After Putin’s invasion of Ukraine back in February 2022, the West responded with some of the most wide-reaching sanctions ever. The UK government claimed that they ‘would cripple Russia's war machine' whilst Biden asserted that 'sanctions are devastating their economy'. But a year on, the predicted 15% collapse in GDP has not materialised and Putin’s capacity to wage war seems not to have been affected. Maria Demertzis, Senior fellow at Bruegel and part-time Professor of Economic Policy at the European University Institute in Florence, explains why.

When Russia first invaded Ukraine almost a year ago, many countries condemned the aggression and applied sanctions in an attempt to squash its economy and isolate it from global engagement. The expectation during the early days of the war was that the economy was going to contract by as much as 15%. Since then, those numbers have been heavily revised upwards and the latest forecasts by the IMF show a contraction as little as just over 2%, with moderate growth expected in 2023. In reality, many agree that the situation is not quite as rosy, particularly since data emerging from Russia is no longer reliable.

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Nevertheless, the fact remains that Russian revenues have not been affected in a way that would have inhibited its ability to wage war. Three reasons explain that.

Russian energy exports remained for the most part unsanctioned. This is because the EU, the biggest energy importer for Russia, did not sanction Russian energy imports as it did not want to compromise its ability to meet its energy demands. In most of 2022 therefore, only about 8% of the export value of Russian energy was under sanctions, all of it by third countries. Given also the huge increases in energy prices, oil and gas revenues accounted for 45% of the Russian government budget.