U.S. Sanctions to Hurt Russia’s Economy in The Long Run: Stratfor Analysis

American sanctions cannot cause a major crisis in Russia’s economy in the short term but will help it continue to stagnate for the foreseeable future, U.S. intelligence platform Stratfor says in its latest analysis

According to the document, worldwide economic slowdown and the U.S.-China trade war, along with growing uncertainty over Brexit and a seven-month low for oil prices, will undermine Russia’s economic growth. 

“Other downward pressures like demographic decline and migrant outflows will weigh more heavily on the Russian economy amid rising political uncertainty,” Stratfor said.

The combined effect of sanctions and low oil prices drove Russia into recession in 2015, as its gross domestic product (GDP) contracted by more than 2.5 percent before beginning a slow recovery in 2016. 

But since that time, U.S. sanctions have gradually expanded to cover everything from Ukraine to Russian political meddling in U.S. elections to Russian arms proliferation, affecting Russia’s energy industry and finances, as well as hundreds of officials and oligarchs.  

The document acknowledges Russia’s effort to insulate itself from the global dollar-based economy. 

“Faced with the West’s sanctions, Russia has undergone a significant macroeconomic shift over the last five years to limit its exposure to the United States and create a large enough financial cushion to manage future economic shocks in the event of more serious sanctions and low energy prices,” Stratfor says. “Accordingly, Moscow has bolstered its foreign currency reserves and wealth funds; reduced external debt; drawn down its holdings of U.S. Treasury bonds in favor of euros, yen and yuan; and expanded economic ties with non-Western countries, especially China.”

However, the sanctions keep the Russian leadership preoccupied with dealing with the measures and unable to focus on long-term growth. The analysts wrote:

“In response, Moscow has worked diligently to blunt the effect of the sanctions, but its focus on merely putting out fires means it’s not in a position to substantially grow the economy anytime soon — particularly as its population continues to decrease and questions emerge as to a successor to Russia’s longtime president, Vladimir Putin.”