Understanding the conflict two years on.
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Given that many of Europe’s populist parties have Russia-friendly inclinations, it is perhaps not surprising that they often like to parrot Kremlin talking points. These days, that includes calling for an end to Western sanctions against Moscow, as many European parties ranging from the far right to the far left have demanded.
Given that many of Europe’s populist parties have Russia-friendly inclinations, it is perhaps not surprising that they often like to parrot Kremlin talking points. These days, that includes calling for an end to Western sanctions against Moscow, as many European parties ranging from the far right to the far left have demanded.
The usual narrative behind the demand to lift sanctions against Moscow is basic: France’s National Rally, Germany’s Alternative for Germany, and Hungarian Prime Minister Viktor Orban all argue that sanctions have backfired, harming European economies while not hurting Moscow. With populist parties across the European Union gearing up for elections to the European Parliament in June, such narratives will only gain in prominence. That makes it high time to debunk these erroneous claims.
The most popular talking point for Russia-friendly politicians is that sanctions are ruining European companies and consumers. The most widespread of these claims—that sanctions have caused high energy prices (and inflation) in Europe—is the easiest to disprove: It was Russia’s attack on Ukraine and gas blackmail against Europe that set off the spike in global hydrocarbon prices in early 2022. Western countries only began to impose sanctions on Russia’s energy exports in November of that year, when oil and gas prices were already in retreat.
Another claim is that sanctions are penalizing the EU’s export-oriented firms, which have lost access to the Russian market. The reality, however, is probably more benign: Russia has never been a major market for EU firms, with Russian businesses buying just 4 percent of EU exports in 2021. Considering that about half of EU exports to Russia fall under sanctions, this means that only 2 percent of EU exports are affected—hardly a make-or-break figure.
Country-level data from Centre d’Etudes Prospectives et d’Informations Internationales, a French research center, confirms this assessment. It shows that the impact that sanctions against Russia have on the French economy is almost negligible, with only 0.8 percent of French exports, or about 4 billion euros ($4.4 billion), affected. For perspective, this represents 0.1 percent or so of French GDP. The study only covers France, but these findings would probably not be drastically different in other EU economies. Alongside German companies, French firms were among those in Europe that had the deepest ties to Russia. This suggests that firms in many other European countries are even less affected.
Another version of the Kremlin-friendly claim that sanctions are crushing European economies rests on the idea that EU firms were forced to abandon their investments in Russia because of sanctions. The Financial Times, for instance, calculated that between the start of the full-blown invasion of Ukraine and August 2023, European businesses recorded losses of around 100 billion euros ($109.4 billion) from their Russia operations.
This figure may be accurate, but the idea that it has much to do with sanctions does not hold up to scrutiny. At this stage, sanctions do not prevent European firms from doing business in Russia except in some specific sectors, such as defense. Instead, European companies’ losses in Russia have two other causes. The first is that many companies have chosen to pull out—for fear of reputational risks or because they do not want to pay Russian taxes and thus contribute to Moscow’s war.
The second cause of losses is a spike in asset seizures, with the Kremlin forcing many European firms to sell their assets under value—in some cases for just one ruble. In other words, even in a hypothetical world without sanctions, European firms that once bet on the Russian market would now face large-scale losses. Of course, the Kremlin argues that expropriations are just a means of retaliation against sanctions. This line is only one more item in the long list of Moscow’s bogus claims that it only seeks to defend itself against Western aggression.
Another talking point that European populist politicians like to peddle is that European sanctions on Russian energy are not just costly—a false claim, as we have seen—but useless. There are several versions of this myth, but the most popular one is that the EU oil embargo and the oil price cap agreed upon by G-7 and EU member nations do not affect Russian oil producers because they were able to reroute oil shipments to India.
Indeed, Indian refiners now absorb the bulk of crude oil exports from Russia’s Baltic ports, which previously served Europe. Yet this view eclipses the fact that for Moscow, selling oil to Indian refiners is far less lucrative than selling it to Europe. Sea routes to India are far longer (and therefore costlier) than those to Europe. In addition, Indian buyers are able to drive a bargain: They believe they are doing the Kremlin a favor by compensating for the loss of the European market—and are therefore entitled to steep discounts on Russian oil.
A study from the Kyiv School of Economics shows that the damage to Russia is far from negligible. Over the past two years, the Kremlin lost an estimated $113 billion in oil export earnings, mostly due to the EU embargo on Russian oil. Last year, when both the EU embargo and the G-7/EU oil price cap became fully effective, Russia’s overall trade surplus shrank by 63 percent to $118 billion, constraining the Kremlin’s financial resources to wage the war in Ukraine.
This year may not be any better for Russian oil exporters: Last month, the Kremlin announced that oil firms would need to give up part of their profits to compensate the state for lower export earnings. For the likes of Russian oil company Rosneft, this is the first time that Moscow is asking domestic energy firms for direct help in financing the war effort.
As sanctions enforcement steps up, the idea that sanctions are useless will hold even less water. Since October, the United States imposed sanctions on 27 tankers that had been transporting Russian oil in circumvention of the G-7/EU oil price cap, a measure that makes it illegal for any firm based in either bloc to do business with these tankers. This highlights a drastic change in Western sanctions interpretation. Until recently, the price cap only applied when a G-7 or EU-based shipping or insurance company was involved in transporting Russian oil. Washington now interprets the link to Western companies far more broadly.
For example, Liberia-flagged tankers, which make up a significant share of Russia’s ghost fleet, are now liable to the oil price cap because Liberia outsources its flagging operations to a U.S.-based company. In parallel, Western countries have stepped up pressure on Indian refiners in a bid to prompt them to ditch Russian supplies. To the Kremlin’s dismay, these efforts appear to be effective: Since the start of this year, Indian imports of Russian crude have gradually dropped by about one-third from their May 2023 peak.
The populists’ argument that sanctions harm Europe more than they hurt Russia does not hold up to scrutiny. The reality is that the impact of these measures on European companies is small, whereas Russia is facing increasing headwinds as it tries to reroute its crude away from Europe.
The claim that sanctions are costly and ineffective is easy to debunk, but this narrative does not appear likely to go away any time soon. As Russia-friendly politicians step up their campaigning for the European Parliament and other elections, one can only expect these talking points to become ever more prevalent in the coming weeks. That may be yet another sign that these myths are wrong: If sanctions were not having a serious effect on Russia, the Kremlin and its allies in the West would probably not spend as much energy trying to undermine them.
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