A road to ruin: Why Russia failed to counter sanctions and what awaits its key industries

The list of Russia’s problems goes on and on, including the fact that the National Wealth Fund stores half of its assets abroad, the hasty creation of the parallel import system (in particular, the Bank of Russia has to reinvent the system of combating gray cashing-in import schemes), and reliance on Western telecom equipment suppliers up until recently, despite Beijing welcoming the prospect of a complete migration to Chinese products and Huawei technologies rivaling if not outperforming their Western analogs.

Yet none of the above-mentioned circumstances suggest that Russia was either gunning for war or fueling its confrontation with the West. By contrast, all of them appear to be guided by economic considerations, and each required only attention and funding. Building a railroad to China does not take breakthroughs or unique technologies. Had Russia at least begun working in that direction in due time, it would have had more room for maneuver in its exacerbated conflict with Europe and the US.

The Russian government has offered no explanation for having ignored the problems, which leads us to the only possible conclusion that the confrontation with the West has gone far beyond the Kremlin’s expectations. Essentially, Russia only braced itself for the financial blow, and the system held. Apparently, the plan was to establish full control over Ukraine before long and gain the upper hand, forcing the West to lift sanctions.

Such prerequisites make one challenge the theories of political scientists, such as Ekaterina Schulmann, who argue that the true motivation behind Putin's war was the desire to trigger sanctions and isolate Russia from Western influence for years. Anticipating a long period of pressure, the Kremlin would have certainly made an effort to at least manage the nation's dissatisfaction with economic problems. Either Moscow was not prepared for such a reaction, which means that Russia's severance from the West was never their goal, or the authors of such a convoluted social plan turned out to be incapable of thinking one step ahead.

The failure of Russia’s military offensive coincided with the suspension of a new sanctions package. However, any talk of stabilization would be premature as some restrictions, primarily the EU’s oil embargo, are yet to come into effect. The West is also working to ensure more thorough enforcement of the measures already in place to eliminate the remaining loopholes.

Although the Kremlin’s action plan for the near future – not until 2030 or 2050 – has been concealed from the public, attempts of turning a blind eye to reality are apparent. Oil and gas revenue, which temporarily increased in the first few months of the war, are presented as proof of the economy’s stability, despite them dropping to a minimum since June 2021 by August. Decreasing inflation against the backdrop of shrinking demand, which indicates a deflation spiral, is presented as going back to normal.