After 50 days of the war in Ukraine, are the Russia sanctions having any effect?

As the war in Ukraine reaches what many experts say is a definitive phase in the battle for control of the eastern Donbas region, it’s hard to tell who has the upper hand.

Russia’s energy sales, and other steps taken to protect its economy from sanctions, have meant that Russian president Vladimir Putin is better able to withstand Western pressure, experts say.

“Are the sanctions hurting Russia? Absolutely,” says Peter Piatetsky, a former U.S. Treasury official who now monitors sanctions at Castellum AI, a global risk database.

“But is the Russian populace willing to suffering economic pain for Putin's idea of greater glory? Seemingly yes. And does Putin care about the Russian economy? No,” Piatetsky told Univision.

To be sure, despite Russia’s humiliation on the battlefield by the smaller Ukrainian armed forces, after 50 days of war Putin shows no sign of ending it.

And, not withstanding some of the most far-reaching global sanctions ever imposed, Russia continues to earn vast sums daily from its oil and gas exports chiefly to Europe, India and China.

Estimates put the amount as somewhere between $800 million and $1 billion a day, or roughly $50 billion since Putin's forces invaded on February 24. Russia is on track to earn $320 billion from its energy exports this year, up 36% compared to 2021, according to Bloomberg.

Military and humanitarian aid being delivered to Ukraine by the United States and other Western allies, pales by comparison. Since the February 24 invasion the United States has authorized $2.5 billion in military aid, including an extra $800 million announced by president Joe Biden on Wednesday.

The Pentagon has described the military aid so far as "the largest presidential drawdown package in history". 

The United Kingdom is putting in about $1 billion, with a number of other countries also making smaller contributions, among them: Poland, Germany, Lithuania, France, Australia and Canada.

The U.S. Congress in March unveiled an even larger $13.6 billion Ukraine aid package, including both military and humanitarian assistance.

Russia, the most sanctioned country in the world

Then there’s the sanctions. The current total of 9,655 sanctions globally, makes Russia the most sanctioned country in the world, ahead of Iran, according to Castellum AI’s sanctions watch-list site. Of those, 6,901 were imposed since February.

The sanctions include 5,963 targeting individuals and 922 specific entities, as well as general sectoral sanctions such as oil and gas, metals, coal, luxury goods, banks and even vodka.

The West could do more to cut off Russian oil and gas exports, many experts argue.

“Moscow's key pipelines remain oriented towards the West and the international commodities firms that make oil shipping possible are financed by Western banks,” said Maximilian Hess, a political risk consultant based in London and a fellow at the Foreign Policy Research Institute.

“There are, of course, plenty of tricks for trying to dodge sanctions and disguise oil shipments, but Russia would face a major cost crunch in the short term and would seek issues in adjusting,” he added.

Putin was prepared for sanctions over Ukraine

When Putin invaded Ukraine in late February he knew sanctions were inevitable. So, he was prepared, though only partially.

Starting in 2014, Putin spent almost a decade building up a war chest of foreign reserves which reached $630 billion by February. The sanctions came so quick and were so global in reach, that it looks as though Putin was caught a bit by surprise.

About half of those foreign reserves are held in foreign banks and is now frozen as a result of sanctions.

Putin also created his own internal credit and debit payments system, Mir, meaning ‘peace’ in Russian, which has helped compensate for Russia being cut off by Visa, Mastercard and American Express. Statistics from the Central Bank say Mir cards make up around 32 percent of all new cards issued in the country.

As a result of the sanctions, the Russian economy is now expected to contract 11.2% in 2022, the World Bank said in a report released this week. But, Russia has so far managed to keep repaying its foreign debt on time. Its currency, the rouble, has bounced back to prewar levels.

That's also thanks to capital controls quickly imposed by Putin after the invasion which have prevented the outflow of foreign currency held in Russia.

"There's been much more resilience there than people expected," said Carol Osler, a professor of Financial Markets and Institutions at Brandeis University in Boston.

