How Economic Sanctions Are Affecting Russia

Russian citizens are already feeling the effects of economic sanctions imposed by Western powers over the invasion of Ukraine, and the financial situation for most people is likely to get worse.

Russia is expected to default on billions of dollars in foreign debt as the ruble is worth less than a penny. Multinational companies are leaving the country and taking their products, services, and jobs with them.

The majority of the population feels that way, according to Wharton finance professor Nikolai Roussanov.

Roussanov discussed the impact of the sanctions on Russian citizens on Wharton Business Daily. The G7 nations of the United States, Canada, Germany, Italy, France, United Kingdom, and Japan are leading at least 20 other countries in placing unprecedented economic sanctions and export controls on Russia. Putin ordered the invasion on February 24 after weeks of massing troops along the border.

Russian citizens are seeing their purchasing power erode because of the ruble's depreciation. They can't use Visa or Mastercard in Russia because of emergency regulations imposed by the Russian Central Bank, and they can't use hard currency in excess of $10,000. Product shortages are beginning to show up in stores.

The disappearance of goods from stores and rising prices will make it unpleasant in the short run.

“Human capital is what drives productive growth and wealth creation in the country, and that human capital is being dissipated pretty rapidly.” – Nikolai Roussanov

Western companies doing business in Russia aren't included in the formal sanctions, yet many of them have shuttered voluntarily out of a sense of self-sanction. They could face government seizure if they don't have a timetable to return. According to the New York Times, Putin said that the assets of those companies should be nationalized.

Roussanov warned that such action would accelerate the brain drain that is already happening in Russia, well-educated and talented young professionals are leaving the country in search of better career opportunities abroad.

The long term impact is terrible, even beyond what I have already mentioned in the short term, because the one thing we are already seeing is the erosion of human capital.

There are still questions about the energy sector of Russia. Russia is a main supplier of oil and natural gas to Europe, and receiving nations can quickly find alternatives. It is not clear how China and India will interact with Russia. China, the world's second-largest economy, is considering support for Russia. Russia has offered to sell crude to India.

Russians are feeling the pain.

Roussanov said that a lot of the hardship is due to the Western sanctions.