When Russia annexed Crimea in 2014, the European Union, U.S. and other countries hit Moscow with punitive economic measures. Russian individuals and organizations have since been sanctioned for interfering in overseas elections, cyberattacks and other actions. Now, Russia has amassed tens of thousands of Russian troops along Ukraine’s borders in what some fear could be a prelude to a full-scale invasion.
In response, the U.S. is threatening additional sanctions, including cutting off Russian banks’ access to the dollar and employing novel export controls.
However, Russia has taken steps to buffer itself against the economic blow that sanctions could impose. The country has trimmed its budget, beefed up foreign exchange reserves and sought to diversify its trade portfolio to become less dependent on the EU for export revenues.
Trade:
The bulk of Russia’s export revenue comes from mineral products such as oil, natural gas and coal. This dependence makes energy exports an attractive target for sanctions.
The EU is reliant on Russia for more than a third of its natural gas imports. As of January, the U.S. and Europe weren’t weighing sanctions against Russian exports of oil and natural gas directly, given the concern that doing so could increase already high energy costs in Europe. However, President Biden said he would consider blocking the opening of the Nord Stream 2 pipeline that would deliver Russian gas to Germany.
While the EU remains Russia’s biggest trading partner, Russia has made efforts to diversify, expanding ties with China. These efforts include opening a major gas pipeline to the country in 2019. Natural gas exports to China have grown since then but are still small compared with Russia’s other big gas buyers.
The Biden administration also is weighing a ban on exports of various products that use microelectronics based on U.S. equipment, software or technology. The curbs could crimp Russia’s ability to make advances in aerospace, artificial intelligence and other high-tech fields.
Budget/Debt:
Moscow has been working to bolster its finances, which could help cushion the economy and keep the government funded in the event of sanctions. The country has run a conservative fiscal policy and has trimmed debt relative to other countries such as the U.S. and its European allies.
Reserves
Russia has used oil and gas revenue to build up its stock of gold and foreign currency since the 2014 Ukraine crisis. Moscow could use these to help support the ruble, if sanctions cause the currency to collapse, or to help cover government expenses.
Many of the sanctions enacted after 2014 were more targeted, aimed at individuals or entities such as those tied to the Russian military and its annexation of Crimea. While newly proposed sanctions are more far-reaching, Moscow has also had time to retool its economy, making it more resistant to punitive measures, so the ultimate effectiveness of sanctions remains uncertain.
