Nearly two weeks into the Russian military assault on Ukraine, Moscow has been facing an avalanche of coordinated sanctions by Western governments and boycotts by private companies and public multinationals the likes of which have never been seen before, economic experts say.
Governments have slapped far-reaching economic sanctions on Russia that have targeted its financial institutions, including the central bank, shipping and trade industry, tech and aviation sectors, and community of wealthy oligarchs and their circles, stopping short until Tuesday of aiming at the country’s oil and energy sector.
Energy exports have kept a steady stream of cash flowing to Russia despite otherwise severe restrictions on its financial sector. But the US is not a major importer of Russian oil, whereas Europe gets about 40% of its gas and 30% of its oil from Russia, and has no immediate or easy alternative if supplies are disrupted.
Dr. Tomer Fadlon, a research fellow in the Economics and National Security Program at Tel Aviv University’s Institute for National Security Studies (INSS), estimated that Russia’s oil and gas sector accounts for some 55% of national exports and brings in about $1 billion a day.
For sanctions on the Russian energy sector to have an impact, “Europe will need to feel the pain, and since they don’t have another alternative at the moment, this is hard to do,” he told The Times of Israel in a phone interview Wednesday.
Meanwhile, a host of tech firms, major manufacturers and consumer brands have either suspended or halted their operations in Russia altogether or have restricted their services in a move meant to punish the Kremlin over the war.
McDonald’s, Coca-Cola and Starbucks were the latest to join the corporate boycott which now includes over 300 companies, according to a team of researchers from Yale University. These include Visa, Apple, Facebook, Mastercard, Amazon, Google, Ford, Dell, DHL, Nike as well as luxury brands like Burberry, Hermes, Ferrari and Rolls Royce.
“No doubt, we haven’t seen anything like this. This situation is different than other sanctions we’ve seen in the past. Russia would never have expected the West to be so well-coordinated,” said Dr. Jennifer Shkabatur, a consultant for the World Bank and a faculty member at the Lauder School of Government, Diplomacy and Strategy at Reichman University in Herzliya.
Historically, tough sanctions have never been imposed on large economies such as Russia’s, Shkabatur told The Times of Israel in a phone interview this week as Moscow intensified its military assault in Ukraine. “There were sanctions on Iran, Somalia — these were small economies and they didn’t change much in the geopolitical landscape,” she said.
“The scale of the sanctions [on Russia] comes as a surprise and it’s different because the West stands to suffer too — the price of oil and gas are up, food prices go up, inflation, etc.,” she explained.
European wholesale gas and crude oil have surged to near-record this week due to supply fears linked to Russia’s February 24 invasion of Ukraine. The price of Brent crude oil, the international benchmark, was up at almost $130 per barrel on Wednesday.
Fadlon said that “to have so many sanctions in such a short period of time is unprecedented. Russia has been integrated into the world economy for some time, it has already experienced globalization. This isn’t Russia of the 1980s. And as a result, there are many tools with which to punish Russia.”
Previous rounds of sanctions on states like Venezuela, for example, affected “countries with an already low quality of life, but didn’t touch the regime. These current sanctions are affecting the quality of life of Russians,” said Fadlon.
Shkabatur said Moscow likely “expected the sanctions on the banks, similar to the sanctions imposed on Russia in 2014 over Crimea. It also expected the personal sanctions on people in [Russian President Vladimir] Putin’s inner circle, which were unpleasant but not huge, and knew that some assets would be frozen.”
However, the scale of the sanctions now affects “not just the oligarchs and the ruling elite, but the country as a whole” and the isolation of Russia is now “growing more and more significant,” she described.
Fadlon said the sanctions on Russia’s central banks have been particularly potent since Moscow “has built up its currency reserves to about $630 billion, but now 60% of it is frozen in foreign countries.”
“At the same time, you have totally new aspects like the Moscow Stock Exchange being closed for days, lines at the ATMs and at banks to withdraw money. The ruble is tanking. So the effect is tremendous,” he said.
Shkabatur noted that the departure of international companies and foreign brands from Russia stings especially.
“For Russia, brands are very important. In the times of the Soviet Union, many aspired to have international brands — it was a huge deal to have shoes from Italy, or jeans from the United States, or to eat cheese from France. In the 1980s, it was the biggest aspiration because it was so unattainable for most people. In the 1990s and later, brands became much more important for Russians, much more so than for us in Israel or for Americans. So in a sense, this isolation brings them back to the Soviet era when they couldn’t purchase [brands] and couldn’t access them,” she explained.
“It’s not like people will have nothing to eat or nothing to wear but it’s definitely something that they feel already,” she said, adding that whether this will sway public opinion is anyone’s guess given Russia’s powerful state propaganda and tightly controlled news outlets and information flow.
But on the government level, there are signs the sanctions are starting to take a toll, said Shkabatur, pointing to scaled-back Russian demands in talks with Ukraine.
“At first, Russia wanted to ‘absorb’ Ukraine. In Russian news, there was talk of ‘Mother Russia,’ fighting neo-Nazis [in Ukraine], ‘us against the world.’ Now we see that the conditions are the recognition of Crimea and of Donbas [include the separatist Donetsk and Luhansk regions],” she explained.
Putin and the Kremlin had indeed said their goal in Ukraine was demilitarization and “denazification,” accusing the democratically elected government of Ukrainian President Volodymyr Zelensky of atrocities in separatist regions.
But on Wednesday, Russia appeared to reverse course, with a foreign ministry spokesperson saying during a briefing that Moscow was not looking to topple the Ukrainian government.
Both Fadlon and Shkabatur said the Ukrainian narrative shaped by Zelensky on the world stage is also having a huge effect on what actions companies and governments are willing to take, including Russia.
The Ukrainian leadership has been dizzyingly active on social media, openly calling for harsher sanctions on Russia and urging global companies to sever ties with the country.
Zelensky has been painting a picture of “good versus bad, so it became so straightforward for companies [to decide] that they should be leaving, and this level of unity was completely unexpected by Russia and Ukraine,” said Shkabatur.
The Ukrainian president’s deft navigation of social media has widely contributed to the sanctions onslaught on Russia, she offered. Zelensky “really knows how to convey a message that is personal and powerful, and he managed to inspire Ukrainians and motivate them, and also to tell the story to the rest of the world, which definitely contributed to this coordination with the sanctions,” Shkabatur said.
“It’s hard to believe that Putin ever imagined that Western countries are going to ally like this in imposing sanctions and in such a short period of time,” Fadlon said.
An added element was the ferociousness of Ukraine’s resistance, which Fadlon said must have come as a “major surprise” to the Kremlin.
This factor, combined with the global sanctions, is exacting a steep price from Moscow, he concluded.
Agencies contributed to this report.