Beating the blockade: why western sanctions failed to cripple Russia

Panorama of Moscow. Photo: Viacheslav Lopatin / Shutterstock

Following Russia’s 2022 invasion of Ukraine, western nations imposed sweeping sanctions with the primary aim of hurting the Russian economy. These included bank restrictions, export bans, technological embargoes, and a ceiling on Russian oil prices. However, more than three years later, Russia’s economy is not only intact, but growing at a faster rate than many western economies. This surprising resistance raises serious concerns about the effectiveness of sanctions as a tool of economic warfare.

Robust economic growth defies expectations

Despite the initial projections of economic catastrophe, Russia’s economy grew by 3.6 per cent in 2023, with the International Monetary Fund (IMF) expecting more growth of 1.5 per cent in 2025. This puts Russia ahead of all advanced G7 countries in terms of GDP growth, including the United States and Germany. The IMF ascribed this success to strong defence spending, import substitution programmes and local consumption. Sanctions on Russia’s energy sector were designed to cut off its principal source of revenue. However, this method has shown mixed outcomes. While the volume of oil exports declined somewhat in 2024, total oil revenue grew by 3.8 billion US dollars as world prices rose and new markets in Asia emerged. Russia made 192 billion dollars from oil exports in 2024 alone.

Furthermore, Moscow has ambitious intentions to increase gas exports by 2030. According to Russia’s energy ministry, natural gas exports are expected to increase from 146 billion cubic metres in 2023 to 293 billion by the end of the decade. At the same time, liquefied natural gas (LNG) capacity will triple. The strategic shift toward Asia, particularly countries like China and India, has enabled Russia to soften the effects of western sanctions while maintaining its position as a major participant in the global energy market.

Imports and trade routes rebound

Despite being cut off from SWIFT and many western suppliers, Russia was not cut off from international markets and its imports have mostly recovered. According to Bloomberg, Russia imported 76 billion US dollars in products in the third quarter of 2024, up nine per cent over the previous quarter. Trade flows have now shifted to intermediary nations such as Turkey and China. This change demonstrates Russia’s ability to modify its trading networks and form new relationships in the face of adversity.

Russia has also increasingly relied on parallel imports and alternative payment systems. The central bank has encouraged the use of digital rubles and bilateral trade agreements to bypass western financial systems. This strategy not only facilitates trade but also strengthens Russia’s economic ties with non-western countries, further insulating it from the effects of sanctions.

Sanction evasion through shadow shipping

The fast expansion of Russia’s so-called “shadow fleet” – a network of aging oil tankers operating under opaque ownership structures – has been a crucial strategy for evading sanctions. Between mid-2023 and 2024, the fleet’s size doubled, allowing Russia to continue shipping 4.1 million barrels of oil per day. Many of these tankers fly flags of convenience from countries like Panama, Liberia and the Marshall Islands, with logistical support often routed through Turkey, the United Arab Emirates and India. These countries have not properly implemented western-led sanctions, allowing Russian oil to enter Asian markets with little scrutiny.

The rise of the shadow fleet demonstrates Russia’s willingness to go to extreme lengths to avoid sanctions. By exploiting existing maritime networks and building new routes, Russia has successfully maintained the oil exports that are critical to its economy. This flexibility highlights the difficulties encountered by western governments in applying sanctions against a resource-rich country with strong economic relations across the globe.

Labour market resilience and alternative investment flows

Domestically, Russia faces a tight labour market with unemployment at just over three per cent. This figure has been bolstered by wartime mobilization and a redirection of the workforce into the defence and industrial sectors. According to Russian government estimates, labour shortages are prevalent and particularly in manufacturing and logistics, which has pushed wages higher while keeping consumers satisfied. This has contributed to a degree of macroeconomic stability, helping the Russian economy to weather the storm of sanctions better than expected.

Another important factor underlying Russia’s resilience has been its ability to attract alternative investment flows. As western investors withdrew, Russian financial markets saw growing participation from domestic investors and sovereign wealth funds from friendly countries. Notably, China, the United Arab Emirates and India have increased their economic ties with Russia, allowing financial inflows through bilateral projects and direct investments. Furthermore, Moscow’s shift toward internal finance has proven effective, with domestic banks and governmental institutions stepping in to fill funding gaps created by western lenders. The Moscow Exchange has also started trading other currencies such as the Chinese yuan, giving firms an alternative to dollar-based transactions. These financial modifications have decreased external risks while promoting greater economic liberty. Russia has demonstrated an unusual degree of macro-financial stability as a result of its capacity to maintain vital infrastructure, defence programmes and social spending in spite of severe financial strain.

Conclusion

Although Russia has faced difficulties because of sanctions, including the loss of vital technologies, higher financing costs and slowed innovation, the West’s ultimate objective of economic collapse has not been achieved. The limitations of sanctions when applied to a sizeable, resource-rich, and internationally integrated economy are demonstrated by Russia’s capacity to rewire its economy through new trade routes, alternative funding and the stimulation of domestic industry. Moscow seems to have escaped what was supposed to be a devastating blow to its economy thus far.

Dr. Divya Malhotra is a senior fellow (visiting) with Centre for National Security Studies, Bangalore. She has been associated with India’s National Security Council’s Advisory Board and Middle East Institute New Delhi as a researcher.

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economic relations, Russian economy, Russian sanctions, sanctions, West-Russia relations