- Russian sanctions have been working in an unexpected way: by limited the nation's imports, not its exports.
- Paul Krugman said Russia was having trouble buying goods, which has been tanking its production and GDP.
- He said attempts at economic war have historically been unsuccessful unless they involved combat, bringing some hope to the West.
With Russia showing signs of benefitting from a volatile and chaotic energy trade since its invasion of Ukraine, some have wondered if Western sanctions on the country have backfired — but measures to choke Russia's economy have been working in an unexpected way, top economist Paul Krugman says, and history suggests the West that will come out on top in the economic struggle.
"Russia is having no problem selling stuff, [but] it's having a lot of trouble buying stuff," Krugman wrote in an op-ed for the New York Times on Tuesday, noting that although Western nations have fixated on capping Russian exports, limitations on Russian imports have been wreaking havoc on Moscow's economy.
It's a departure from the intent of the original plan, which aimed to curb Russia's war revenue through energy bans and a possible a price cap on Russia energy, which Western leaders are looking to propose by year-end.
But that hasn't gone according to plan, and data shows Russia pulled in $24 billion in energy exports the first three months of war alone, and has been limiting supply to Western nations to drive up energy prices, tipping economies in Europe close to a recession. Since the start of Ukraine's invasion, Brent crude is up 8% to $101.96 as of 8:40 am ET and natural gas is up 70% to $7.81.
But import side of the equation tells a different story. Bans on selling to Russia have lowered Russia's trade volume with sanctioning countries by 60% and non-sanctioning countries by 40%, Krugman pointed.
That's led to a dramatic decrease in Russia's industrial production and relatedly, its GDP. According to the Peterson Economic Institute, production in the country has fallen as much as 50% for goods ranging from plastic to coal to household appliances.
"So economic sanctions against Russia appear to have been surprisingly effective, just not in the way everyone expected," Krugman said.
He added that historically, previous attempts at economic warfare have been unsuccessful, unless they involved a military effort, such as the US sinking Japanese merchant shipments in World War II, causing the Japanese economy to tank.
That provides some optimism as Russia continues to slash energy supplies from Europe — suggesting that despite the attempts at retaliation, the country will struggle to come out on top against the West.
But Krugman acknowledged the fight would be affected by factors like inflation and high recession risks, which currently have the West in a difficult position. The Federal Reserve issued a 75-point rate hike last week to combat inflation running at 41-year highs, and the European Central Bank issued an aggressive half-point hike a few weeks ago to combat sky high prices and weakening economic sentiment.
However, Europe in particular still faces even greater difficulties ahead as the continent braces for winter without the normal flow of Russian gas supplies.