US sanctions have taken a big bite out of Russia’s economy

BlackHouse, Jul. 27 – Customers browse discounted shoes inside a Zenden shoe store in Moscow, Russia.

Congress moved Tuesday to step up sanctions on a shrinking Russian economy that is already struggling under the weight of low oil prices, high inflation and a battered currency that has sent capital fleeing.

In response to Moscow’s interference in the 2016 U.S. presidential election, the House voted overwhelmingly to tighten existing economic sanctions imposed in 2014 following the Russian invasion of Crimea. Among other things, the measures freeze assets and prohibit transactions with specific Russian companies and individuals, restrict financial transactions with Russian firms, and ban certain exports that are used in oil and gas exploration or have possible military uses.

Those 2014 U.S. sanctions were paired with related measures imposed by the European Union, which placed restrictions on business with Russia’s financial, defense and energy sectors.

Today, Russia’s economy is still feeling the harsh impact of those measures, which coincided with a crash in global oil prices that cut deeply into revenues from the country’s main export.

The loss of oil revenues – a drop of as much as 60 percent, according to a 2017 Congressional Research Service report — helped spark a collapse in Russia’s currency, the ruble, sending the prices of Russian consumer goods soaring.

The Russian economy has also been hurt by a wave of capital flight out of the country, as individual Russians sought to move money offshore and convert their shrinking rubles to dollars and euros to protect their wealth. That money flow slowed in 2014 as U.S. and European sanctions took hold.

Though U.S. sanctions have put pressure on the Russian economy, the impact on American business has been limited because Russia makes up less than 1 percent of U.S. exports.

Only six U.S states count Russia as a significant market for goods and services. Washington, the most reliant, sells roughly 1 percent of its total exports to Russia, consisting mostly of machinery and farm products. That’s half the level before the 2014 sanctions took effect.

European nations, which export greater volumes to Russia than the U.S., imposed their own set of sanctions response to the Crimean annexation.

But some European countries that rely more heavily on Russia as a trade partner are eyeing the latest U.S. sanctions warily.

A version of the measure that was fashioned by U.S. Senate and House leaders would include fines for European companies that help Russia build energy export pipelines. That would likely impact EU firms involved in an $11 billion project called Nord Stream 2, that would ship Russian natural gas across the Baltic.

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