What sectors of the Russian economy are most vulnerable to sanctions

Introduction

Several sectors of the Russian economy have shown particular vulnerability to Western sanctions:

Industries

High-Tech and Manufacturing Industries

Production of medium- and high-technology goods has contracted sharply, with significant declines in:

Truck production (down 40%)

TV receiver production (down 44%)

Excavator production (down 69%)

The automotive sector has been severely impacted:

Car sales declined by 45% year-on-year in the first quarter of 2022

Chinese car sales have overtaken those of Lada, Russia’s most popular locally produced car

Export-Oriented Sectors

Wood and steel producers have struggled to find alternative export markets offering profitable prices

Output in these industries has declined sharply, leading to heavy losses for companies

Financial Sector

Approximately €300 billion of Russian Central Bank reserves are blocked in the EU and other G7 countries

70% of assets in the Russian banking system are under sanctions

Russian entities face increasing difficulties with international payments, even for non-sanctioned goods

Energy Sector

Oil revenues dropped by over 40% in February 2023 compared to the previous year

The International Energy Agency forecasts Russian oil and gas exports could fall 40% to 50% over the next seven years due to equipment shortages and lack of foreign investment

Defense and Military Industries

Sanctions have restricted access to sophisticated technology for Russia’s military industry, forcing reliance on more expensive substitutes

The focus on military spending has led to underinvestment in civilian industries, hampering long-term growth prospects

Conclusion

These vulnerabilities are exacerbated by structural issues such as labor shortages, brain drain, and reduced access to global markets and innovations, which are likely to impact Russia’s economic recovery and long-term growth potential.