The War on Russia’s Economy Is Working

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Nine months into Russian President Vladimir Putin’s war in Ukraine, the damage done to the world’s 11th largest economy is immense. Russia’s leading banks have been cut out of the global financial system, $300 billion of central bank funds have been frozen, and hundreds of foreign companies have left. Shortages of other parts have disrupted the auto industry and threatened airline operations. Following Putin’s promotion policy, thousands of young workers have fled the country. OECD forecasts released this week show that Russia’s economy will shrink by 5.6% in 2023.

The economic sanctions imposed on Russia did not stop the oppression of Ukraine. But the sanctions have weakened Russia’s position as a global power, prevented neutral countries from cooperating with his government and raised doubts about Putin’s leadership among Russian officials. Convincing them to press for an end to the war will require much more serious action from the US and Europe.

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Since February, the sanctions have raised the cost of war, reducing Moscow’s ability to buy what it needs, and making the market more dangerous for foreigners. China, India and Turkey are exporting to Russia, but at very low prices, and Russia has struggled to re-export the gas it exported to Europe. Exports of technology to Russia needed to upgrade its military — let alone launch new ones — have been halted for months. Don’t worry about what to buy, when it comes to electronics, it’s often wrong. Moscow will change, but not quickly.

Even so, the direct impact on the war is still minimal. Squeezing the world’s largest exporter of hydrocarbons, which currently has a surplus account, requires targeting exports, a process that is starting to accelerate at the moment. Also, the Russian people had already suffered a decade, with real domestic income entering the year 2012. So although the economy is expected to fall this year by 3.9%, there is a little distance to fall. There is also the indisputable fact that Mr. Putin is willing to sacrifice future economic growth for his own purposes and can easily block their disagreements.

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Sanctions do not lead to rapid political change or immediate resolution of conflicts. With Russian forces retreating, it is imperative for the West to increase pressure. Obviously, the US and its allies should continue to support Ukraine with money. They should also promote brain damage in Russia. About 350,000 people have already fled Putin’s stimulus package, which has caused consumer confidence to plummet. Western governments could speed up the process by issuing more humanitarian visas, increasing aid to Russian students, and incentives for scientists and technologists to move abroad. Not only will Western economies benefit, but Russia’s job and skill shortage will also increase.

Europe should also try to close the sanctions. To cite one example, there is evidence that the Russian military is sending home-made weapons to neighboring countries and using their microchips to facilitate the loss of Western semiconductors. (Armenia exported more washing machines from the European Union in the first eight months of 2022 than in the previous two years combined.) It will also require strong action to impose EU sanctions and a US-led tariff on Russian oil, which could happen. extend the ban on selling insurance and other services to ships that fail to comply.

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Above all, European governments and their allies need to stick together. Russia’s economy is collapsing, and the war is not going well for Moscow. Putin still thinks that Ukraine’s allies are starting to crack. The whites must prove him wrong.

More from Bloomberg Opinion:

• Russia’s Opposition Has No Plan to End the War: Leonid Bershidsky

• World May Need Russian Oil Cut: Julian Lee

• Putin Still Has a Chance to Win Ukraine: Tobin Harshaw

The editors are members of the Bloomberg Opinion editorial board.

More stories like this can be found at bloomberg.com/opinion

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