The Impact of Sanctions on Russia’s Economy: A Conversation with Vladislav Inozemtsev

Since the full-scale invasion of Ukraine by Russia in early 2022, a series of stringent Western sanctions have been implemented with the aim of crippling the economy of Russian President Vladimir Putin and hindering his military advances. These measures were added to the existing sanctions imposed by the European Union in response to Russia’s initial incursions into eastern Ukraine and the unilateral annexation of Crimea in 2014. However, the new wave of sanctions has proven to be much more extensive, targeting not only the state and businesses but also individuals connected to the Kremlin.

As the conflict extends into its third year, debates have emerged regarding the resilience of Russia’s economy in the face of these sanctions and whether the Kremlin’s claims about their ineffectiveness hold any truth beyond mere propaganda. Euronews engaged in a dialogue with Vladislav Inozemtsev, an economist, political scientist, and advisor at the MEMRI Institute in Washington, to explore the actual effectiveness of these sanctions and their real impact.

Euronews: With Ukraine’s recent military actions deep within Russian territory, supported by Western allies, does it seem like the economic sanctions are producing tangible results?

Vladislav Inozemtsev: In Russia, the prevailing sentiment towards these sanctions is one of mockery. A recent comedy film script was approved that features a plot where U.S. President Joe Biden, frustrated by his advisors’ claims that sanctions have yet to “finish off” Russia, decides to go undercover in Moscow to discover the reasons behind the “stability of the Russian economy.” However, the mood among Russian entrepreneurs is far from jovial; they are feeling the severe impact of these sanctions. The once-thriving automobile industry, built on Western partnerships in the 2000s and 2010s, is nearly non-existent. Key export-driven sectors such as forestry, metallurgy, and gas production have also suffered significantly. That said, it’s important to note a few critical factors: first, the overall economic impact isn’t catastrophic as the economy is shifting towards domestic markets, and the government continues to manage its budget despite these challenges. Second, the military-industrial complex remains largely unaffected, and no significant anti-war mobilization has emerged. Third, these sanctions can be a double-edged sword.

Euronews: What do you mean by that?

Inozemtsev: The repercussions of these sanctions also extend to the countries that imposed them. For instance, cutting ties with Russia in the energy sector led to soaring gas prices in 2022, which forced European governments to subsidize consumers at a staggering cost—some estimates suggest nearly €800 billion. Meanwhile, this surge in prices simultaneously provided Putin with an additional $78 billion (€70.5 billion) in export revenues for that year. Additionally, the freezing of the Bank of Russia’s assets has resulted in the confiscation of at least $140 billion (€126 billion) worth of Western investments in Russia, and this is just the beginning of the fallout.

Euronews: In light of this, which sanctions do you consider effective, and which do you think are ineffective?

Inozemtsev: Sanctions today can be viewed as a form of warfare. In any military operation, success is measured by the extent of damage inflicted on the enemy relative to one’s own losses. Therefore, I would argue that sanctions are effective if they cause more harm to Russia than to the countries imposing them.

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Euronews: But damage can be quantified in various ways.

Inozemtsev: Absolutely, and there are several nuances to consider. For example, European nations have seized over $58 billion (€52 billion) in assets belonging to Russian oligarchs. In retaliation, many of those who had invested heavily in Western markets have returned to Russia, resulting in a record number of dollar billionaires in 2024. These individuals have rallied around Putin more staunchly than ever, as they find themselves trapped in a “golden cage” with no escape route. Moreover, Western authorities have incurred significant costs—tens of millions of dollars—securing seized properties and potentially facing even larger payouts as compensation for legal disputes arising from these sanctions.

Euronews: Have the sanctions proven to be justifiable? Your writings suggest a general opposition to measures that adversely affect ordinary Russians rather than the ruling elite.

Inozemtsev: While some, like Ilya Yashin and Andrei Pivovarov, might argue otherwise, I do not share that perspective. I believe that sanctions against Russia and Russians should be justified, universal, and directly related to the intergovernmental relationships between the sanctioning countries and Russia.

Euronews: Is the imposition of sanctions selective and lacking in logical consistency?

Inozemtsev: You could certainly make that argument. If we accept that the war against Ukraine was initiated by Russian elites, then sanctions should logically be imposed on all ministers, deputies of the State Duma, members of the Federation Council, and all individuals affiliated with Putin’s United Russia party. Similarly, if the Russian budget is financing the war, it would make sense to target all individuals and corporations contributing significant federal taxes. I initially welcomed the ban on air travel to Russia. While it may lead to Chinese airlines dominating the market, the rationale was clear: communication was severed. However, I find it perplexing that only 48 out of 125 Russian billionaires are under sanctions, or why 60 out of nearly 260 Russian banks are sanctioned while the rest are not. Moreover, I question the Western authorities’ justification for restricting or banning the sale of Russian oil to India, as that is a sovereign relationship between two third countries.

Euronews: The situation appears more complex than it initially seems.

