After Russia’s illegal full-scale invasion of Ukraine in February 2022, Western partners imposed unprecedented financial sanctions and export controls against Russia. These measures aim to achieve three objectives:

1. Significantly reduce Russia’s revenues from commodities exports;
2. Cripple Russia’s military capability and ability to pursue its war;
3. Impose significant pain on the Russian economy.

The Atlantic Council’s Russia Sanctions Database tracks the restrictive economic measures Western allies have placed on Russia and evaluates whether these measures are successful in achieving the stated objectives.

The Database also centralizes the financial designations of more than five thousand Russian entities and individuals sanctioned by the Group of Seven (G7) jurisdictions, Australia, and Switzerland. The Database is updated quarterly and can be queried to determine if an individual or entity is designated. Please refer to the appropriate designating jurisdiction’s websites and platforms for additional information and confirmation. The data provided in the Database is intended for informational purposes only.

Key takeaways:

• Most Russian banks maintain access to SWIFT. Russia can still use the platform to conduct international transactions and settle cross-border payments.
• Russia is circumventing the oil price cap. Russia is selling crude oil above the G7 price cap of $60 per barrel and is moving 71 percent of its oil through the shadow fleet.
• Russia imported over $900 million per month worth of high-priority battlefield technology in the first half of 2023 despite export controls on Western technology.

How to use this database to reveal sanctions gaps: Click on the check mark (✅) and cross mark (❌) filters at the top of each column. Doing so will build a list of entities/individuals that are sanctioned by one country but not by another.

The seven jurisdictions covered in this database are the United States, the United Kingdom, the European Union, Switzerland, Canada, Australia, and Japan. Data in the database was last updated on November 6, 2023.

Objective 1: Significantly reduce Russia’s revenues from commodities exports

To hit Russia’s war chest and thwart its ability to finance the war on Ukraine, the G7 allies targeted:

1. Russia’s payment channels by banning Russia from SWIFT and sanctioning major Russian banks; 
2. Russia’s oil revenues—by imposing the sixty dollar price cap on a barrel of Russian crude oil;
3. Russia’s reserves by blocking three hundred billion dollars of Russia’s sovereign assets held by the G7 jurisdictions. 

Despite these measures, the Kremlin still receives significant revenue from oil exports: In 2022 and 2023 (including October), Russia made a total of $381.8 billion. 

If the West imposed sanctions specifically with the purpose of cutting off Russia’s revenue, how is Moscow managing to receive payments and fill its coffers? 

Unfortunately, all of these restrictive economic measures had loopholes, exemptions, or flaws Russia was able to exploit. The SWIFT ban was a half-measure that did not include banks facilitating energy transactions. The oil price cap lacks a solid enforcement mechanism: Russia is circumventing it by using the shadow fleet for shipping. Finally, Russia’s reserves in the West were immobilized but Moscow had stocked up its gold reserves long before the 2022 invasion, allowing Russia to mitigate the effect of this measure.

Russia still has access to SWIFT

On March 2, 2022, the European Commission implemented regulation to remove seven sanctioned Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), an interbank messaging system that enables banks to communicate transaction information. Later, in June 2022, the European Union (EU) cut off three more major banks from accessing SWIFT. “De-SWIFTing” was considered the “nuclear option” and aimed to restrict Russia’s ability to perform international transactions and make it more difficult for banks around the world to transact with Russian banks.

However, this ban was a half-measure and only targeted large EU-sanctioned institutions unrelated to energy transactions. For example, Gazprombank, which is designated by the United States, United Kingdom, Canada, Switzerland, and Australia, was spared from the SWIFT ban due to its role in facilitating payments for energy trade. The bank remains connected to SWIFT and is able to perform transactions unrelated to energy without any EU or Japanese restrictions. Further, most of Russia’s regional and smaller banks, over three hundred, still have access to SWIFT enabling Russia to conduct cross-border payments and transactions for imports and exports. While recognizing that many banks have been intentionally left on the SWIFT system in order to facilitate energy and other non-sanctioned transactions, it is clear there is more that can be done. 

