Special Piece by The Economics and International Relations Coterie
Since Russia’s invasion of Ukraine in February 2022, Western nations have imposed a series of escalating sanctions aimed at crippling Moscow’s economic and military capabilities. These measures have targeted key sectors such as finance, energy, and technology, intending to isolate Russia diplomatically and undermine its war effort. However, despite the scale and intensity of these restrictions, Russia has demonstrated adaptability, developing sophisticated strategies to circumvent sanctions and sustain its economy. The Emissary’s Economics Coterie, in collaboration with the International Relations Coterie, assesses the progression of these sanctions, their intended impact, and how Russia has navigated the evolving economic landscape.
The Initial Shock: 2022 Sanctions and Their Immediate Impact
Before we delve into how Russia is grasping at straws in the face of a slew of sanctions since its invasion of Ukraine, let us first understand what sanctions are and why they are imposed.
Economic sanctions are penalties imposed by one or more countries on another country, entity, or individual to influence behaviour, punish actions, or restrict economic power. They are often used as a diplomatic tool to enforce international law, respond to aggression, or promote human rights. These sanctions may take the form of trade, financial, and sectoral sanctions, as well as travel bans and asset freezes. While sanctions are meant to pressure governments, they often have unintended effects, such as causing economic hardships for civilians or strengthening authoritarian control.
The European Union (EU) was among the first to react to Russia’s aggression, implementing its initial sanctions package on February 23, 2022—just as Moscow recognised the self-proclaimed independence of the non-government controlled areas of Donetsk and Luhansk. This was seen as a flagrant violation of Ukraine’s sovereignty, prompting the EU to impose restrictions on individuals and entities undermining Ukraine’s territorial integrity. These sanctions expanded significantly the next day, coinciding with Russia’s full-scale invasion, and included financial restrictions, asset freezes, and bans on Kremlin-linked figures.
Financial measures escalated rapidly. On February 28, the EU and the United States agreed to exclude key Russian banks from the SWIFT international payment system, effectively cutting them off from the global banking network. This move aimed to disrupt Russian trade and financial transactions, hampering its ability to receive payments for its vast oil and gas exports. In tandem, the United States imposed sweeping sanctions on Russian financial institutions, targeting major banks such as Sberbank and VTB to devalue the ruble and create severe liquidity shortages. These financial restrictions forced Moscow to explore alternative payment infrastructures, including appointing former central banker Olga Skorobogatova to lead efforts in developing a domestic payments system to mitigate the loss of SWIFT access, particularly for transactions with China. There has been increasing scrutiny on Russia’s engagement with multilateral organisations such as BRICS to facilitate these financial adjustments.
The energy sector, Russia’s economic lifeline, was also targeted. On March 8, the United States banned Russian oil and gas imports, a largely symbolic gesture given its limited reliance on Russian energy. However, the EU followed with more impactful measures, introducing a ban on Russian coal imports in April (effective from August) and imposing a partial embargo on Russian oil in June 2022. While some exemptions were granted to landlocked countries heavily dependent on Russian oil, these restrictions sought to sever one of Moscow’s primary revenue streams.
Technological Isolation: Attempts to Strangle Russia’s Defense Industry
Sanctions also aimed to cripple Russia’s defense sector. On February 24, 2023, the U.S. Department of Commerce’s Bureau of Industry and Security (BIS) imposed stringent export controls, further restricting access to global technological advancements. These measures expanded to low-technology consumer goods that could be repurposed for military use, targeting components essential for aircraft, tanks, semiconductors, and other defense-related applications.
As a result, Russia’s arms exports plummeted, halving from 2019 to 2023, according to Business Insider. Sanctions deprived the Russian military-industrial complex of critical components, straining domestic arms production and limiting export revenues. Economist Vladislav Inozemtsev has suggested that while Russia’s military output remains functional in the short term, these restrictions will likely lead to long-term technological stagnation, degrading the competitiveness and effectiveness of Russian defense products.
Throughout 2023, the EU expanded sanctions on critical technologies, including drone components, dual-use goods, and arms-related materials, reinforcing the strategy of depriving Russia of vital resources. The United States simultaneously tightened financial restrictions on Russian defense entities and individuals linked to the Kremlin.
Nevertheless, one sanctioned nation found support in another. Iran has supplied Russia with over 2,000 Shahed-136 and Shahed-131 kamikaze drones, along with 18 Mohajer-6 drones, since February 2022. These drones have been extensively used by Russia to target Ukraine’s critical infrastructure and civilian areas, aiming to deplete Kyiv’s air defense systems. Additionally, Iran has provided Russia with hundreds of ballistic missiles in 2024. In return, Russia has reportedly pledged to supply Iran with Su-35 fighter jets and advanced air defense systems. Some Russian technology, such as the Yak-130 aircraft for training Su-35 pilots, has already reached Iran, though the extent remains unclear.
