Head of KSE Institute Nataliia Shapoval: “Russia has almost exhausted its sustainability limit”

10 March 2023

In the interview «The Effect of Sanctions: When Russia Runs Out of Money for the War Against Ukraine», Nataliia Shapoval, the head of KSE Institute, discussed the current state of the Russian economy, the Kremlin’s ability to wage war in Ukraine, and the key areas where sanctions pressure should be increased.

According to Shapoval, falling oil and gas revenues, budget deficits, weaker currency and depleted reserves indicate that sanctions are destroying the Russian economy. Nataliia emphasized the need to strengthen sanctions against the aggressor in all areas, from energy to the banking sector.

In 2023, KSE Institute experts predict a significant drop in the Kremlin’s oil and gas revenues, from $350 billion in 2022 to $175 billion. As a result, the federal budget deficit of the Russian Federation is expected to grow to about 6% of the country’s GDP, in contrast to 2.3% in the previous year.

The amount of reserve funds to support the Russian economy and the purchase of critical imports has significantly decreased. If Moscow uses liquid funds from the National Wealth Fund (NWF) at the same rate as in the 4Q2022, there is a high chance of depleting them before the end of 2023.

However, according to Shapoval, many areas require significantly strengthened sanctions. For instance, the price cap for Russian crude oil should be reduced to $30-35 per barrel, and the price of Russian oil products should also be lowered. It is necessary to restrict trade in other goods, which could potentially deprive Russia of up to $250 billion in revenue. It is also crucial to strengthen measures against the Russian banking sector (especially Gazprombank). 

Shapoval noted that increased sanctions alone will not stop the war, but increasing economic pressure has had a significant impact on the ability to finance the illegal invasion of Ukraine. As a result, the Kremlin will be much more willing to negotiate, and the Ukrainian government will have a stronger negotiating position.

“This war is primarily resolved now on the battlefield. But sanctions and a broader policy of holding Russia accountable, making it pay for damages, are important components of ending the war, restoring justice and peace”, Shapoval emphasized.

Currently, KSE Institute is actively collaborating with American universities and expert institutions to promote quality education in Ukraine and quantify the damage caused by illegal Russian aggression.

The full text of Nataliia Shapoval’s interview for NV.Business «The Effect of Sanctions: When Russia Runs Out of Money for the War Against Ukraine» is available via the link: https://bit.ly/3T0Dozo