SO MUCH WINNING!:

The initial wave of sanctions had to work around the fact that Western European economies are highly dependent on Russian natural gas for essential, inelastic energy supplies. The goal then became to neutralize the value of the dollars and euros spent on Russian gas by targeting Russian financial institutions and leveraging the global financial centers located in London and New York. That part of the plan worked as intended--Russian companies reported a massive deterioration in credit conditions as sanctions came into effect earlier this year, and conditions have barely improved since then despite the efforts of the Central Bank of Russia.

The second prong of this effort entailed cutting Russian consumers and businesses from critical manufactured goods. While Russia had significant leverage through energy supplies, the country was dependent on imports for many consumer goods and would need semiconductors, vehicles, and other complex manufacturing items in order to wage war effectively. Sanctions could therefore have an outsized influence on Russian industry, consumption, and combat capabilities through targeted trade restrictions. That's exactly what we saw within the Russian business sector, as manufacturing industries with significant foreign economic activity took much larger hits from the initial sanctions and have struggled to recover since.

Indeed, production for key complex goods in Russia has completely tanked--with motor vehicle production down more than 50% and household appliance output shrinking by more than 40%. The manufacturing output of other key goods like computers and electronic equipment is also down 14% from 2019 levels. Impairing output in complex industries was key to hurting Russia's war machine and buying time for Ukrainian forces to mount a strong defense--and it seems to have worked as intended.

However, it has had the added effect of cutting Russian businesses and consumers off from key production goods too. Prices for new domestic and foreign passenger cars in Russia have increased by 25% and 43% respectively since sanctions were imposed at the beginning of this year, and Russian vehicle manufacturing is still struggling to even get production back to 2021 levels amidst input shortages. In fact, prices for all sorts of essential manufactured goods have increased dramatically since the start of this year--bath soap is up 44%, toothpaste is up 40%, diapers are up 22%, menstrual products are up 44%, smartphones are up 6%, and a variety of over-the-counter drugs have seen massive price hikes too.

Russian output declines are not just limited to complex manufacturing industries either--over the last year, real oil and natural gas output has also shrunk alongside manufacturing. Compared to last October, steel and iron production is down 12.3%, fertilizer production is down 9.4%, metal ore mining is down 7%, and coal mining is down 3.3%.

That's one reason why, despite elevated natural gas and oil prices throughout the year, Russian energy revenues have likely declined significantly from their peak. Russia has been forced to sell its crude oil at a discount to buyers in India, China, and elsewhere as sanctions bite--and it also dramatically cut the volume of natural gas sent to Europe.

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