Have sanctions worked?
The latest forecasts by the IMF show that the Russian economy contracted by just over 2%, with moderate growth expected in 2023. According to Maria Demertzis, there are three reasons why all the severe sanctions have not had a bigger effect on Russia:
- In most of 2022 only about 8% of the export value of Russian energy was under sanctions, while the huge increases in energy prices increased oil and gas revenues to 45% of the Russian government budget.
- Fiscal spending equivalent to 3% of GDP in the form of social benefits, tax breaks, subsidies for loans and by increasing the minimum wage prevented poverty from increasing.
- A large number of countries representing 59% of the world’s total population is either neutral or endorses Russian aggression. This implies that many countries are not necessarily willing to isolate Russia by helping to enforce sanctions and stop economic ties with Russia.
Are sanctions against Russia working?
By: Maria Demertzis – Bruegel
What happened to the ruble?
In this paper Itskhoki and Mukhin develop a model to study whether a strong ruble means that sanctions are not working and have only minor effects on the Russian economy. They quantitatively evaluate the ruble exchange rate dynamics since the beginning of the war by combining financial and trade sanctions in a calibrated model. They calibrate the import and savings demand elasticities, and sanctions shocks to the observed dynamics of Russian imports, export revenues, domestic output, precautionary asset demand and official reserves. Their model matched the ruble dynamics shown in the figure below and suggests:
- The foreign asset freeze had a small direct effect on the ruble, and the initial depreciation was largely caused by a sharp increase in precautionary demand for foreign currency by the households.
- The central bank was unable to accommodate this increased demand with conventional FX interventions and instead had to resort to financial repression — the indirect consequence of financial sanctions.
- The appreciation of the ruble in the medium term is explained by an unprecedented trade surplus due to the increase in global energy prices, the fact that the West chose to concentrate sanctions on Russian imports and not exports, as well as a smaller effect from domestic recession.
- The model predicts an eventual depreciation of the ruble in the near term as the fall in imports mean reverts over time and Russian commodity exports decline with the anticipated rounds of sanctions, .
Sanctions and the Exchange Rate
Authors: Oleg Itskhoki, Dmitry Mukhin
From: University of California-Los Angeles, London School of Economics
Is the Russian oil price cap being violated ?
In this commentary, Simon Johnson argues that the price cap of $60 per barrel the G7, the European Union, and their allies have imposed on Russian crude transported by tanker, together with roughly equivalent caps for diesel, fuel oil, and other oil derivatives is being violated:
[N]ow some – including Goldman Sachs analysts – are claiming that reported prices are not accurate. In effect, some people involved in trading Russian oil may be lying to data providers, officials, and the broader market about transaction prices. […] The stigma of trading Russian oil has driven many reputable companies from the market, and some participants may be shell companies fronting for others, who might even be working for the Kremlin.
Are Russian Oil Prices Being Rigged?
By: Simon Johnson – MIT
