Economic sanctions are often criticised as ineffective – generally by the governments they are imposed against.
However, the International Monetary Fund (IMF) has just spent some time running a rule of the state of Russia’s economy which has suffered sanctions from the United States and the European Union for a year or so.
The economic embargo was put in place because of Russian President Vladimir Putin’s military and political support for militant separatists in The Crimea and The Ukraine.
Russia effectively annexed The Crimea and has secretly backed an armed struggle aimed at undermining other parts of The Ukraine, which is supported by the US and EU.
Russia’s weakness is the budget and economy relies on oil and gas exports.
Double economic whammy
The nation is one of the world’s largest fossil fuel producers and has been hit two body blows in the past year.
First was the imposition of sanctions and the second plunging energy prices.
The Russian economy may have shrugged off the effect of sanctions had the oil price not collapsed from more than $100 a barrel to less than $50 dollars within a few months.
However, the financial loss has left a huge hole in the budget while western companies selling to the nouveaux riches in Moscow and other Russian cities have shut up shop and fled back home.
During this time of hardship, the value of the ruble has plummeted against the US dollar and other leading currencies, while the Russian central bank has had to prop the ailing ruble by raising interest rates, which has led to soaring double-digit inflation.
Shrinking GDP
The economy is more stable now, but recession is starting to bite.
The IMF forecasts GDP will shrink by 3.4% this year as The Kremlin and the West entrench their positions over sanctions.
The real victims are ordinary Russians who are seeing their spending power reduce, the cost of borrowing increase and shortages of some foods due to an agricultural export ban by the EU.
Russia is also losing key business relationships with western companies, which means finance and technology are hard to come by, making recovery even harder, says the IMF.
“If this situation continues for another year or more, the Russian economy is likely to shrink by up to 9%. Jobs will go, the cost of living will rise and many who have tasted financial freedom will slip back into poverty,” said an IMF spokesman.