Russia Is on the Verge of a Financial Crisis

As the Group of Seven leaders met in Japan late last week, the United States announced new sanctions on more than 300 Russian targets – intensifying one of the harshest sanctions efforts ever imposed.

The move was meant to target Moscow’s sanctions evasion, future energy revenues, and military-industrial supply chains Reuters reported. The aim is to punish Russia for its unprovoked invasion of Ukraine as the war enters its 15th month.

“(These) actions will further tighten the vise on (Russian President Vladimir) Putin’s ability to wage his barbaric invasion and will advance our global efforts to cut off Russian attempts to evade sanctions,” U.S. Treasury Department Secretary Janet Yellen said in a statement on Friday.

Targeting Russia and Individual Russians

The U.S. and Europe imposed financial penalties on Russia immediately following the start of the invasion in February 2022 and have steadily ratcheted up the pressure since.

This has included targeting Putin, officials close to him, the financial sector, and oligarchs.

By some accounts, Moscow has been able to so far cope with the economic pressure, but the sanctions could still be taking their toll.

It was also last week that Russian insider Andrey Nechayev, who formerly served as his nation’s minister for the economy, admitted that Russia’s economy is “in the ****” and further suggested that the Western sanctions will cause a financial crisis within the country next year.

Nechayev told attendees at the Ekaterinburg financial forum last week that while foreign franchises like “McDonald’s can be replaced by blini (Russian pancakes), high-tech products can’t,” The Times newspaper first reported.

The former minister, who was in office from 1992 to 1993 following the dissolution of the Soviet Union, explained that Moscow exceeding its budget deficit plan in the first four months of this year is a sign of the coming crisis. Nechayev said that though there are enough reserves to finance the deficit for a year, the country would have to resort to borrowing money next year – and lenders may not be lining up.

The former minister further noted that mass emigration, capital outflows, and falling oil and gas revenues would continue to wreak havoc on the Russian economy. His blunt appraisal comes as many economists had expressed surprise as to the resilience of the Russian economy, which has proved to be far sturdier in the face of Western sanctions than expected.

Good Times… For Now

Russia is actually seeing the lowest unemployment in 30 years, and wages are still paid regularly. There hasn’t been a return to long lines across much of Russia, as food remains readily available. Though Western products have largely been withdrawn from the country, those have been replaced by local ones, or have been imported via Turkey and Central Asia.

However, there are already millions on unpaid leave, and Russian opposition leader Vladimir Milov has claimed that up to 25 percent of Russia’s manufacturing sector is actually experiencing a form of “hidden unemployment.” People are technically employed but aren’t actually working. This has been a lingering problem that began during the global novel coronavirus pandemic.

Moreover, the unemployment rate is low as hundreds have thousands have fled the country, while hundreds of thousands of young men have been sent to fight – and potentially die – in Ukraine.

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Author Experience and Expertise

A Senior Editor for 19FortyFive, Peter Suciu is a Michigan-based writer. He has contributed to more than four dozen magazines, newspapers, and websites with over 3,200 published pieces over a twenty-year career in journalism. He regularly writes about military hardware, firearms history, cybersecurity, politics, and international affairs. Peter is also a Contributing Writer for Forbes and Clearance Jobs. You can follow him on Twitter: @PeterSuciu.