As the one-year mark of the Ukraine war on February 24 approaches, Russia has not achieved a military victory and the West has not achieved its economic goals. When Russia invaded Ukraine, the United States and its European allies vowed to impose crippling sanctions that would bring Russia to its knees and force it to withdraw. However, Western sanctions on Russia have reduced the global supply of oil and natural gas, pushing up prices and causing the sanctions to boomerang – hitting the very countries that imposed them. This article will examine the economic impacts of the sanctions on Russia, Ukraine, Europe, the United States, and other countries.
The Western sanctions on Russia reduced the global supply of oil and natural gas, but also pushed up prices. Russia, however, profited from the higher prices, even as its export volume decreased. The International Monetary Fund (IMF) reports that Russia’s economy only contracted by 2.2% in 2022, compared with the 8.5% contraction it had forecast. Furthermore, the IMF predicts that the Russian economy will grow by 0.3% in 2023.
On the other hand, Ukraine’s economy has shrunk by 35% or more, despite $46 billion in economic aid from generous US taxpayers, on top of $67 billion in military aid. European economies are also taking a hit. After growing by 3.5% in 2022, the Euro area economy is expected to stagnate and grow only 0.7% in 2023, while the British economy is projected to actually contract by 0.6%. Germany was more dependent on imported Russian energy than other large European countries so, after growing a meager 1.9% in 2022, it is predicted to have negligible 0.1% growth in 2023. German industry is set to pay about 40% more for energy in 2023 than it did in 2021.
The United States is less directly impacted than Europe, but its growth shrank from 5.9% in 2021 to 2% in 2022, and is projected to keep shrinking, to 1.4% in 2023 and 1% in 2024.
Meanwhile, India, which has remained neutral while buying oil from Russia at a discounted price, is projected to maintain its 2022 growth rate of over 6% per year all through 2023 and 2024. China has also benefited from buying discounted Russian oil and from an overall trade increase with Russia of 30% in 2022. China’s economy is expected to grow at 5% this year.
Other oil and gas producers reaped windfall profits from the effects of the sanctions. Saudi Arabia’s GDP grew by 8.7%, the fastest of all large economies, while Western oil companies made huge profits. ExxonMobil made $56 billion, an all-time record for an oil company, while Shell made $40 billion and Chevron and Total gained $36 billion each. BP made “only” $28 billion, as it closed down its operations in Russia, but it still doubled its 2021 profits.
As for natural gas, US LNG (liquefied natural gas) suppliers like Cheniere and companies like Total that distribute the gas in Europe are replacing Europe’s supply of Russian natural gas with fracked gas from the United States, at about four times the prices US customers pay, and with the dreadful climate impacts of fracking. A mild winter in Europe and a whopping $850 billion in European government subsidies to households and companies brought retail energy prices back down to 2021 levels, but only after they spiked five times higher over the summer of 2022.