The economic sanctions against Russia - Impact and prospect of success

The objective of the report is to qualitatively assess the effects of the economic sanctions imposed by the EU and US against Russia following the annexation of Crimea and further activities in eastern Ukraine. This entails investigating how they have performed vis-à-vis the goals of the sanctions: imposing a cost on the Russian economy and contributing to changing Russia's policies towards Ukraine. The main conclusion of the report is that the targeted economic sanctions of the EU and the US have contributed to imposing a cost on the Russian economy in combination with other factors, but have so far not persuaded Russia to change its behaviour towards Ukraine. Factors that have reinforced the effects of the sanctions are the falling oil price, depreciation of the rouble and weakened terms of trade. The politicised economic system gives advantage to rent-addicted loss-making producers who are loyal to the regime over competitive companies in resource allocation, which is damaging to the country's economic performance. At the same time the political resource allocation and rent distribution system warrant the survival of the regime and represent threats to the success of the sanctions. The authoritarian nature of the regime and its anti-Western propaganda, which manipulates public perceptions of the conflict issue, make the regime less exposed to the full effects of the economic decline. The West's political measures that complement the sanction regimes need to address this threat and manage the risks it poses to the Western objectives. The conflict over Ukraine is important for both Russia and the West. In order to resolve it, exit strategies need to minimise the risk of loss of face for both sides.