What sectors of the Russian economy were most affected by Western sanctions and capital controls?
Executive summary
Western sanctions and capital controls have hit Russia’s energy revenues, banking and finance, defence and high-tech imports hardest — energy revenues fell sharply (EU says oil and gas revenues down about 80% from €100bn in 2022 to €22bn in 2024) and export controls have choked access to dual‑use goods and critical technologies [1]. The financial sector faces heavy asset freezes and capital restrictions (roughly 70% of banking-sector assets under sanctions per CSIS; freezing has deprived Russia of over $500bn in potential war funding, per CSIS) while industrial supply chains for military and high-tech manufacturing are strained by export controls and import bans [2] [1].
1. Energy: a blunt weapon that reduced revenue but didn’t fully stop sales
Sanctions and measures targeting Russian oil and gas — including an EU oil embargo, a global price cap and restrictions on LNG resale/transshipment — have slashed Russia’s energy income, the EU reports a fall from about €100 billion in 2022 to €22 billion in 2024 (almost an 80% reduction), directly lowering state revenue available for the budget and the war effort [1]. Analysts and Reuters reporting also show sanctions on major oil firms (Rosneft, Lukoil) and limitations on transactions can cut sales 10–20% in short windows and pressure the rouble and forex markets [3]. Alternative buyers in China and India have kept volumes flowing, so energy sanctions have constrained revenue rather than fully halting exports [3] [1].
2. Banking and finance: asset freezes, capital controls and corrosive instability
Coalition measures froze large shares of Russian financial assets and cut Russia off from key correspondent banking relationships; CSIS estimates about 70% of assets in the Russian banking system are affected and calculates sanctions plus the oil cap have denied Russia more than $500 billion it could have spent on the war [2]. Capital controls and Western banks’ refusal to process Russian outflows forced Russia’s central bank into heavy interventions and earlier ad‑hoc controls; this damaged liquidity and profitability in the banking sector and exposed lenders to big shocks when counterparties were sanctioned [4] [2]. Reuters reporting from late 2024 shows sanctions hitting Gazprombank and VTB reshaped market confidence and contributed to currency volatility [5] [3].
3. Defence industry and procurement: choked by export controls on dual‑use goods
Sanctions focus on cutting Russia’s access to high‑end components, machinery and electronics vital for advanced weapons and dual‑use civilian industries. The EU and others explicitly target technologies and services necessary for military production and procurement networks; UK and EU packages in 2025 widened restrictions on defense‑related sectors and procurement channels [1] [6]. CSIS and other analysis document a Kremlin pivot to a “war economy” that prioritises military output, but the loss of Western high‑end inputs still hampers modernization and raises unit costs [2] [4].
4. Trade and industrial supply chains: import substitution and rising costs
Export bans on industrial goods and targeted restrictions on machinery and electronics have forced Russia to pursue import substitution and deepen trade with non‑Western partners; the EU notes these export controls are aimed to “maximise the negative impact” on Russia’s economy by denying goods needed for industry and the war [6] [1]. CEPR and VoxEU reporting point to a large build‑up of trade credits and mounting illiquid exposures as firms extend credit to keep exports flowing — a sign of strained commercial financing and rising hidden debts inside the trade system [7].
5. Macro effects: inflation, interest rates and a re‑balanced economy
Sanctions and policy reactions pushed inflation and interest rates to record highs, prompting the central bank into aggressive rate hikes (interest rates reached 21% per EU reporting; VTB’s CEO warned of very high policy rates and forecasts of slower growth) and contributing to reduced household income and slowed domestic demand [1] [5]. Multiple analysts conclude Russia’s economy has shifted toward a militarized, lower‑growth model: CSIS projects about 1% annual growth going forward and notes the economy has been restructured around military production [2].
6. How Russia adapted — resilience, evasion and third‑country channels
Sources emphasize Russia’s adaptability: pivoting to alternative partners, building shadow fleets, and exploiting third‑country trade deflection have blunted some sanctions’ bite [2] [4]. That adaptation explains why, despite steep revenue losses and financial restrictions, the economy has not collapsed outright; yet multiple experts argue pressure is building and deeper coordinated measures would be needed to produce sharper economic effects [8] [4].
Limitations and disagreements in the sources — and what’s missing
Estimates vary: EU figures show a near‑80% drop in energy revenues [1] while CSIS stresses huge asset freezes and long‑term structural harm [2]. Reuters and other outlets emphasize short‑term currency and bank shocks from discrete sanctions [3] [5]. Available sources do not mention precise up‑to‑date GDP or sectoral employment breakdowns beyond the cited macro estimates; detailed microdata on how individual manufacturing sub‑sectors have fared are not provided in these sources (not found in current reporting).