President Donald Trump’s claim last week that Russia was in “big financial trouble” looks only slightly hyperbolic – and it also looks like evidence that after more than three and a half years of war, the sanctions are punishing Russia’s economy and the Kremlin’s war coffers.
But then there is the other news.
In the past week, Moscow has won fresh pledges from India and China to keep buying Russian oil and other sanctioned goods; China actually vowed to “elevate” its energy cooperation with Russia. A September report found that Russia’s “shadow fleet” of oil tankers has proved a highly effective sanctions workaround. And for all of Trump’s threats of fresh sanctions, his administration has yet to pull the trigger.
For its part, Moscow says no sanctions will alter the course of its war against Ukraine. Kremlin spokesman Dmitry Peskov said last month that sanctions had been “absolutely useless” in changing Russia’s stance.
So which is it? Are sanctions having the desired effect? Or are they a fundamentally weak lever unlikely to change Russian behavior?
“The question is, what did you want sanctions to do?” Thomas Graham, a long-time Russia expert at the Council on Foreign Relations, told The Cipher Brief. “If the goal was to cause Russia to rethink what it’s doing in Ukraine to pull back from its aggression, the short answer is no… That said, it’s also clear that the sanctions have raised the cost (for Russia) of continuing the conflict.”
“Sanctions are a slow-burn tool,” Gonzalo Saiz, a Research Fellow at the Royal United Services Institute, told The Cipher Brief. “They aren’t bringing about the collapse of the Kremlin or the Russian economy, but Russia is suffering quite significantly.”
What 6,000+ sanctions have accomplished
When Russia launched its full-scale invasion of Ukraine, it was met with an early beating on the battlefield and a raft of economic penalties from a surprisingly unified group of western nations. As early as the summer of 2022, experts were forecasting a Russian economic meltdown.
The U.S. alone sanctioned some 6,000 individuals and companies with links to the war effort. The European Union has implemented 18 sanctions packages; last week it proposed a 19th round. The measures have targeted Russia’s financial, military and energy sectors.
Some of the impact is clear and quantifiable. Since the February 2022 invasion, more than 1,300 international companies have scaled back operations in Russia and some 500 have left entirely, according to the Kyiv School of Economics. The firms that left represented about $109 billion in annual revenue. Several Russian banks were barred from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), the interbank messaging service that processes international payments.
“The investment community has outright abandoned Russian assets, and foreign capital investment is essentially gone at this point,” Daniel Tannebaum, a former U.S. Treasury official who leads anti-financial crime efforts at Oliver Wyman, told The Cipher Brief. “20 years ago, Russia was growing its economy, becoming more of a global player – that day really is done.”
The U.S. and Europe also went after Russia’s energy sector – a source of at least $240 billion in revenues in the year before the invasion. The EU imposed an embargo on most Russian crude oil, and the U.S. and its G-7 allies capped the price other countries could pay for Russian crude oil. Earlier this year, the EU pledged to fully end its imports of Russian gas.
While Russia has found several workarounds, its oil revenues have fallen. The latest forecast for this year is $200 billion.
The oil sector has also been hurt by the war itself. Last month, as Ukraine stepped up drone attacks against Russian energy infrastructure, Reuters reported that the damage had cut Russian oil refining by almost a fifth, and reduced shipments from key ports. The Kremlin has responded by banning some diesel fuel exports and extending a gasoline export ban through the end of 2025. Sanctions have also cut Russian access to advanced drilling tools and other oil industry technology – all part of what the Wall Street Journal referred to as “The Slow Demise of Russian Oil.”
Beyond the oil sector, the Russian economy is showing across-the-board weakness, with implications for the war as well.
“Russia has been heavily reliant on North Korea for almost a year for military support, both in the form of munitions and soldiers,” Tannebaum said. “That doesn’t strike me as a signal of anything that’s going so well.”
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The Kremlin workarounds
Taken together, the pileup of economic danger signs would seem to
support Trump’s statement that Moscow is in “big financial trouble”. Last month Treasury Secretary Scott Bessent went further, suggesting that a new round of sanctions would bring the “full collapse” of Russia’s economy.