Russia’s economy entered the war on a high. It’s current account surplus reached a 30-year high of $58 billion in the first quarter of this year, the country’s Central Bank announced on Monday. Currency controls have also forced businesses to hand over 80% of their foreign earnings in dollars and euros to the government in return for roubles. Russia is also not allowing foreign investors to sell their assets in Russia in order to repatriate their investments.

While that has helped keep the Russian economy afloat, its not sustainable in the long term, says Osler. "What happens with these kinds of controls is that people gradually find their way around them - not necessarily legally," she said.

Russian oil and gas exports almost untouched

Oil and gas exports are the lifeblood of the Russian economy, accounting for roughly 40% of the country’s annual revenue.

As a result of oil prices doubling since the invasion began, Putin is reaping a massive windfall, so far untroubled by the sanctions. In April alone, Russia expects $9.5 billion more from energy sales than it initially projected due to high prices.

That’s partly because the European Union remains heavily reliant on Russian gas and has so far declined to cut off shipments due to fears of an energy crisis. The EU is considering an oil embargo, but has not so far mentioned cutting off natural gas as Europe remains highly reliant on Russian gas supplied by pipelines.

In an interview with the BBC on Thursday, Ukrainian President Volodymyr Zelensky accused European countries that continue to buy Russian oil of "making their money on other people's blood."

The EU has already paid $38 billion for Russian energy since the country invaded Ukraine, a senior EU official said last week. India and China, the two most heavily populated countries in the world, are also major clients of Russia and have not ceased their imports.

“That’s enormously consequential,” said Piatetsky. “Putin has to pay his bills. You cut off oil and gas and the war becomes a loss-making enterprise and they realize they need to wrap up this war,” he said.

In particular, Putin needs the oil and gas revenue to keep paying into the state’s National Wealth Fund which is used to fund state pensions for older Russians who are Putin’s political base.

That doesn't seem to be a problem, at least for the next six months or so. U.S. oil production will increase in Texas, which could help reduce world prices, but that effect won't be felt until 2023.

Interrupting the flow of Russian oil and gas is also easier said than done

U.S. sanctions have tried for years to cut off Venezuelan oil, with only limited success due to so-called ‘Deceptive Shipping Practices,’ whereby oil tankers turn off their transponders in order to secretly deliver their cargo, or transfer it to other ships.

“Despite the success of trade restrictions and sanctions, there is strong proof that certain entities are already finding workarounds,” according to Windward, a maritime data tracking company.

Russian crude oil tankers were barely involved in such “dark activities”, but the number “skyrocketed” last month, according to Windward.

According to Windward’s proprietary behavioral data, March 2022 marked a rush of vessels and even fleets moving away from affiliation with the Russian regime by changing the flags under which they trade from the Russian flag to those of other countries. The most common flag of choice is the Marshall Islands flag, followed by St Kitts and Nevis.

Russians are used to hard times, and Western sanctions

Even if there was a way to close the loopholes, it is still questionable that sanctions would work.

“The Russian people have a tremendous capacity for suffering and they see that as a strength,” said Piatetsky, who is the U.S.-born son of Russian immigrants. “It’s not like in the U.S. where everyone us used to having what they want. In Russia they think ‘we have been through tough times and we can do it again,’” he added.

Putin has mounted an effective propaganda campaign that has sought to pin the blame for the war on NATO and the West, while claiming the death and destruction in Ukraine is self-inflicted.

While a middle class has emerged over the last three decades of Western-style capitalism following the collapse of the Soviet Union, Putin has also built an effective police state that silences critics. Internal sanctions announced in March now also make it illegal to criticize the war, or even the use word “invasion.” Instead, in Putin’s Russia, the war can only be referred to as a “special military operation” to demilitarize Ukraine.

“Anyone who could have challenged him has been coopted or is in jail,” said Piatetsky.