On March 10, 2023, the European Parliament published a briefing on EU sanctions on Russia that provides an overview of Russian sanctions imposed in response to the illegal annexation of Crimea and Sevastopol in 2014 and Russia’s invasion of Ukraine in February 2022 – sanctions made in close cooperation with the US, UK, Canada, Australia, and Japan. The briefing also includes a discussion on sanctions imposed upon Belarus and Iran for their role in Russia’s war of aggression and provides an update on the impact of Russia-related sanctions and implementation challenges experienced in the enforcement of these sanctions due to their unprecedented nature, scale and scope.
The European Parliament reports that Russian sanctions have already met three important objectives: a strong demonstration of Western resolve and unity, permanent degradation of Russia’s military capabilities, and a long-term asphyxiation of Russia’s economy and energy sector. However, the European Parliament reports that, while the implementation of wide-spread sanctions in the West was impressive, the impact of those sanctions was diminished by several policies implemented by the Russian government in the years since the 2014 Ukraine invasion that softened the economic blow of Western sanctions. Russia reportedly adopted several fiscal measures to mitigate the initial impact of sanctions imposed in February and March of 2022, which included increased social security benefits and tax breaks, that it financed with oil and gas revenues, the Russian sovereign wealth fund, and by reducing its federal budget surplus.
According to the briefing, while Russia currently faces supply shortages related to the domestic production of cars and specialized military equipment and Russian oil revenues are expected to fall with the successful implementation of the price cap policy, experts warn that the impact on Russian revenues may not be severe enough to limit the Russia’s ability to fund the war against Ukraine. The briefing indicates that, even if Russia’s commodity revenues drastically decline, Russia’s National Wealth Fund (“NWF”) is capable of funding the war with Ukraine for another year. The briefing further suggests that Russia may compensate for falling oil revenue by using the extra revenue obtained from a new “windfall tax” on state gas company Gazprom (worth $2.1 billion) or by resorting to one-off taxes such as the proposed “voluntary” windfall tax on big business (worth $2.8-3.5 billion).