Will US sanctions hurt the Russian economy?

Last week, Russia announced that Alexei Navalny—Russian president Vladimir Putin’s biggest domestic foe and among his fiercest critics—had died of natural causes in a remote Arctic penal colony where he was serving a decades-long jail term. 

In the wake of his death, the Russian government detained at least 400 citizens for publicly mourning the opposition leader. Demonstrators across Europe, from Berlin to Tbilisi to Podgorica, rallied against Putin. Many viewed Navalny’s death as a sign of the Kremlin’s continued chokehold on Russian life. 

Meanwhile, Western leaders condemned and blamed Putin, with U.S. president Joe Biden calling the Russian leader a “crazy SOB.” Putin bears responsibility for Navalny’s death, which “is yet more proof of Putin’s brutality,” Biden said. 

The death of Russia’s most formidable opposition leader has now spurred greater momentum in the West to counter the country, including additional sanctions designed to hurt Russia’s economy, but some experts say that the West’s actions expose the limits of its own power. 

New sanctions against Russia’s wartime economy 

Russia’s war on Ukraine, now approaching its third year, has inflicted a heavy human and economic toll. The World Bank estimates that Ukraine’s reconstruction will cost $486 billion over the next decade. Ukrainian authorities have called on the West to provide more funds and to seize the $300 billion of frozen Russian assets to finance their country’s rebuilding. 

The Russian economy has held up despite Western sanctions due to military production, new trade partners, and subsidies for businesses and people. It grew 3.6% last year and shrank only 1.2% the year prior, compared to IMF predictions of a 2.3% and 8.5% contraction in 2022 and 2023. 

Navalny’s death has encouraged the West to take more measures designed to hurt the Russian war machine and economy. The tragedy has “already catalyzed” new sanctions packages from the EU and the United States, and made the measures even stronger, says Jeffrey Sonnenfeld, a Yale University professor whose team, alongside the Kyiv School of Economics, produced the oft-cited list of the 1,000-plus multinationals that exited Russia post-invasion. 

On Friday, the United States announced 500 new sanctions against entities and individuals that will “throw sand into the gears of Russia’s military industrial machine,” Sonnenfeld tells Fast Company. It is America’s most extensive sanctions package against Russia since the start of the war. 

Friday’s sanctions package is “sweeping in how many individuals and companies it targets . . . and narrowly tailored on slowing down the Russian military’s supply chain, hitting sectors [like] lubricants, ball bearings, and batteries,” Sonnenfeld says. He adds that it’s a “step in the right direction and will have a devastating impact on the Russian military.” 

“Limits of Western power”

Others say that the West’s new sanctions lack teeth and will have limited consequences for the Russian economy and on the battlefield. The new measures, which include the U.K. sanctioning the head of the Arctic penal colony who oversaw Navalny’s imprisonment, are “a slap on the wrist [and] underscores the limits of Western power,” says Hassan Malik, a global macro strategist at Loomis Sayles and author of the 2018 book, Bankers and Bolsheviks. The West has failed to hit at the sectors most important to the Russian economy, including its commodities exports. 

A new U.S. military aid package for Ukraine has stalled in Congress, and the West hasn’t reached a consensus on the seizure of Russian assets. Navalny’s death could spark renewed vigor to resolve both issues. But the new Western sanctions may “prove of limited practical value” for wounding Russia’s military and economic strength, “given that military aid to Ukraine remains in jeopardy in Congress,” Eswar S. Prasad, a trade and economics professor at Cornell University, told the New York Times.

Russia has already snatched some of Ukraine’s “most economically and strategically valuable real estate,” with Kyiv running increasingly large deficits that will only grow if Western support is curtailed, Malik says.

“In this context,” he adds, “Western sanctioning of an increasingly obscure list of individuals and organizations is unlikely to achieve anything of consequence.”