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Will Russia or the West Win the Economic and Financial Battle?

After six months of unprecedented Western sanctions, Russia’s economic situation, though bad, is arguably better than most observers expected. This does not bode well for the outcome of the West’s financial war against the Kremlin.

PARIS – Six months ago, the West faced a dilemma: It could neither let Russia’s aggression against Ukraine succeed, nor send troops to fight President Vladimir Putin’s invading army. So, it chose to provide weapons to support Ukraine’s resistance, and to wage its own economic and financial war against Russia in the hope of weakening it significantly. Within days, Western powers deployed an unprecedented array of sanctions; the “shock and awe” effect was expected to compel the Kremlin to pay dearly and possibly force it into submission.

As The Economist has documented, the sanctions comprise three elements. First, there have been high-profile but trivial measures such as travel bans and the seizure of Russian oligarchs’ yachts and villas. Second, extraordinary financial punishments have been imposed, especially the freezing of the Russian central bank’s reserves and the exclusion of selected Russian commercial banks from the SWIFT interbank messaging system. Third, a comprehensive ban on technology exports to Russia was put in place, coupled with pressure on Western multinational firms to withdraw from the Russian market.

The really novel sanctions were the financial penalties. Since World War II, such measures had been applied only rarely and to relatively insignificant financial players such as Iran and Venezuela. None of the West’s confrontations with the Soviet Union had elicited such a response. And it was more than a year after Nazi Germany invaded much of Europe in 1940 that German assets in the United States were frozen. But when Russia attacked Ukraine in February, the West responded within days.

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