Clare Sebastian
Three and a half years since Russia’s full-scale invasion of Ukraine, with a US-led peace process on ice and a stalemate on the battlefield, Kyiv’s allies are calling for renewed economic pressure on Moscow. The aim: to raise the cost of war for the Kremlin to a level that forces it to change course.
Eighteen packages of European Union sanctions and dozens more from the United States, United Kingdom and others have weakened Russia’s economy – but not its resolve to carry on fighting.
What’s needed, then, is not just more but smarter penalties, experts say.
“We just need to be cleverer,” said Timothy Ash, a Russia researcher at the UK-based Chatham House think tank who has advised a number of governments on the impact of sanctions against Moscow.
A massive rise in military spending helped the Russian economy grow more than 4% in 2023 and 2024, but this year the government is expecting just 1% growth. It also sees inflation at 6-7% by the end of the year, and interest rates are at a painful 17% level, aimed at containing price rises.
The Kremlin’s hugely important earnings from oil and natural gas are falling and the budget deficit – the gap between government spending and revenue – is widening.
Yet the latest three-year budget plan, submitted to parliament in late September shows that military spending will stay at around four times pre-war levels. And that’s thanks largely to Russian taxpayers.
Starting from January, the Kremlin has decided to raise value-added tax (VAT) from 20% to 22%, with the extra revenues “primarily directed” toward defense and security, according to the finance ministry.
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