But it’s not clear that those new sanctions are coming. And for a variety of reasons, experts see neither an imminent collapse nor any likelihood that Putin will soon slow his war effort.
“The fact that Putin continues his war despite 19 rounds of EU sanctions, and after more than three years, is a clear sign of policy failure,” Clayton Siegle, a senior fellow at the Center for Strategic and International Studies (CSIS), told The Cipher Brief. “President Trump’s August ultimatum for Putin to end the war or face severe consequences changed nothing.”
Experts say that “failure” has many roots. For one, Putin prepared the Russian economy for the sanctions. Prior to the 2022 invasion, Russia spent years stashing away more than $600 billion in central bank reserves, only half of which are now subject to Western sanctions. Less than a month before he ordered his troops into Ukraine, he cemented a new partnership with China – which has proved to be a critical customer for Russian oil and other items on the sanction lists.
“We have to remember, this was one of the largest economies in the world up until three years ago,” Tannebaum said. “This wasn’t Iran, this wasn’t a hermit kingdom like North Korea. To truly atrophy this economy was always going to take time. It was always like a vice grip where you just keep tightening the pressure. Unfortunately, we haven’t tightened it enough.”
After Russia’s early setbacks in Ukraine, Putin put his country on a war footing that included a military-spending-induced boom in 2023-24. That gave the economy an artificial but powerful jolt – Russia’s economy grew by more than 4% in that period, a higher rate than the U.S.
“From a macroeconomic standpoint, (Russia) was actually in very good shape for this massive invasion of Ukraine,” Graham said, adding that the wartime boost raised wages and stimulated poorer regions of the country.
“You put all of this together and you still have a Kremlin that is able to maintain the necessary level of public support, and raise the money that it needs to continue this conflict.”
Russia has also benefited from lax enforcement of the sanctions, and clever workarounds of its own.
The New York Times reported recently that several global financial institutions, particularly in China and the UAE, have faced no consequences for facilitating Russian transactions. The reason? A concern that sanctioning these banks – China’s in particular – would cripple international trade and damage global supply chains.
And while the oil sector has taken a big hit, the revenues keep coming.
In 2023, China imported record amounts of Russian energy, and India, Turkey, and some members of the EU have also continued to purchase Russian oil and LNG. Europe still imports nearly a fifth of its gas from Russia – that plan to wean the continent off Russian fossil fuels won’t come to fruition until 2027.
Sanction-busters: 1,000 aging tankers
Russia has also made extensive and profitable use of the so-called “shadow fleet,” vessels carrying illegal Russian oil exports via a complex web of transshipments. These ships are typically older, with questionable ownership, flying third-country flags and often sending false location information – all meant to hide their connections to Russia. According to S&P Global Market Intelligence, the shadow fleet now numbers nearly 1,000 vessels and accounts for about 17 percent of oil tankers sailing today.
In a September report, the Royal United Services Institute (RUSI) said that governance of the shadow fleet must be “radically improved.” Saiz, a co-author of the report, said the fleet remained “a vital lifeline” for Russia.
“The ease with which vessels can obtain flags without scrutiny, avoid ownership transparency and escape enforcement actions has created the conditions for an entire parallel shipping ecosystem,” the report said.
The EU’s most recent sanctions package includes a new effort to target the shadow fleet, identifying more than 500 vessels and adding them to its sanction lists. This would presumably make ports less willing to work with them. But Saiz and other experts say Russia continues to add vessels to take the place of ships on the lists.
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New and improved sanctions?
Certainly the sanctions haven’t succeeded in making Putin a global pariah. Last month, the Russian leader hosted representatives from more than 70 countries at the Eastern Economic Forum in Vladivostok. That same week, Putin traveled to Beijing to mark the 80th anniversary of the end of the second world war. Putin stood alongside Xi Jinping and India’s Narendra Modi, and announced that China and Russia had agreed to build a pipeline that would send Russian gas from Siberia to China.
