21st Sep 2023

US and EU sanctions 'crippling' Russia, Yale study finds

  • Moscow: 30 years of growth wiped out in months (Photo: Alex F)
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Western sanctions were driving Russia toward "economic oblivion" despite reports to the contrary, a leading US university has said.

The mere fact over 1,000 foreign firms — who had invested more than $600bn [€590bn] in Russia and had employed over one million Russian people — were winding down operations was a huge blow, according to research by Yale University.

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"The value of these companies' investment in Russia [worth 40 percent of Russian GDP] represents the lion's share of all accumulated, active foreign investment in Russia since the fall of the Soviet Union," the study said.

"There is no doubt that significant gaps remain in sanctions policy across the US and EU, which need to be closed urgently to further choke the inflow of revenue from commodity exports into the Kremlin's coffers," the Yale report said.

But the capital flight alone meant six months of war had undone three decades of growth, it added.

The corporate retreat was compounded by rich Russian individuals, who had moved at least $70bn out of the country.

At the same time, Russia had lost EU export markets and Russian industry was struggling to maintain production due to lack of Western parts and technology, the Yale survey added.

"Despite [Russian president Vladimir] Putin's delusions of self-sufficiency and import substitution, Russian domestic production has come to a complete standstill with no capacity to replace lost businesses, products, and talent," it said.

"The hollowing out of Russia's domestic innovation and production base has led to soaring prices and consumer angst," it noted.

Russia was selling more oil to China as the EU phased out oil purchases, but the Chinese were buying some qualities of Russian oil at a $35/barrel discount due to oversupply, it noted.

Meanwhile, if Russian gas cut-offs were causing alarm in Europe, they were also painful for the Kremlin, whose budget needed EU gas money more than European economies needed Russian gas in the long term, the study said.

And Putin was already burning through his foreign currency reserves via "unsustainable fiscal and monetary stimulus" to keep things going, the study noted.

"The picture that emerges of the structure of the modern Russian economy is that of an internally corrupt, Western technology-dependent resource behemoth", it said.

"There is no path out of economic oblivion for Russia as long as the allied countries remain unified in maintaining and increasing sanctions pressure against Russia," it added.

The Yale study goes against the grain of recent expertise, with other analysts saying high oil and gas prices as well as rouble exchange rates were making Putin rich.

It also comes after some Russia-friendly EU leaders, such as Hungarian prime minister Viktor Orbán, began saying EU sanctions weren't working.

But the Yale researchers warned that many "excessively sanguine" Russia-analyses had an important flaw — they were based on "periodic economic releases by the Russian government itself, without cross-checking or verification of data integrity".

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