After Russia seized Crimea from Ukraine in March 2014, the Obama administration responded with what has become the go-to foreign policy tool these days: targeted sanctions. The United States placed asset freezes and travel bans on more than one hundred people, mostly cronies of Russian President Vladimir Putin, and the EU targeted almost a hundred more. The amounts involved have been massive: Bank Rossiya, the Kremlin’s preferred bank, had $572 million frozen in the months after the sanctions were rolled out. Then, in July 2014, when Malaysia Airlines Flight 17 was shot down over eastern Ukraine allegedly by Russian-backed forces, Washington responded with more severe sanctions aimed at key sectors of the Russian economy, including arms manufacturers, banks, and state firms. In an effort to hit the Kremlin where it hurts, the measures inhibit financing and technology transfers to Russian oil and gas companies, which supply over half of state revenues.
Considering the dire state of Russia’s economy, these sanctions might appear to be working. The value of the ruble has fallen by 76 percent against the dollar since the restrictions were imposed, and inflation for consumer goods hit 16 percent in 2015. That same year, the International Monetary Fund estimated, Russia’s GDP was to shrink by more than three percent.
In fact, however, Western policymakers got lucky: the sanctions coincided with the collapse of global oil prices, worsening, but not causing, Russia’s economic decline. The ruble’s exchange rate has tracked global oil prices more closely than any new sanctions, and many of the actions taken by the Russian government, including the slashing of the state budget, are similar to those it took when oil prices fell during the 2008 financial crisis. The sanctions have inhibited access to Western financing, forcing Russian banks to turn to the government for help. This has run down the Kremlin’s foreign reserves and led the government to engage in various unorthodox financial maneuvers, such as allowing the state-owned oil company Rosneft to recapitalize itself from state coffers.
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