To many observers, financial sanctions have been the most effective of the so-called “sectoral” sanctions adopted last summer in response to Russia’s annexation of Crimea and subsequent involvement in the war in Ukraine.
Whereas sanctions imposed on the defense industry have caused relatively minor disruption to date, and the ban on technologies used for tight oil extraction will only really affect Russian oil production many years down the line, the limitations on Russian firms’ access to finance have exerted an immediate impact.
First, financial sanctions resulted in the effective closure of Western capital markets to a large number of Russian corporations, and not just those directly targeted by sanctions. This “sudden stop” of capital inflows has contributed to the steady decline in investment in the Russian economy that accelerated in the final quarter of 2014 and continued into this year.
Second, because Russian firms were unable to refinance existing debt, they were also forced to repay their debts on schedule.
As a result, Russia’s total external debt fell from about $728 billion in January 2014 to $597 billion at the end of 2014.
This sharp reduction of more than $130 billion in the stock of external debt was due to a combination of repayments (primarily to Western banks) and a reduction in the dollar value of ruble-denominated debt.