The oil price cap needs a better enforcement mechanism

The G7 allies imposed the price cap on Russian crude oil in December 2022 with the goal of keeping oil flowing out of Russia while limiting the revenue flows to Moscow. The allies set the cap at $60 per barrel, just high enough for Moscow to keep producing and exporting oil, but limiting revenues at the same time. Since the policy went into effect, Russia has lost an estimated $47.3 billion in revenues. However, the policy came under scrutiny when Russian export prices rose above $60 per barrel in July, reaching above $80 per barrel in both September and October.

Russia has been able to circumvent the oil price cap by decreasing reliance on the G7 shipping services and instead resorting to the use of the shadow fleet. The shadow fleet allows Russia to charge higher fees and prices for oil, manipulate vessels’ locations, and disregard maintenance needs. Apart from allowing Russia to circumvent the price cap, Russian shadow vessels do not follow the safety requirements, a practice that could lead to environmental disasters.

One way to increase the effectiveness of the price cap is to require adequate insurance for passing through G7/EU territorial waters and increase safety standards. This will force Russia to turn back to Western insurance providers and maintain higher safety standards, which will increase costs associated with oil sales. In the meantime, the US Treasury is imposing sanctions on entities and vessels circumventing price cap restrictions and the Price Cap Coalition shared best practices on maritime trade of crude oil and petroleum products to prevent sanctioned trade and enhance compliance. This is critical as recent data has shown that violations of the price cap via “attestation fraud” became widespread. In October, essentially all seaborne crude oil exports took place above the price cap while G7 service providers continued to be involved.

Russia generates revenues from non-oil commodity exports

Apart from oil, Russia has been generating revenue by exporting diamonds. Russia happens to be the largest diamond mining country in the world. The US Treasury designated Russia’s state-owned diamond producer Alrosa in 2022, and as a result, Russia’s diamond exports decreased in 2022. However, Alrosa still managed to boost its sales in 2023, and in response, the EU recently moved to ban Russian diamonds altogether. 

While the EU ban will decrease Russia’s diamond revenue from the European market, it is anticipated that Russia will continue to sell its diamonds in the United Arab Emirates (UAE), which was the number one destination for Russian diamonds this year. Working with the UAE to limit Russia’s income from diamond exports should be the G7’s next step in reducing Russia’s revenues from commodities exports.

Russia also reportedly uses diamonds as a payment method for sanctioned goods, since unlike digital financial transactions, they cannot be traced. The US Treasury Department’s Financial Crimes Enforcement Network (FinCEN) published an alert in March 2022, warning that Russia may use diamonds for sanctions evasion because they are portable and highly valuable replacements for currency. Financial institutions should follow FinCEN’s guidance and increase scrutiny of transactions involving precious metals and gemstone trading companies. 

Gold helped Russia stabilize the ruble exchange rate

When the G7 allies immobilized Russia’s central bank reserves in March 2022, one of the initial effects of sanctions was the free fall of the ruble’s exchange rate. Soon enough though, it stabilized. How did Russia manage this?

Gold’s role in ruble’s recovery is often overlooked. In addition to the major factors of energy revenues and strict capital controls, indirect peg to gold also helped CBR stabilize the ruble and dollar exchange rate. 

The Central Bank of Russia (CBR) fixed the price of gold at five thousand rubles per gram from March 28 through June 30, 2022. The price of gold is linked to the dollar (sixty-three dollars per gram at the time), so fixing the ruble to gold effectively created a gold-based exchange rate of one dollar to seventy-nine rubles. This indirect peg allowed the CBR to stabilize the ruble and dollar exchange rate and recover from the initial shock of the free-falling ruble.

Apart from stabilizing the ruble’s exchange rate, gold continues to dominate Russian reserves along with the yuan. In case of a major financial crisis, Russia could sell its gold to balance the budget deficit, or directly use the money to fund the war. However, such a sell-off of Russian gold has not yet been observed mainly because Moscow continues to generate income from oil and other commodities such as diamonds.

