colchester contributed to this article.

Write to Laurence Norman at laurence.norman@wsj.com and Georgi Kantchev at georgi.kantchev@wsj.com

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