Another similar ally is North Korea, which has reportedly supplied Russia with up to 5 million artillery shells, a substantial figure given Russia’s annual production capacity of only 2 million to 3 million shells. Russia has also deployed North Korean KN-23 and KN-24 ballistic missiles in Ukraine, though their failure rate is reportedly high. Apart from weapons trade, Russia supports North Korea diplomatically, for example, in international forums and by opposing U.N. sanctions on its oil imports and nuclear industry. In June, North Korea and Russia signed a strategic partnership treaty committing to provide full military and other support if either faces an armed invasion or war. The influx of Iranian drones has enabled Russia to conduct prolonged attacks on Ukrainian infrastructure, challenging Ukraine’s air defense capabilities and causing significant damage to civilian areas. The artillery shells and missiles from North Korea have bolstered Russia’s ammunition reserves, allowing sustained military operations despite international sanctions aimed at depleting its resources. These developments have complicated the conflict dynamics, making it more challenging for Ukraine and its allies to counter Russian offensives effectively. Furthermore, Russia’s engagement in arms trade with these UN-embargoed nations not only contravenes international restrictions but also strengthens the military industries of Iran and North Korea, potentially destabilising regional security beyond the Ukraine conflict.
Circumvention Strategies: How Russia Adapted
Despite these efforts, Russia demonstrated significant adaptability in bypassing sanctions. One notable strategy involved leveraging third-party countries for re-exporting restricted goods. Between October 2022 and September 2023, EU exports of high-priority items to intermediary nations like Turkey, the UAE, and Kazakhstan surged by 81.55% (€2.979 billion), suggesting these countries served as conduits for sanctioned goods. Kazakhstan, in particular, benefited from its membership in the Eurasian Economic Union (EAEU), allowing unrestricted trade with Russia. The country imported nearly $5 million worth of drones in 2022, later exporting $1.23 million of them to Russia.
Parallel imports became another key circumvention method. Over $70 billion worth of goods entered Russia through third countries in 2023, helping total imports exceed pre-sanction levels to reach $300 billion. The EU attempted to crack down on this by targeting Central Asian firms suspected of aiding Russia’s war effort. In its 12th sanctions package, for example, the EU blacklisted Kazakh company “Aspan Arba” for importing drones and reselling them to Russian military-linked entities. Additionally, the EU’s 14th sanctions package introduced a “no Russia” clause, requiring businesses to make “best efforts” to prevent re-exportation of critical goods to Russia via third parties.
Meanwhile, Russia also turned to cryptocurrencies to bypass financial restrictions, particularly in the oil sector. Transactions in Bitcoin, Ether, and Tether facilitated trade with China and India, allowing Russia to convert yuan and rupees into rubles outside traditional financial channels.
2024: Targeting Russia’s Energy and Trade Networks
In 2024, Western sanctions on Russia were rejigged to profoundly impede Russia’s energy sector. Western nations sought to target Moscow’s so-called “shadow fleet”—a network of vessels operating under opaque ownership structures to evade sanctions on oil exports. The EU’s 15th sanctions package, introduced in December 2024, banned 52 additional Russian-linked vessels from accessing EU ports and services. This was intended to increase operational costs for Russian oil traders and reduce the number of ships available to transport crude oil under sanctions. Nevertheless, Russia continued to rely on ship-to-ship transfers and reflagging practices, allowing it to maintain significant oil export revenues. Similarly, the United States implemented tighter restrictions on Russian oil trading, which temporarily led to price increases in global crude markets but ultimately had a limited impact on Russia’s overall export volumes. The EU’s December 2024 sanctions package also placed strict export curbs on sensitive technologies and industrial equipment, adding 32 companies to its list of restricted entities. For the first time, this included seven Chinese companies accused of supplying critical components to Russia’s defense sector. These measures mirrored those imposed by the United States, which expanded restrictions on technology exports to Russian-linked firms in China, Serbia, Iran, India, and the UAE. The objective of these sanctions was to prevent Russia from obtaining key materials used in missile production, aircraft manufacturing, and cyber warfare capabilities. While these restrictions made it more difficult for Russia to procure certain Western-made semiconductors and industrial machinery, Moscow continued to acquire sanctioned goods through intermediary nations, particularly in Central Asia and the Middle East.
Russia’s New Economic Alignments: China and India
Since the war, Russia has strategically pivoted its trade relationships toward non-Western nations, particularly India and China. China has emerged as Russia’s most significant trading partner. In 2022, bilateral trade between the two nations reached a record $190 billion, with China accounting for 40% of Russia’s imports. This upward trajectory continued into 2023, with trade volumes exceeding $240 billion. Notably, China has increased its purchases of Russian oil and natural gas, providing a crucial economic lifeline to Russia’s energy sector amidst Western sanctions. This deepening economic cooperation has not only bolstered Russia’s export revenues but has also facilitated access to high-tech and digital products, as Chinese companies filled the void left by Western firms exiting the Russian market. Beyond the energy sector, Russia and China have broadened their trade to encompass various industries. Chinese automotive manufacturers, for instance, have made substantial inroads into the Russian market. By 2024, Chinese carmakers captured a 63% market share in Russia, a significant increase from previous years. This surge led Russian authorities to impose higher recycling fees to manage the influx of low-cost Chinese vehicles and protect domestic producers. Additionally, Chinese companies have filled gaps left by Western firms in sectors such as technology and consumer goods, further embedding themselves in the Russian economy.
