How are sanctions weakening the Russian economy, and how can their impact be assessed? In this article Paulis Iļjenkovs, Deputy Head of the Financial Intelligence Unit (FIU) for Sanctions, and Benjamin Hilgenstock, Head of the Macroeconomic Research and Strategy Department at the KSE Institute of the Kiev School of Economics, analyze how sanctions are affecting the Russian economy, assess their effectiveness, and consider what changes are still needed.
Sanctions are working, but there is still much work to be done
Since Russia's full-scale invasion of Ukraine in February 2022, the European Union (EU) has adopted 19 rounds of sanctions against Russia, adding to measures already in place following the illegal annexation of Crimea in 2014.
“Since sanctions must be renewed every six months with the unanimous consent of all EU member states, political resistance can significantly weaken their effectiveness,” says B. Hilgenstock.
B. Hilgenstock adds that this explains why some member states are still importing Russian energy resources more than three and a half years after the start of a full-scale war. However, despite these restrictions, the EU has made significant progress - the unexpected agreement to ban the transport of Russian liquefied natural gas (LNG) to Europe shows that sanctions can be effectively improved .
P. Iļjenkovs draws attention to additional challenges faced by companies, financial institutions and Member States. Although decisions on sanctions are taken centrally, each Member State is responsible for their actual implementation. This has led to decentralization and fragmentation of sanctions implementation at the Member State level. For example, a large number of countries have not yet introduced criminal liability for violation of sanctions in accordance with the EU Directive. Sanctions enforcement shortcomings can also occur within the borders of one country. To mitigate such a risk, Latvia has designated the Financial Intelligence Unit as the competent authority for sanctions enforcement issues.
Both experts point out that the implementation of sanctions is improving, but further efforts are still needed. “For sanctions to become truly effective, targeted and long-term sustainable investments are needed,” emphasizes P. Iļjenkovs.
Sanctions that have caused the greatest damage to Russia
When asked which sanctions have caused the greatest damage to Russia, both experts agree that the most significant impact has been caused by restrictions targeting the energy sector. The EU embargo on crude oil and petroleum products significantly limited Russia’s access to the European market. This forced Russia to look for new buyers in other markets in early 2023, often selling oil at significant discounts, which resulted in a significant decrease in revenue. The KSE Institute estimates that Russia has lost $159 billion in potential revenue between March 2022 and August 2025 (see Figure 1).
Figure 1. Comparison of Russian and European oil prices (left) and estimates of Russian oil export losses (right). Sources: IEA Oil Market Reports; KSE Institute estimates.
According to both experts, the next most important are export control sanctions on dual-use goods and other high-priority goods. Although European-origin technologies continue to find their way into Russian military equipment and evidence suggests that sanctions have not completely stopped the purchase of Western-made components through complex supply chains, such purchases often occur at significantly higher costs than under normal market conditions. B. Hilgenstock suggests that this may be due both to the large number of intermediaries in sanctions-evasion schemes and to the fact that Chinese suppliers, aware of Russia’s dependence on these technologies, charge higher prices.
Financial sanctions are equally important. P. Iļjenkovs also highlights sanctions targeting Russian oligarchs, whose influence determines the Kremlin's decision-making. B. Hilgenstock, in turn, highlights the freezing of the Russian Central Bank's assets in the EU, noting that the loss of access to foreign reserves limits policy-making opportunities, promotes high interest rates, and further destabilizes the ruble.
Impact of the latest sanctions on Lukoil and Rosneft
In October 2025, the US Office of Foreign Assets Control (OFAC) imposed new sanctions on Rosneft and Lukoil, the two largest Russian oil companies. As B. Hilgenstock points out, the initial impact will be significant, as OFAC clearly signals the risk of secondary sanctions on foreign banks. In order to maintain export volumes, Russia will have to offer even greater discounts on the already low price of oil.
How long this period will last is not yet clear, as both experts agree that the effectiveness of these sanctions will depend on how rigorously OFAC enforces them. Some exemptions have already been granted, which reduce the effectiveness of the sanctions. There is also the possibility that Russia could set up shell companies to purchase the sanctioned oil and then resell it, eliminating the names of Rosneft and Lukoil from the transactions and thus allowing banks to process the payments. Whether OFAC will take a strong stance against such potential circumvention schemes is still an open question.
P. Iļjenkovs points out that Lukoil's significant presence in the European fuel retail market makes the company particularly vulnerable to the impact of sanctions . At the same time, the impact on Latvia is likely to be minimal, as Rosneft has actually been considered a subject of sanctions since 2022, taking into account the inclusion of its CEO Igor Sechin on the sanctions list, while Lukoil's business presence in Latvia is small.
The protracted war and the resilience of the Russian economy
After more than three and a half years, Russia's aggression against Ukraine continues, raising questions about what the duration of the war reveals about the state of the Russian economy.
B. Hilgenstock points out that waging a prolonged war outside one’s own territory is extremely expensive, although an authoritarian regime can sustain such aggression for a long time. At the same time, Russia is not invincible – it failed to achieve its initial military goal of capturing Kiev in three days, and its progress on the front has been slow and very costly. “The duration of the war shows that the pressure applied so far has not been sufficient – it must be intensified,” concludes B. Hilgenstock.
Sanctions have significantly weakened Russia's economy and its war-making capabilities , but their long-term effectiveness depends on continued coordination, consistent implementation, and political will. Maintaining and intensifying this pressure is crucial for the international community to effectively support Ukraine and constrain Russia's ability to continue its aggression.
The conversation took place during the conference "Protecting the Border: Sanctions, Export Control and Corporate Responsibility" organized by FIU, which served as an important platform for dialogue between experts, policymakers and business people to strengthen a common understanding of the importance of sanctions and the effectiveness of their implementation.
Conference recording (in Latvian)
Conference recording (in English)
Sanctions lists and other useful information available on the FID website.
Since April 2024, the FIU has been the national competent authority for sanctions implementation in Latvia.
