‘Fiscal Steroids Are Wearing Off’ – Biden’s Sanctions on Russia Bear Fruit Just as He Is Set to Leave

After nearly three years of sanctions, the wheels are starting to fall off of the Russian economy, and the hits just keep on coming. At this rate, economists say, if the US continues the strict sanctions launched by President Joe Biden’s administration, and by his Western allies in the EU and the UK, especially, Russia will be forced to abandon its gambit in Ukraine.

With less than two weeks to go in his administration, President Biden managed to land a couple of final blows to Moscow’s war machine by announcing plans to hunt down its rogue cargo ships and oil tankers, and by codifying into law a new set of sanctions on Russian energy. The latter prohibits any American cooperation with oil giants Gazprom Neft and Surgutneftegas. After March 12, 2025, non-compliant companies would face penalties.

On Jan. 13, Kremlin-loyal news agencies reported that Russia’s largest company, Gazprom, was set to shed 40 percent of its staff in its St Petersburg headquarters, citing a net loss of 629 billion rubles ($6.9 billion) in 2023 compared to a net profit of 1.23 trillion rubles ($11 billion) in 2022.

On Tuesday, one of the only remaining US oilfield service providers doing business in Russia, SLB, was warned by two congressmen, Lloyd Doggett (D-TX) and Jake Auchincloss (D-MA), to pull their services immediately or risk breaching the law. (The other two major US oilfield services groups previously operating in Russia, Baker Hughes and Halliburton, had sold their Russian operations to local groups shortly after the onset of the full-scale invasion of Ukraine in 2022.)

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Oil and gas account for about 62% of Russian exports, followed by ore and metals and then chemicals, representing about 6% each. In all, energy accounts for approximately 41% of Russia’s gross domestic product (GDP). US and Western sanctions have targeted that sector primarily, as well as the country’s invested financial assets, freezing about $350 billion in foreign-held funds, or about half of Russia’s total reserves.

Until recently, the Russian economy managed to survive these setbacks, as well as the international $60-per-barrel price cap on oil, and even grow in 2023 and 2024 in part due to the Kremlin’s boosted defense spending.

Moscow’s evasive maneuvers also managed to sidestep a lot of the sanctions, for example, using a “shadow fleet” of ageing cargo ships and tankers to move contraband through the Black Sea, a loophole that the Biden administration aimed to close with new sanctions launched in January on about 180 of those under-the-radar vessels.

Similarly, components for drones and other weapons made by its critical military industrial complex managed to make their way to Russian factories from non-compliant countries, despite Western efforts to block them.

The real cracks in the Kremlin’s economic walls began to appear in late 2024, when the Biden administration launched fresh attacks on Russia’s financial institutions. Those restrictions effectively shut off Russia’s access to the US dollar entirely, thereby limiting the ability of investment banks such as Gazprombank to participate in global financial trade or process many international transactions, such as payments from Western European energy customers.

The ruble fell to a two-year low against the dollar in November, losing about half of its value to both the greenback and the euro. This was about the same time that the BRICS nations gathered in Kazan, Russia, to propose their own currency to counter what they saw as American financial hegemony.

Washington is uniquely placed to impose these kinds of financial chokeholds on rogue countries as the US dollar is the world’s de-facto currency, with the vast majority of global trade denominated in USD figures.

At the same time, it is an inherent paradox of sanctions that they tend to have pronounced political effects on democratic societies, but Western sanctions historically have targeted autocratic ones, where they don’t: Even if the Russian populace were to become fed up with a sputtering economy, even if they lost well-paying jobs after American employers pulled out, or were displeased with the domestic substitutes for McDonalds or Starbucks, it would not register at the polls in a country where opposition to an unpopular war is illegal, and its dictator had determined the outcome of elections anyway.

One might have dreamed that Russia’s powerful and sanctioned oligarchs, who saw their financial assets and yachts seized by the US and others, would dare to effect a regime change.

But in March 2024, Vladimir Putin won 88% of the vote in presidential “elections” against a propped-up opponent whose name no one will remember. This was roughly three weeks after the only real political rival, Alexei Navalny, mysteriously died in jail where he was one of Putin’s prized political prisoners.

Consequently, the goal of sanctions on Russia has never been political upheaval, but gradual policy change on its war in Ukraine as its coffers run dry. While recent news reports suggest that this financial unraveling already has begun, the economic forecast for Russia remains uncertain.

Russian-founded news outlet The Insider reported on Jan. 7 that the main risks the Russian economy faces in 2025 “come from the threat of falling oil prices and stricter sanctions.”

“Even if neither of these developments occurs, the economy will remain in a difficult state, with inflation eroding all the benefits of wage growth. Even if a ceasefire in Ukraine is reached, the Russian economy, which has spent the past three years adjusting to a wartime footing, is unlikely to recover unless the cessation of hostilities is paired with the lifting of sanctions,” The Insider wrote.

The Carnegie Endowment in late December noted that, “the Russian economy has repeatedly defied expectations. Predictions of a double-digit contraction never materialized. On the contrary, GDP grew by 3.6% in 2023 and an expected 4% in 2024.”

However, it said, “This image of resilience is deceptive. Over the past two years, Russia’s economy has operated like a marathoner on fiscal steroids—and now those steroids are wearing off. Growth is slowing, key sectors are cooling, and the arguments underpinning Putin’s claims of economic ‘invulnerability’ are unraveling.”