The consequences of the Western financial sanctions on the Russian economy

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Series Details No.203 (24.03.16)
Publication Date 24/03/2016
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Although they were not the deciding factor, the Western financial sanctions were nevertheless an important factor affecting the deteriorating economic situation in Russia. They have significantly undermined the opportunities which Russian companies have to attract foreign capital, thus contributing to the deterioration of their financial condition (which was particularly prominent in the case of energy firms subject to sanctions). Therefore, Russian businesses needed more support from the state. However, this support was becoming more difficult due to the dramatic fall in oil prices – revenues from oil exports were the main source of budget revenue.

As a consequence of the sanctions, capital outflow had accelerated and the influx of foreign investments to Russia had fallen back; this meant that it was less likely that Russia would move out of recession and that economic development would occur. Obstructed access to capital may delay, and in some cases even prevent, the implementation of important energy infrastructure projects. One indirect consequence of the Western financial sanctions was Moscow’s increased openness to participation in the Russian upstream sector of foreign investors from other directions than the West (mainly from China and India).

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ESO: Background information: EU sanctions against Russia over Ukraine crisis

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