Ukraine war and Western sanctions deal $100bn blow to Russia's economy, US Treasury reveals

Rachel Lyngaas, the US Department's leading economist on sanctions, believes that the cumulative effects of the war in Ukraine, Western sanctions, and Moscow's political response "put the Russian economy under significant economic pressure."

The expert highlights that the invasion and occupation of parts of Ukraine in 2022 "contributed to a significant increase in expenditures, depreciation of the ruble, rising inflation, and labor market deficits reflecting the loss of workers."

Lyngaas believes that Russia's economy would be more than 5 percent larger if Vladimir Putin had not initiated the invasion. The American official emphasized that the Russian Federation is performing poorly compared to other energy exporters, including the United States.

The US Treasury Department estimates that Russia has spent over $100 billion on armaments, which is almost a third of the total planned expenditures for 2023. Meanwhile, the Kremlin has paused some planned wage increases in the public sector, even though the official inflation rate of 7.5 percent significantly exceeds the central bank's target of 4 percent.

In reference to the effectiveness of Western sanctions, the Treasury Department determined that a price cap on the sale of Russian oil, combined with the EU's embargo on purchasing oil by sea, "helped reduce Russia's export revenues by forcing substantial discounts from Russian exporters, where the embargo lowered demand".

It was also added that Western restrictions have compelled Putin's regime to "make expensive adjustments to supply chains to import lower-quality substitutes."

American officials have observed that emigration from Russia following the attack on Ukraine hit historic records. In 2022, 668,000 people left Russia. It should be noted, however, that a sizable number of Russians have since returned to their homeland.

"Russians are voting with their feet. This lasting loss of human capital will further weaken the potential for growth in the Russian economy. The Russian government is well aware of this, offering subsidized mortgage loans to encourage skilled workers to stay," Lyngaas wrote.

"The Financial Times" reported that the data presented is one of the most comprehensive financial evaluations of the consequences of Putin's decision to invade Ukraine. This information will be published on the Treasury Department's website on Thursday, but the British newspaper was given early access.