Since the start of the invasion of Ukraine, the West’s response has been sanctions – with the goal of draining the Russian treasury.
Russia already has large budget deficits, but many sanctions will take full effect this year, says Torbjörn Becker, director of the Eastern Economic Institute at the School of Economics.
– We will see bigger and bigger budget deficits and more financial problems for Russia this year, he says.
Russia’s two major sources of income are oil and gas, and that is above all where the sanctions have bitten. The EU no longer buys gas from Russia in the same way as before and the oil has been given a price ceiling. Now an eleventh package of sanctions from the EU is on its way and last week the G7 countries agreed to tighten sanctions, all to stop the Russian war machine.
– The two major sources of income have disappeared and then trade has become more complicated in general for Russia, because we also have sanctions on which goods we sell to Russia. It bites quite hard, says Torbjörn Becker, head of the Eastern Economic Institute at the School of Economics.
This is how the Russian people are affected
Among the population, it is mainly the well-to-do upper middle class who have had to change their habits due to the sanctions.
– You can’t travel like you did before to EU countries, the house on the Riviera you might have had. But it is about the well-to-do upper middle class in the big cities. Buying European luxury cars or technological goods or watching Netflix, we have sanctioned such things, so to speak.
– But slowly but surely, the Russian population will get increasingly worse incomes the longer this goes on, he continues.
Full effect this year
There is a certain delay when it comes to the effects of the sanctions against Russia, says Torbjörn Becker.
– We must remember that many of the sanctions that we decided last year will take full effect this year. So I think we will see bigger and bigger budget deficits and more economic problems for Russia this year than we have had before, he says.
Russia has large budget deficits. In the first four months of the war alone, the deficit was 44 billion dollars, says Torbjörn Becker, and Russia is already taking from the savings fund. But when that money runs out, there are ways to get more money.
– We will not see a clear stop when the money runs out, but it is about political priorities. Their reserves will run out. But then the question is, what do we do when they run out? Then we can raise revenues by taxing companies or households more, or we can provide lower pensions, not investing in healthcare, schools and so on.