What are the sanctions on Russia and are they hurting its economy?

Image source, Getty Images

Russia is reported to have missed a deadline to make a debt payment, because of sanctions imposed on it.

Since Russia invaded Ukraine a wide range of measures have been announced, to limit its ability to pay for the war.

What are sanctions?

Sanctions are penalties imposed by one country on another, to stop it acting aggressively, or breaking international law.

They are among the toughest actions nations can take, short of going to war.

How is Russia being sanctioned?

Western countries have targeted wealthy individuals, banks, businesses and state-owned enterprises.

Russia is believed to have defaulted on a debt for the first time since 1998, after missing a key deadline.

It has the money to make a $100m (£81m) payment, but sanctions made it impossible to do so.

It follows a series of measures taken against its financial institutions.

The US has barred Russia from making debt payments using the $600m it holds in US banks, making it harder for Russia to repay its international loans.

Russia’s central bank assets have been frozen, to stop it using the $630bn (£470bn) of reserves it has in foreign currencies.

Major Russian banks have been removed from the international financial messaging system Swift, which will delay payments to Russia for its oil and gas exports.

The UK has excluded key Russian banks from the UK financial system, frozen the assets of all Russian banks, barred Russian firms from borrowing money, and placed limits on deposits Russians can make at UK banks.

Russia is thought to have earned nearly $100bn (£82.3bn) from oil and gas exports during the first 100 days of the war.

Sanctions targeting its exports have been announced:

The EU is less keen to impose sanctions on Russian gas, because it relies on it for about 40% of its gas needs.

In March, it said it would reduce gas imports by two-thirds within a year, but has not agreed further action.

The US, EU, UK and other countries have sanctioned more than 1,000 Russian individuals and businesses. These include wealthy business leaders – the so-called oligarchs – considered close to the Kremlin, including former Chelsea FC owner Roman Abramovich.

Image source, Reuters

Image caption,

Roman Abramovich is the former owner of Chelsea FC

Superyachts linked to sanctioned Russians are also being targeted.

Russian government officials and family members have also been sanctioned. Assets belonging to President Putin and Foreign Minister Sergei Lavrov are being frozen in the US, EU, UK and Canada.

The UK has also stopped the sale of “golden visas”, which allowed wealthy Russians to get British residency rights.

What other sanctions have been imposed?

Many international companies have either suspended trading in Russia, or withdrawn altogether. They include McDonalds, Coca-Cola, Starbucks, and Marks & Spencer.

Are the sanctions hurting Russia?

A deep recession is expected and Russia’s economy is expected to shrink by 10% in 2022.

Supermarket shelves in Moscow are still pretty full, BBC Russia editor Steve Rosenberg reports, although some imported items are no longer available.

Getty Images

Russia’s economy in numbers*

  • 17.1%Annual inflation in May

  • 8-9%Retail trade set to fall this year

  • 83.5%Car sales fall in May 2022

  • 7.8%Official forecast of fall in Russian GDP in 2022

  • 30%Unofficial forecast of GDP collapse by IIF

*Official sources: Akort; economy ministry; AEB; Rosstat

International sanctions would have caused economic collapse if they’d come out of nowhere, Chris Weafer of Macro Advisory in Moscow told the BBC. But because Russia has experienced sanctions since 2014, it has been able to make some adjustments.

How has Russia reacted?

Russia has banned exports of more than 200 products, including telecoms, medical, vehicle, agricultural, electrical equipment and timber.

It is blocking interest payments to foreign investors with government bonds, and banning Russian firms from paying overseas shareholders.

And it has stopped foreign investors who hold billions of dollars worth of Russian investments from selling them.