Sanctions put Russia economy on a losing streak

 Fortune:

Over the past six months, Russia has fortified its economic defenses after Western countries pummeled it with sanctions over its invasion of Ukraine.

Despite the crackdown, the Kremlin continues to rake in billions in oil and gas revenues, which helped the ruble rally to become the world’s best-performing currency this year.

But all is not well with the Russian economy.

The Western sanctions and widespread corporate exodus from Russia since Feb. 24 have ravaged the Russian economy—and its future prospects look even bleaker, according to a new report from Yale University researchers and economists led by Jeffrey Sonnenfeld, Yale School of Management professor and senior associate dean for leadership studies. It’s now become clear that the Kremlin’s “finances are in much, much more dire straits than conventionally understood” and that the large-scale “business retreats and sanctions are catastrophically crippling the Russian economy,” the researchers wrote.
Deterioration

As of Aug. 4, over 1,000 companies, including U.S. firms like Nike, IBM, and Bain consulting, have curtailed their operations in Russia. Though some businesses have stayed, the mass corporate exodus represents 40% of Russia’s GDP and reverses 30 years’ worth of foreign investment, says the Yale report.

The international retreat is morphing into a larger crisis for the country: a collapse in foreign imports and investments.

Russia has descended into a technological crisis as a result of its isolation from the global economy. It’s having trouble securing critical technology and parts. “The domestic economy is largely reliant on imports across industries…with few exceptions,” says the report. Western export controls have largely halted the flow of imported technology from smartphones to data servers and networking equipment, straining its tech industry. Russia’s biggest internet company, Yandex—the country’s version of Google—is running short of the semiconductor chips it needs for its servers.
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The shortage of computer chips has also hit some US industries such as the auto manufacturing sector.  But the Russian problem appears more widespread with companies actually leaving.  The Russian attacks in Ukraine have been a disaster not only for the Russian economy but also for the Russian military whose conventional forces have been exposed.  Putin's war was clearly a mistake and it appears to be one he is not willing to admit.