How Sanctions Have Changed Russian Economic Policy

Sanctions have significantly limited Russia's access to advanced global technologies, forcing its economy to rely heavily on energy commodities for future development. Russia has become the world's most sanctioned country since its invasion of Ukraine, with over 13,000 restrictions surpassing those on Iran, Cuba, and North Korea combined. Despite this, Russia's GDP only fell by 2.1% in 2022, with the IMF predicting growth in 2023. This performance allows Russia to claim sanctions are ineffective, but the qualitative impacts are profound.

Sanctions have altered Russia's economic strategy, shifting from technological development and diversified exports to capital controls, categorizing countries as friendly or hostile, yuan-based payments, and increased military spending. The Kremlin's response has insulated Russia from global financial shocks in the short term but is expected to weaken its economy in the medium and long term.

The Russian government's quick measures, like capital controls and a raised interest rate, helped stabilize the banking system. However, these controls may now remain for a longer duration, shifting the economic policy focus. Russia's trade policy is increasingly influenced by geopolitical considerations, leading to stronger ties with countries like Iran, Turkey, and China, and less emphasis on pragmatic economic interests.

China has become a crucial trade partner for Russia, with trade growing to $190 billion in 2022. However, this has led to an increasing economic dependence on China, especially for energy exports and imports of high-tech goods.

Sanctions have also affected Russia's ability to participate in high-tech sectors, limiting its access to essential technologies for modern infrastructure and development. This situation is reminiscent of Russia's past economic strategies focused on raw materials and military spending, which led to significant inefficiencies in the 1990s. Russia appears set to repeat these mistakes, with a long-term impact on its economic development.