Inozemtsev: Many experts argue that labeling certain individuals as “oligarchs” or “influential businessmen” is as arbitrary as designating someone a “Trotskyist” or “counter-revolutionary” during Stalin’s era. This can occur because sanctions have sometimes been based on the opinions of biased experts. A notable example includes Mikhail Fridman and Petr Aven, whose sanctions were guided by the views of Ilya Zaslavsky, who had previously been dismissed from one of their companies. There have also been instances of erroneous information leading to sanctions that were later overturned by Western courts—consider the case of Alisher Usmanov, where an article in Forbes was deemed libelous, yet the sanctions against him remain intact.

Euronews: So, are sanctions against businesses often lacking in legal foundation?

Inozemtsev: Based on several high-profile cases, I would assert that they are often arbitrary and extrajudicial. Take for instance the German prosecutor’s investigation into Usmanov; they struggled initially to secure a search warrant, and when they finally did, the Frankfurt Land Court ruled the warrant invalid. Yet, the prosecutor’s office continued the investigation and retained the seized assets—does this reflect a commitment to the rule of law? Another case involves at least 14 Russians who had lawfully obtained Cypriot citizenship through government-approved investment programs, only to have their citizenship revoked without any judicial oversight due to sanctions.

Euronews: Can you draw comparisons with the case of Pavel Durov, the creator of Telegram, who was recently detained in France?

Inozemtsev: It’s challenging not to draw parallels. Durov was accused of serious offenses directly linked to his business, yet his business was not confiscated, and he retained his legal documents in France. His case underwent legal scrutiny where the court dismissed many charges and denied the prosecutor’s request for arrest—this aligns with legal norms. In contrast, sanctions often lack such due process. We even see attempts to sanction the relatives of “oligarchs,” many of whom have no active business interests in Russia. For example, Nikita Mazepin, son of Uralchem’s owner, faced sanctions in 2022 and had to leave his F1 team, although he eventually managed to challenge those sanctions successfully.

Euronews: However, there are instances where sanctions have been lifted.

Inozemtsev: Indeed, the EU courts have lifted sanctions against individuals like Violetta Prigozhin, the ex-wife of Fridman, and Aleksandr Pumpyanskiy, ruling that familial ties cannot justify the imposition or continuation of sanctions. Yet, the individual circumstances of each case should not vary in a functioning legal system.

The current approach does significant harm not only to Russian entrepreneurs—who the Kremlin will ultimately find ways to support—but also to the integrity of Western legal systems. In my view, sanctions are becoming an extrajudicial pressure mechanism that increasingly undermines established legal frameworks.

Euronews: That is a bold assertion. What additional arguments can you provide to support this?

Inozemtsev: There are numerous points to consider. For instance, legal norms dictate that laws cannot be applied retroactively. Yet, many Russian “oligarchs” were sanctioned based on their participation in a meeting with Putin on February 24, 2022. At that time, the EU did not view engagement with Putin as discreditable. Furthermore, legal principles dictate that individuals cannot be punished twice for the same offense; however, this principle is being disregarded in sanctions policy. For example, after the EU imposed sanctions on Fridman and Aven, which they successfully contested, the European Council later extended those sanctions under new justifications, requiring them to challenge the new measures from the beginning. During this period, both men were not engaged in any activities in Russia.

Lastly, the law should impose uniform penalties for similar unlawful acts. In Usmanov’s case, one of the charges was based on his ownership of the newspaper Kommersant, which was allegedly a tool for Putin’s propaganda. Yet, Grigory Berezkin, who owns RBC, from which many independent journalists were expelled, has been treated differently, with sanctions against him being lifted without any legal proceedings.

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Euronews: Many argue for collective responsibility, which could lead to a recognition of the regime’s wrongdoing and provoke protests among the populace. However, ordinary citizens, frustrated by the lack of essential medicines, often direct their anger not at the government but at the West.

Inozemtsev: To hold citizens accountable for their association with the regime, one must first acknowledge its criminal nature. This was the foundation of the Nuremberg Tribunal’s decisions, which recognized the leadership of the NSDAP, the Wehrmacht’s high command, and organizations like the Gestapo and SS as criminal entities. This legal framework allowed for the prosecution of prominent businessmen who collaborated with these groups—namely, those who produced weapons and utilized slave labor in concentration camps. However, those who merely paid taxes or supplied goods to the Wehrmacht were not charged.

As long as Putin remains merely a suspect in war crimes, and most Russian officials responsible for the war’s orchestration are under sanctions without facing proper accountability, it is both illegal and illogical to extend this level of responsibility to entrepreneurs. This approach merely consolidates their allegiance to the regime instead of fostering potential alliances in the fight for a better Russia. I’ve been vocal about this perspective in the Western media since the onset of the war, yet it often goes unheard; there’s a persistent belief that with just a bit more pressure, the oligarchs will rise against the regime, leading to its downfall. Frankly, this perspective reflects a profound naiveté, a sentiment I’ve expressed even before the invasion of Ukraine began.