Meanwhile, India has also become a vital partner in Russia’s reoriented trade strategy. In March 2025, Russian oil supplies to India rebounded to approximately 1.54 million barrels per day, following a brief decline. This resurgence was facilitated by the use of non-sanctioned vessels and the redirection of supplies from other markets, such as Turkey. The increased oil exports to India have helped Russia maintain its energy revenues despite Western restrictions, while providing India with a steady supply of discounted crude oil. Moreover, the International North-South Transport Corridor (INSTC) has been determining in enhancing Russia-India trade. In 2024, the INSTC saw a 1.7-fold increase in transit volumes, reflecting its growing importance in bilateral trade. This corridor facilitates the movement of goods such as pharmaceuticals, textiles, and machinery, reducing transit times and costs. The operationalisation of the eastern route of the INSTC has been particularly significant, offering a viable alternative to traditional maritime routes and strengthening supply chain resilience between the two nations. In 2024, India and Russia signed a landmark agreement wherein India agreed to purchase 1,000 horsepower engines for its T-72 tanks from Russia’s Rosoboronexport, valued at $248 million. This deal underscores the deepening defense ties between the two countries, despite India’s neutral stance on the Ukraine conflict. Additionally, bilateral trade reached a record $66 billion in 2024, marking a fivefold increase over the past five years. Both nations are on track to achieve the ambitious target of $100 billion in trade by 2030, bolstered by expanding collaborations and diversified trade opportunities across sectors such as energy, defense, and technology.
Russia’s Wartime Economy: A Fragile Stability
Russia’s wartime economy has demonstrated a complex interplay of resilience and strain, influenced by heightened military expenditures, external sanctions, and internal policy decisions. Russia’s Gross Domestic Product (GDP) has exhibited notable growth in recent years, influenced by various economic factors. In 2023, Russia’s GDP expanded by 3.6%, reaching approximately 2.01 trillion U.S. dollars. This upward trend continued into 2024, with preliminary estimates indicating a 4.1% growth rate, slightly surpassing the official forecast of 3.9%. This increase brought the total GDP to around 200 trillion rubles (approximately 2.06 trillion U.S. dollars). The significant GDP growth observed in 2024 is largely attributed to increased military spending, which constituted about 8% of the nation’s GDP. It’s important to note that while increased military spending has bolstered GDP figures, it may not reflect broader economic strength. Analysts caution that such growth, driven by defense expenditures, could pose challenges in transitioning to a peacetime economy, potentially leading to economic difficulties in the future.
The annual inflation rate in the world’s largest country has surged to 9.5% in 2024, driven by increased defense expenditures, state-subsidised loans, and wage growth. Consequently, the Central Bank of Russia raised interest rates to 21% in February 2025, the highest level since the early 2000s. While these measures aim to curb inflation, they also pose challenges by dampening investment and elevating the risk of corporate insolvencies. Gloom already clouds Russia’s private sector with western corporate giants exiting the market since the start of the war.
The fiscal deficit climbed to 1.7% of GDP in 2024, amounting to approximately $34 billion. This fiscal gap has been financed through increased taxation and the depletion of the National Wealth Fund, which has diminished by two-thirds over the past year. Continued high military spending is anticipated to widen the deficit further, potentially necessitating additional tax hikes or spending cuts in non-defense sectors.
Russia is experiencing significant labor shortages, exacerbated by mobilisation efforts and emigration. The conscription of workers into military service and the exodus of skilled professionals have strained the labor supply, particularly in sectors unrelated to defense. This contraction in the workforce has contributed to wage inflation and reduced productivity, hindering economic diversification and growth.
While defense-related industries have seen increased production due to wartime demands, other sectors have faced stagnation or decline. The reallocation of resources toward the military-industrial complex has led to imbalances, with civilian industries struggling to attract investment. High interest rates and economic uncertainty have further deterred private investment, limiting technological advancement and competitiveness.
The Russian ruble has experienced volatility, reaching its lowest levels since March 2022. This depreciation has contributed to imported inflation, increasing the cost of foreign goods and services. The Central Bank’s monetary tightening aims to stabilise the currency and control inflation, but these measures also suppress domestic demand and economic activity.
The sanctions imposed on Russia since the onset of the Ukraine war represent one of the most comprehensive efforts to leverage economic tools for geopolitical objectives. While these measures have strained Russia’s economy and made no bones of international opposition to its actions, they have not yet achieved the primary goal of altering Moscow’s strategic calculus regarding Ukraine. Russia’s adaptive measures have mitigated some impacts, but ongoing challenges suggest that the full effects of sanctions may manifest over a longer horizon. The situation underscores the complexity of using economic sanctions as a tool for conflict resolution and the necessity of complementary diplomatic efforts