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Sanctions on Russia: Death by a thousand cuts

Roman Goncharenko
March 2, 2022

Western sanctions imposed on Russia as a reaction to its invasion of Ukraine are beginning to bite. Everybody is likely to be affected, but some economic sectors will be hit harder than others.

A ruble coin and a US and an EU flag
The sanctions are beginning to biteImage: picture alliance/dpa

A week after Russian President Vladimir Putin's decision to invade Ukraine, life in Russia has changed drastically. Hardly any economic sector — be it finance, transport and travel, culture or sports — has been left untouched by the unprecedented sanctions. With new measures being imposed each day, it is not easy to keep track. It is like the form of torture known as "death by a thousand cuts" — and the Russian economy is beginning to bleed heavily.

EU tightens Russian sanctions and buys weapons for Ukraine

In just a few days, the ruble has lost a third of its value. There are reports of queues at ATMs and people are encountering problems when they try to pay by card, or to use payment methods such as Google Pay or Apple Pay. There could soon be a shortage of domestic appliances, clothes, and shoes from the West; such items could once again become rare commodities, as in Soviet times. Some experts are already predicting a double-digit economic slump should the current trend continue. 

For now though, the Kremlin is trying to be optimistic. "Indeed, the Russian economy has been under severe pressure; a strong blow has been dealt to it. Yet we have strength, potential and plans, and energetic efforts are being undertaken. It will remain standing," government spokesman Dmitry Peskov said on Wednesday in Moscow. The Kremlin's general attitude is that the situation on the markets will soon calm down.

Muscovites queue up to withdraw money from an ATM
Long lines at cash machines in Moscow are just one sign of the impact of sanctionsImage: Victor Berzkin/AP/picture alliance

Russia no stranger to sanctions

After all, Russia has been adapting to Western economic sanctions since at least 2014, when it annexed Crimea. At that time, the government came up with a euphemism to describe sanctions, and Russian media outlets spoke of a "new economic reality."

However, this time, the blow is considerably heavier, and already a new crisis center has been set up, with Russian Prime Minister Mikhail Mishustin at its helm, to keep the turbulence under control.

European and United States flight bans on Russian aircraft are hitting Russian aviation very hard, with travel companies reporting a 70% drop in bookings. Russians who do make it to a foreign beach will have to carry lots of cash, because certain Russian banks have been excluded from the global SWIFT payments system. At least three hospitals in Thailand are now only accepting Russian patients who can pay cash. It might also not be so easy for Russians on holiday abroad to fly home if they do not already have tickets.

Unexpected 'extreme situation'

Russia's central bank reacted to the crash of the ruble by raising its key interest rate from 9.5% to 20% to counteract the devaluation and prevent an inflationary spiral. But the bank is under unprecedented pressure, and seems to have been taken aback by the Western decision to freeze two-thirds of its reserves. The governor of the bank, Elvira Nabiullina, told employees in a video address that all had hoped not to be faced with this "extreme situation," according to news agency Reuters.  

Muscovites queue up to withdraw money from an ATM
Long lines at cash machines in Moscow are just one sign of the impact of sanctionsImage: Victor Berzkin/AP/picture alliance

The business daily Vedomosti reported that for now, Russia's middle classes are most worried about the crisis. Some restaurants in Moscow have seen a 60% drop in customers. But the sanctions will hit all citizens, the newspaper predicted. "Russians used to see sanctions as a 'punishment for the elites,' but now they are beginning to realize that everyone is going to be affected," it wrote, citing a psychologist.

In the daily newspaper Kommersant, well-known economics expert Sergey Utkin warned of "massive economic losses and the destruction of the way of life of entire social classes." He added that this is all a consequence of the Ukraine campaign.

Sports and culture deeply affected

Few people in Russia had apparently reckoned with sanctions in the areas of sport and culture. Ever more Russian athletes and teams are being excluded from global championships. The Champions League final has been moved from St. Petersburg to Paris and other events are similarly affected. This will cause losses to the hospitality sector worth millions.

How sanctions are hurting the Russian economy

Some Russian artists such as the conductor Valery Gergiev, a supporter of President Vladimir Putin, are even losing their jobs in the West. But it is Russia's cinema sector which will take a major hit. When the latest Batman film will hit screens worldwide on Thursday, Russians won't be able to see it. The blockbuster is one of three releases that US producers have pulled in Russia.

Cinemas expect to lose 70% of their income as a result. Western films usually generate some 75% of their revenues and if the situation does not improved by May, experts expect that many movie theaters could go out of business.

This article was originally written in German.