'Disaster' Coming for Putin's Economy as Sanctions Hit, Russian Expert Says

Russia's economy appears to be facing a "disaster" in the wake of President Vladimir Putin's decision to invade Ukraine, a Russian economist warned.

Putin's forces launched the full-scale invasion of Ukraine on February 24. The unprovoked assault drew widespread international condemnation at the United Nations, as the U.S., Canada, Europe and other allies swiftly implemented harsh financial sanctions targeting Russia.

While Putin and other Russian leaders have downplayed the impact sanctions will bring, some Russian elites and experts have raised alarms. Ruben Enikolopov, an economist and rector of Moscow's New Economics School, believes Russian leaders are not taking adequate steps to address the looming economic crisis.

"In terms of the government, the problem is that they're silent about the economy," Enikolopov told The Moscow Times, an independent English-language online newspaper published in Russia.

"The first reaction for many of them—because they grew up in the Soviet Union, so that's the mentality they have—is price controls and things like that. They might work temporarily, but in the long run, it's a disaster for the economy," the Russian economist said.

Western companies leave Russia
Although Russian leaders have downplayed sanctions against the country, some Russian elites and experts are raising concerns. A Russian shopper goes past a closed H&M store in Vegas shopping mall on March 4 in Moscow, Russia. Oleg Nikishin/Getty Images

At the same time, Enikolopov said that it would be difficult for Russian leaders to adequately respond to curb the impact of financial sanctions.

"It's really hard to even imagine what the government can do. In some senses they're hostage to this situation," the economist explained. "All the main events are completely unrelated to the government's decisions."

Earlier this week on Tuesday, Fitch—one of the "big three" credit rating agencies—downgraded Russia's credit rating to a "C," saying default on debt is imminent, Reuters reported. "‍Further ratcheting up of sanctions and proposals that could limit trade in energy increase probability of a policy response by Russia that includes at least selective non-payment of its sovereign debt obligations," the ratings agency said in a statement.

Moody's, another financial services company, downgraded Russia's rating as well. "This rating action follows the further significant weakening of Russia's credit profile as captured by the downgrade to C with a negative outlook of the sovereign rating on 6 March 2022. The sovereign action is driven by severe concerns around Russia's willingness and ability to pay its obligations," the company said in a statement about the decision.

The U.S., Canada, European and East Asian allies have been unified in implementing punitive sanctions targeting Russia, as well as Putin and other prominent members of Russian society. The U.S. also announced this week that it would ban the import of Russian oil, while the United Kingdom plans to do the same by the end of 2022.

"As Putin continues his merciless assault, the United States and our Allies and partners continue to work in lockstep to ramp up the economic pressure on Putin and to further isolate Russia on the global stage," President Joe Biden asserted on Friday. He announced that the U.S. and its allies would "deny most-favored-nation" trade status to Russia moving forward.

"We're also taking a further step of banning imports of goods from several signature sectors of the Russian economy, including seafoods, vodka, and diamonds," Biden explained.

Several Russian billionaires warned in late February as the invasion of Ukraine began that the fallout would be severe for their country. "It is going to be catastrophic in all senses: for the economy, for relations with the rest of the world, for the political situation," one Moscow-based billionaire, who requested anonymity, told Reuters at the time.

But Russian leaders have dismissed the Western response. "In the end, this will all lead to an increase in our independence, self-sufficiency and our sovereignty," Putin told fellow government leaders in Moscow on Thursday.

"I am sure that this hysteria will fade away and our Western partners will get over it," Russian Foreign Minister Sergey Lavrov told reporters last week.