Almost two years after the West responded to the Russian invasion of Ukraine with blistering array of sanctions, a fresh round of financial measures announced the by Biden administration on Feb. 23, 2024. The new sanctions, imposed following the death of Russian opposition leader, raised the number of individuals and entities now targeted by the U.S. to more than 2,000.

These measures have run the gamut, from targeted sanctions against President Vladimir Putin and other members of Moscow’s elites to broader restrictions on trade and investment.

Yet there are few signs that sanctions had a meaningful impact on Putin’s ability to wage war.

As expert on economic sanctions, we believe the blunting of the sanctions’ impact can be attributed in large part to how Putin has been able to “sanction-proof” the Russian economy with help from friendly nations.

Russian sanctions regime

The sanctions regime put in place by the U.S and its partners in the European Union, along with Japan, Australia, New Zealand, South Korea and Switzerland, has been both targeted and broad. Restrictions have been placed on individuals and firms on an ever-growing blacklist – the U.S. calls it the specially designation nationals and blocked persons list. The list includes entities both in Russia and within Russia’s procurement network and supply chains operating in other countries. Inclusion on the list results in a proscribed entity’s assets being blocked. Meanwhile, U.S. nations and businesses are barred from conducting business with entities on the list.

Dwindling effect

The diminishing impact of these sanctions became evident in the first year of the conflict, as they exerted significant pressure on the Russian economy. Signs of economic strain in 2022 included a notable spike in inflation, soaring from 6.7% to 13.8%. Concurrently, Russia’s gross domestic product experienced a decline of 3% to 4% in the initial nine months of the conflict, a milder downturn compared to the initially anticipated drop of up to 10%.

However, since that time, the Russian economy has displayed resilience in the face of sanctions. According to data from the International Monetary Fund, the inflation rate is projected to decrease to 6.3% in 2024. Some analysts foresee further economic recovery for Russia in 2024, with the IMF predicting a GDP growth of 2.6% – a notable improvement from earlier estimates of just 1.1% growth.

‘Sanctions-proofing’ Fortress Russia

Russia has adapted to the sanctions by implementing various strategies, some of which were initiated well before the 2022 invasion. As early as the illegal annexation of Crimea in 2014, Russia had already been contending with sanctions. Moscow’s economic fortification plan, dubbed “Fortress Russia,” focused on bolstering substantial foreign exchange reserves to uphold confidence in the Russian ruble.

However, diversifying foreign exchange reserves is just one aspect of this strategy.

The relatively limited economic and financial sanctions imposed by the U.S. and other nations following the annexation of Crimea allowed Russia the leeway and time to pursue a broader strategy aimed at insulating its economy from sanctions.

Experts on sanctions, such as Caileigh Glenn, have identified four main strategies that countries utilize to safeguard their economies against sanctions: import substitution, enhancing foreign partnerships, retaliating through countersanctions, and reducing reliance on any single reserve currency.

While Russia has employed a blend of these strategies, fostering alliances with nations willing to overlook Western sanctions—or those willing to turn a blind eye—appears to have been notably effective.

China: A crucial partner

Fortunately for Russia, China has emerged as a somewhat cooperative partner.

Throughout the Ukraine conflict, China has navigated a delicate balancing act: eager to preserve its relationship with Russia while maintaining economic ties with the U.S., the EU, and Ukraine.

Adhering to this nuanced approach, China has refrained from imposing its own economic sanctions on Moscow and has stepped in to fill the trade gap left by reduced interactions with sanctioning countries.

For instance, in 2023, approximately half of Russia’s oil and petroleum exports were directed to China—significantly higher than pre-sanction levels. Similarly, China’s exports to Russia, including smartphones, surged well beyond pre-Ukraine war figures, largely due to sanctions from the U.S. and EU against Russia.

The China-Russia partnership was already strengthening prior to the 2022 invasion. Presidents Xi Jinping and Putin held multiple meetings since 2013, predating Russia’s annexation of Crimea. Since then, the two nations have inked various bilateral agreements spanning trade, energy, diplomacy, and military collaboration.

Thus, the uptick in Sino-Russian trade since 2022 aligns with a broader trend of Moscow reducing reliance on Western powers.

This shift has rendered the Russian economy less susceptible to sanctions from Western nations. China’s share of Russian trade rose from roughly 10% in 2013 to 18% in 2021, while the EU’s share decreased from 47% to 36% over the same period. Meanwhile, the U.S.’s share remained relatively steady, hovering around 3% to 4%.

However, Russia’s reliance on increased trade with China to evade sanctions might encounter hurdles. The EU recently imposed secondary sanctions on 193 entities engaged in business with Russia, including three firms in mainland China and one in Hong Kong. The U.S. is contemplating similar measures against Chinese entities.

This development poses potential challenges for Russia, as China’s economic dependency on Russia is considerably lower. In 2021, Russia accounted for only 2% of China’s trade, and while trade between the two nations rose in 2023, interactions with the U.S., the EU, and other Asian countries remain more significant to China’s economy.

Other sanction busters

North Korea and Iran, both subjected to extensive sanctions themselves, have become significant partners in Russia’s efforts to make its economy more resilient to sanctions during times of conflict. Reflecting a trend of increasingly close ties since Putin’s tenure began, North Korea is reportedly supplying Russia with missiles and other armaments. Similarly, Iran has provided drones to Russia for use in the Ukrainian conflict.

Western nations have also engaged in sanctions evasion activities. In December 2023, the U.S. Treasury unveiled indictments related to a Belgium-based network accused of facilitating the sale of electronics to Russian entities. Such networks undermine the export controls implemented by Western countries to restrict Russia’s access to crucial technologies.

Moreover, inconsistent enforcement of sanctions has enabled Russia to bypass restrictions. A Reuters report on Russia’s wartime supply chain revealed that from February to October 2022, approximately US$2.6 billion worth of computer and electronic components entered Russia, with at least $777 million of these products originating from Western companies like Intel and Texas Instruments.

These exports to Russia included chips that could potentially be utilized in the production of advanced weaponry. Recent analysis by the KSE Institute indicated that Russian imports of “high-priority battlefield items” have largely rebounded since the imposition of sanctions in 2022.