Objective 2: Cripple Russia’s military capability and ability to pursue its war

Western export controls have a limited effect on Russia’s imports of sophisticated battlefield technology

In conjunction with financial sanctions, the West also imposed multilateral export controls on dual-use technologies with the goal of degrading Russia’s military capabilities. While export controls effectively reduced dual-use technology exports to Russia in the months following the invasion, the impact gradually diminished as Russia began sourcing technology components from third countries. Moscow imported $902 million worth of battlefield items per month from January to July 2023—a significant increase from the $619 million it imported in the first five months following the invasion.

Russian entities are able to obtain dual-use technology from Western companies through resellers and manufacturers in third countries. Roughly half of Russia’s battlefield-related imports come from Western producers that are part of the export control coalition. While rarely selling products to Russia directly from their locations in the West, these companies have factories in China and Hong Kong and other places from where they are shipping goods to Russia, or third countries. For example, 75 percent of US microchips were shipped from Hong Kong or China. To close this loophole in enforcing export controls, Western governments should share information with the private sector to improve export compliance practices for identifying end users of dual-use technologies, investigate export violations, and pursue criminal prosecution or administrative enforcement actions where necessary.

Export controls have stunted Russia’s aircraft production

Russia’s aircraft industry was one of the primary targets of export controls in 2022. However, US export controls on Russian aircraft producers started back in 2014, in response to Russia’s invasion of Crimea. Coincidentally, Russia’s aircraft production has been stunted since 2014: Russia was not able to ramp up the production of tactical aircraft in preparation for the full-scale invasion in 2022.

At the onset of Russia’s full-scale invasion of Ukraine in February 2022, Russia had approximately nine hundred tactical aircraft. Over the course of the war, it lost dozens of planes and expanded the expected life span of its aircraft more quickly than anticipated. This, combined with the strength of the Ukrainian air defense, might explain why Russia has relied so heavily on its ground forces in Ukraine.

To make up for the “imputed losses,” Russia will have to either procure or produce aircraft, or fix the damaged ones. While export controls have eroded Russia’s ability to produce new aircraft, Russia has built the capacity to maintain and repair them. Reportedly, Russia imported fourteen million dollars worth of US-made aircraft parts from third countries such as China and Turkey in 2022. To close this loophole, US aircraft producers should increase export controls compliance, while financial institutions should increase scrutiny of transactions involving aircraft manufacturing companies in Asia and the Middle East.

Objective 3: Impose significant pain on the Russian economy

Western measures have achieved some success in imposing significant pain on the Russian economy, Russia’s technology sector being among the impacted industries. Oil revenue provides a crucial funding stream to the government, while government spending is stimulating the economy. Businesses have found workarounds for sanctions, and annual growth has reached 5.5 percent in the third quarter of this year. 

Moscow has allocated one-third of next year’s budget for the defense sector and has rolled out training to upskill unemployed Russians to enable them to work in the defense industry. Military spending will exceed social spending in 2024, a sign that continuing this war is now in the Kremlin’s interest because the war is driving production and job creation. 

Despite the economic growth, certain industries, such as the Russian technology sector, are suffering from a lack of access to Western hardware and software, as well as labor shortages. Russia’s technology sector has been one of the main drivers of the country’s economic growth since 2015. However, about 10 percent of the information technology workforce left Russia in 2022 and more than one thousand Western firms exited the market. The Russian technology industry is now deprived of access to global connectivity, research, scientific exchanges, and critical technology components. In the long term, Russia’s technology sector is likely to fall behind other global powers such as the United States, China, and the European Union.

Conclusion

We have shown that Western measures—such as financial pressure, export controls, and the oil price cap—and the enforcement of these measures need to improve to achieve the desired effects. The West has taken important measures to deprive Russia of revenue and military power; it now needs to address Russia’s evasion techniques and work with the private sector to increase compliance and enforce economic actions. The Kremlin will keep its war machine humming as long as oil revenues flow in and Russia is able to mitigate and evade Western restrictive economic measures.

Economic statecraft measures, while significant, are falling short in achieving their intended goals to counter Russian aggression and help Ukraine win the war.

Authors: Kimberly Donovan, Maia Nikoladze, Yulia Bychkovska

Contributions from: Charles Lichfield, Ryan Murphy

Data source: Castellum.AI

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