Five ways the West is destroying Russia’s economy

The West’s sanctions against Russia are having an effect. But Russia excels at getting around them. An American think tank has recommendations on how to further tighten the thumb screws.

WASHINGTON — The Russian ruble is in free fall as the central bank’s stabilization measures become increasingly tight. Most recently, it sharply hiked the key interest rate to 12 percent from the previous 8.5 percent. This shows that the West’s economic sanctions against Russia are having an effect.

But Russia is also good at avoiding sanctions. For example, despite the embargo, Russia continues to sell oil to Germany and Europe via the bypass. To close these gaps and put more pressure on the Russian economy, the American think tank Atlantic Council has developed five proposals for the West. The declared goal: to further isolate Russia economically.

1. Close loopholes in export controls

The first and most important proposal of the think tank is about plugging loopholes in the existing barriers. The export of Western goods to Russia is subject to severe restrictions – yet goods, especially those with Western technology, always enter the Russian Federation. This is achieved through third countries importing goods and then reselling them to Russia.

According to the Atlantic Council, these loopholes should be closed. To do this effectively, an old system from the Cold War era can serve as a blueprint: at that time, a coordination group was created with governments that supported sanctions against the Soviet Union and collectively controlled exports of goods. closely.

At the same time, the think tank insists: “Export controls will never be completely watertight.” After all, it is a tradition in Russia to always steal Western technology in new ways. However, better enforcement of export controls can have a bigger impact.

2. Oil price ceiling tightening

From autumn 2022, the G7 countries have introduced an oil price cap for Russian oil. Price ceiling $60 per barrel – Countries don’t pay much for Russian goods arriving by sea. The purpose of the cap is to force Russia to sell its oil below market value so that total revenues fall. According to the Atlantic Council, the oil price cap has also had an effect: Moscow’s oil revenues have fallen.

However, there are also increasing reports of sanctions being ignored, which is why the think tank is proposing countermeasures. Russia is trying to increase its revenue by increasing the cost of transportation for oil. According to the think tank, traders in G7 countries should monitor more closely whether they actually adhere to the $60 limit – and make it clear that claims for excessive transport costs violate the sanctions.

The Atlantic Council proposes imposing sanctions on businesses that repeatedly violate sanctions, hoping that this will deter other companies.

The authors also note high imports of Russian LNG into Europe. As LNG volumes from the rest of the world are expected to increase over the next two years, allowing LNG from Russia at a later date may also be considered.

3. Use Russian assets to rebuild Ukraine

Since the beginning of the war, there has been controversy over what Europe and other Western countries should do with the frozen assets of the sanctioned Russians. The Atlantic Council’s position is clear: assets worth about $360 billion should be used for the reconstruction of Ukraine. The EU has so far taken a stand against it — it’s unclear whether such a move would be legal under international law.

But the think tank also makes it clear: this move alone will have little impact on Russia in the short term. “But the symbolic significance of using more than half of Russia’s assets to compensate victims of an illegal war of aggression would be enormous.”

4. Discover the hidden assets of oligarchs

Russian oligarchs and ruler Vladimir Putin use a variety of ways to hide their assets. Buying off foreign companies is one way – which has the side effect of expanding the power of these people. According to the Atlantic Council, these practices must be better combated.

Western countries should create more transparency about the ownership structure of companies. Various legal proposals have been discussed for a long time – which, in the opinion of the think tank, should be implemented in the fight against Russia.

5. Impose a public financial embargo

Western countries have so far been very cautious and imposed economic sanctions on only certain banks and financial institutions. Fears were high that a complete financial embargo against Russia would have catastrophic consequences for the global economy. But according to the Atlantic Council, the West must now act boldly and impose a complete embargo on Russia’s financial system. The measures already in place did not trigger a global economic crisis – but they are already deep.

“A formal financial sanction would further isolate the Russian economy – and the symbolic power would be more significant than the actual impact.” This would make it easier to monitor other sanctions: after all, it would be easier to stop all Russian transactions and exports than those involving certain goods. Russia would be forced to switch to other currencies, such as the Indian rupee or the Chinese yuan – but this would restrict trade to these countries only. This will have major consequences for the Russian economy, which will also lead to slow changes in Russian society.

Rubriklistenbild: © Sergey Shinov/Roscongress Foundation/AP/dpa