Economic sanctions imposed by the US and Europe on Russia since February 2022 over its invasion of Ukraine have had less of an effect than expected. Although the ruble initially depreciated, it later stabilized and the Russian economy shrank by only 2.1% in 2022, in contrast to the 11.2% contraction forecast by the World Bank in April 2022.

Although manufacturing and trade were the most affected sectors, sectors related to agriculture, construction, mining and hospitality recorded growth. Net exports and the balance of the current account of the balance of payments increased due to the rise in oil and gas prices, while imports decreased. In short, international economic sanctions increased the cost of the Russian invasion, but failed to stop it as expected.

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These results are partially explained by Russia’s alliance with China. In addition, the United Arab Emirates (UAE) “re-exported” to Russia products from countries that are restricted by economic sanctions. Despite pressure from the USA and Europe, the UAE has increased exports to Russia of electronic components and microchips by seven and fifteen times, respectively, by 2022.

An important question for the international community is how to deal with the blockade of Russian international reserves. Last summer, Canada amended a law that allows it to seize assets from countries that have affected international peace and security or systematically violated human rights in another country. This would enable the seizure of Russian reserves stored in Canada, in the amount of about 20 billion dollars.

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(…) international economic sanctions increased the cost of the Russian invasion, but failed to stop it…

Swedish Prime Minister Ulf Kristersson, as head of the European Union working group, indicated that Russia must pay the costs of rebuilding Ukraine, but respecting international law and the law of the European Union. The problem is that there is no clear legal model, like Canada’s, for dealing with the management of international reserves by a country that has invaded another and violated the human rights of its people.

If the international reserves are seen as a payment obligation of the countries that received the deposits, rather than framing the issue as a confiscation of reserves, those countries may choose not to pay the Russian debt until the conflict is resolved or it is used for the recovery of Ukraine. As a reference to this point of view, although it is not the same case, the theory of international law on illegitimate debt can be cited. This theory asserts that external debt created by a government that acted against the interests of its citizens does not have to be repaid. In any case, there is a legal problem and an additional financial risk of not paying the debt, but at least there is an economic alternative that can be applied not only in the case of Russia, but also in countries with dictatorial regimes that violate human rights such as Nicaragua, Venezuela and Iran. (OR)