Effects of Western sanctions on Russian economy to be felt by late 2023

EKONOMICHNA PRAVDA – WEDNESDAY, 10 AUGUST 2022, 19:02

The Kyiv School of Economics has released a report titled Impact of Sanctions on the Russian Economy, which concludes that the critical impact of sanctions is unlikely to be felt before the end of 2023.

The researchers note that the impact of sanctions on the Russian economy will continue to increase over the long term, particularly in light of the limits on the export of Russian energy resources.

The authors of the report explain that while the forecasts of the Russian economy’s contraction in 2022 have been lowered from -10-30% to -6-9.5% and the forecasts of inflation in Russia have also been reduced, from 20% to 12-15%, this improved outlook is underpinned by high oil and gas revenues, shaped in turn by high prices in the energy market.

Sanctions are already hitting the domestic Russian economy. Industrial production year-on-year was down 1.8% in June, including car production, down 62% year-on-year.

The KSE report stresses that the majority of sanctions imposed on the Russian energy sector have yet to take effect. In particular, a series of oil and gas restrictions are set to come into effect later this year, with the European embargo on Russian seaborne crude oil entering into force on 5 December 2022, and the embargo on Russian oil products on 5 February 2023.

Meanwhile, "the volume of Russian gas sales to Europe is running at one third of last year’s levels, and looks set to decline from here, and effectively stop no later than 2024, when Germany expects to be fully independent of Russian gas," the report continues.

The authors of the report expect that as the European oil embargo is implemented, Russia’s oil and gas revenues will be reduced by 40%.

Background: Despite the international sanctions imposed on Russia, its current account surplus has tripled to $166.6 billion (compared to the previous year).

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