Russia is facing more than 16,000 sanctions — so why hasn't its economy buckled?

As Vladimir Putin spoke to a crowd in early February attending the "Everything for Victory" forum in Tula, a city 180 kilometres south of Moscow, he joked that he wanted to give the sanction-imposing West a "well-known gesture," but wouldn't because there were "a lot of girls" in the audience, and implied it would be rude. 

Instead, the Russian president boasted about the country's economy, and its ability to ramp up its military industrial complex, in the face of unprecedented sanctions. 

"They predicted a recession, failure, collapse," he told the crowd, which included factory employees, on Feb. 2.

"The entire economy has demonstrated resilience." 

Putin doesn't need to campaign on the strength of Russia's finances — he's slated to be re-elected next week for his fifth term as president, because his serious challengers have been barred or prevented from running.

But he has happily pointed out that Russia's economy is expected to grow 2.6 per cent this year, outpacing the G7, according to the International Monetary Fund. 
 

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Over the past two years, Russia's government has managed to steer through sanctions and limit inflation, while investing nearly a third of its budget in defence spending. 

It's also been able to increase trade with China and sell its oil to new markets, in part by using a shadow fleet of tankers to skirt a price cap that Western countries had hoped would reduce the country's war chest. 

"I think for the next 12 to 18 months, [Putin] has enough resources ... to continue to fulfil his war machine," said Alexandra Prokopenko, a former adviser with Russia's Central Bank.
 

Prokopenko is now based in Berlin, having left her job and the country in the initial days of its full-scale invasion of Ukraine, which began in February 2022. 

"There is a big debate here in Europe: What was done wrong, and what else can we do to fine-tune the sanction regime?"

Economic resilience

After Russia launched its invasion, the ruble tumbled and Western countries blocked transactions with its central bank, freezing $300 billion US in sovereign assets. 

Additional sanctions have been introduced in the subsequent years: more than 16,000 since Feb. 24, 2022, according to U.S.-based Castellum.AI. Some impact the economy more than others — over 11,000 of them are aimed at individuals, and about 4,600 at entities including financial institutions. A few hundreds others are directed at ships and aircraft. 

European airspace also closed to Russian planes, and hundreds of Western companies pulled out of Russia or curtailed their operations there. 

But today, the latest iPhones and MacBooks are on Russia's shelves, because the government and its businesses have been mostly able to adapt.
 

Prokopenko calls Russia's senior central bank officials Putin's "generals" because the president has relied on their financial leadership while navigating what she calls an "impossible tri-lemma": funding the war, maintaining business as usual and creating macroeconomic stability. 

She said the bank's decision at the start of the war to hike its key interest rate to 20 per cent and introduce capital controls helped stabilize the ruble. 

The rate was lowered at one point, but is now pegged at 16 per cent in an effort to control inflation. 

Rising prices 

In 2023, surging food prices became a political issue in Russia, especially the price of eggs, which rose by more than 40 per cent last year, and led to shortages in some areas.

The government has since scrambled to boost the egg supply by scrapping import duties and sourcing more imports from "friendly countries."
 

"Truth be told, the prices are rising and rising, but I think it is a normal situation for all countries nowadays," says Marina Lubanovskaya, a Moscow-based travel agent who runs a YouTube channel called Made in Russland. 

Although she says eggs are now about 20 per cent more expensive in Moscow, she's taken videos of grocery stores across Russia in a point to dispel what she calls the "rumours" circulating in Western countries. 

More than 15 million people live below the poverty line, according official statistics, but she says the sanctions haven't been crippling. 

"We live with abundance."

Her videos show full shelves at grocery stores, and an alcohol section with wine from Italy and Crimea, the latter of which Russia illegally annexed in 2014. 

She admits she's had to pivot her travel business to new markets. She previously booked trips for her Russian clients to Europe, but is now booking them to Asia. 

 

Tilt toward China

Russia has relied on Asia, and specifically China, as a major economic lifeline. 

Half of its oil and petroleum was exported to China in 2023, Russian officials say. And it became China's top oil supplier in 2023, according to Chinese customs data.
 

Chinese imports have jumped more than 60 per cent since the start of war, as the country has been able to supply Russia with a steady stream of goods including cars and electronic devices.

Trade between the two countries hit $240 billion US in 2023, an increase of over 64 per cent since 2021, before the war.

 

Exodus of workers

While Russia has turned to new customers abroad, at home it's facing a labour shortage of nearly five million workers in 2023, according to its media reports. 

The country's record-low unemployment rate meant there were "practically no workers left," central bank governor Elvira Nabiullina told lawmakers in November.

"For further growth of the Russian economy, increased labour productivity is needed."
 

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Contributing to the shortage are the hundreds of thousands of people who left after the invasion began.

Araz Mamet, a U.S. citizen who was working in Moscow in March 2022, decided to leave the country along with his small team of tech workers. He set up shop at a shared workspace in Baku, the capital of nearby Azerbaijan. 
 

After a partial mobilization announcement in late 2022, he helped secure a private jet to offer others a chance to get out of Russia by booking a seat for $2,500 US. 

Around 300 or 400 people asked for help. They had to cap it at 110 people, who left Russia in two separate private flights. Hundreds of others made it out to Baku on their own.

While some have since returned to Russia or moved on to other countries, a few hundred remain working out of the shared space for now. 

"I believe if the situation in Russia will change, certainly the majority will go back, because they still have their properties, families and relatives," he said. 

 

Boosting military production

The labour shortage is particularly acute as the country ramps up military production, with some factories working around the clock in multiple shifts. 

Businesses are also being re-purposed to fulfil lucrative state contracts. 

According to Russian media, a bakery south of Moscow turned part of its floor space into a drone production facility. 

Three malls in the city of Izhevsk, which lies 1,000 kilometres east of Moscow and is already home to weapon maker Kalashnikov, have been taken over by drone manufacturers. 
 

Russia's ability to keep churning out weaponry and using its oil money to finance it is a pressing problem for Ukraine, which is grappling with a weapons and ammunition shortage, as well as its allies.

But there are no easy steps left when it comes to tightening the sanction regime, Prokopenko says.

"It's a mouse and cat game.

"Any delays in terms of taking decisions about additional sanctions gives Russia the opportunity to adjust its policy and its economy."