For now, the U.S. intelligence community’s threat assessment – issued in March – looks accurate. “Russia has proven adaptable and resilient, in part because of the expanded backing of China, Iran, and North Korea,” the report said. “Russia has shown it can navigate substantial economic challenges resulting from the ongoing drains of the war, Western cost imposition, and high inflation and interest rates, for at least the near term by using financial and import substitution workarounds.”
Might a new round of sanctions change things?
Trump has continued to threaten new penalties against Russia, and Bessent’s “full collapse” remark came with a claim that the economic troubles would force Putin to negotiate.
“A lot of that is just rhetoric from Secretary Bessent,” Tannebaum said. “Let’s be very clear, this administration has not imposed a single sanction on anyone related to the war in Ukraine…We’re long past time for words on this.”
“It’s hard for me to imagine a set of sanctions that would lead to the collapse of the Russian economy,” Graham said of Bessent’s claim, and he added a cautionary note. “That begs the question: are we really interested in the collapse of the Russian economy? Chaos in Russia, from the standpoint of US national interest, is really not a good thing.”
Graham, who served in the early 2000s as Senior Director for Russia at the National Security Council, noted that Russia still has 5-6,000 nuclear warheads, and recalled that as the Soviet Union was unraveling, the U.S. was worried about a resulting economic calamity.
“We want Russia to be weaker,” he said. “We want it not to be able to prosecute this war at the intensity it has up to this point, but crippling or crashing the Russian economy has first- and second-order consequences that are actually quite negative from the standpoint of U.S. national interests.”
“Sanctions have hurt the Russian economy,” Gen. Phillip Breedlove, a former Supreme Allied Commander for Europe, told The Cipher Brief, “but they have never changed Russian actions on the battlefield… There’s a whole host of things we could do that would truly bring Russia to their knees and we haven’t done it.”
Experts agree on a short list of measures that might move the needle when it comes to Russia’s prosecution of the war: imposing secondary sanctions aggressively against buyers of Russian oil – as Tannebaum said, “really forcing third countries to make a choice between Russia and a decent swath of humanity”; boosting enforcement for the financial-sector sanctions; better policing of the “shadow fleet” traffic in Russian oil; and – an idea that has been discussed for years – seizing the roughly $300 billion in Russian sovereign assets frozen in the West.
The latter is controversial; it has never been done, and opponents argue that it would violate a long-standing principle of global finance.
“There is absolutely a precedent of not trying to cross that line of seizing a sovereign’s assets,” Tannebaum said, but then he added: “You also don’t see a sovereign invade another sovereign in the 21st century.”
Siegle has argued that in addition to the secondary sanctions on buyers of Russian oil, a surcharge should be imposed on every barrel of imported Russian oil, in return for the waiving of those tariffs.
“Russia is still making enough from oil sales, those sold on the G-7-compliant market and those via the shadow fleet,” Siegle said. “This new surcharge would crush Moscow’s oil revenues and provide a new cash flow that could be used to confront Putin and defend Ukraine.”
Graham says that no economic sanctions will match the power of effective military aid to Ukraine.
“It’s the battlefield that’s critical here, not sanctions, particularly if we’re looking at the near term,” Graham said. “If Russia is not making progress in the actual battle, that is something that is going to lead to reconsideration in the Kremlin of whether it makes sense to continue this horrific loss.”
Sanctions busting 101
Russia has one more answer to the West’s sanctions, and it comes from an unlikely place: the university campus.
Russia’s elite Higher School of Economics has created a master’s program focused on sanctions evasion. The two-year course, taught in Russian and English, trains students to navigate Western sanctions and untangle compliance issues for Russian firms. Annual tuition: $6,260.
Igor Lipsits, a former professor at the university, told Russian media that “there’s a recognition that sanctions are here to stay. People are expected to learn how to work around them.”
Tannebaum said the degree program was one more piece of evidence to suggest that sanctions were hurting the country. “If they’re not hurting them, why are you teaching people how to evade sanctions?”
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