ZOiS Report 4/2023

Permanent Crisis Mode: Why Russia’s Economy Has Been So Resilient against Sanctions

by Alexandra Prokopenko 21/11/2023

After Moscow’s unprovoked invasion of Ukraine in 2022, Western nations imposed comprehensive sanctions on Russia, including over 13,000 distinct restrictions. Yet, Russia’s economy has exhibited remarkable resilience in the face of these punitive measures. In 2022, the country’s gross domestic product experienced a mere 2.1 per cent contraction, and there are expectations of growth in 2023.

This report highlights the role of the Russian authorities’ management and governance in dealing with the sanctions and adapting the economy. There is a misconception in public debates that the resilience of the Russian economy is due largely to oil revenues. This is an oversimplification. The authorities generally appeared ready for large-scale sanctions. However, this readiness is mainly a mix of the high profits that the Russian treasury received in the first half of 2022 and a special type of economic management. For the past 15 years, the authorities have managed the economy in crisis mode, even when it was not in crisis. The country’s constant readiness for shocks and the succession of crises that the Russian economy has faced have produced a habit of adopting ad hoc management practices.

This report scrutinises the adept responses of Russia’s financial leadership to four distinct crises over the past 15 years. While this crisis management has proven effective in navigating short-term tumultuous scenarios, it poses a potential hindrance to the establishment of enduring institutional mechanisms of economic governance.