London Daily

Focus on the big picture.
Tuesday, Jul 07, 2026

0:00
0:00

Russia is winning the economic war - and Putin is no closer to withdrawing troops

The perverse effects of sanctions means rising fuel and food costs for the rest of the world – and fears are growing of a humanitarian catastrophe. Sooner or later, a deal must be made.
It is now three months since the west launched its economic war against Russia, and it is not going according to plan. On the contrary, things are going very badly indeed.

Sanctions were imposed on Vladimir Putin not because they were considered the best option, but because they were better than the other two available courses of action: doing nothing or getting involved militarily.

The first set of economic measures were introduced immediately after the invasion, when it was assumed Ukraine would capitulate within days. That didn’t happen, with the result that sanctions – while still incomplete – have gradually been intensified.

There is, though, no immediate sign of Russia pulling out of Ukraine and that’s hardly surprising, because the sanctions have had the perverse effect of driving up the cost of Russia’s oil and gas exports, massively boosting its trade balance and financing its war effort. In the first four months of 2022, Putin could boast a current account surplus of $96bn (£76bn) – more than treble the figure for the same period of 2021.

When the EU announced its partial ban on Russian oil exports earlier this week, the cost of crude oil on the global markets rose, providing the Kremlin with another financial windfall. Russia is finding no difficulty finding alternative markets for its energy, with exports of oil and gas to China in April up more than 50% year on year.

That’s not to say the sanctions are pain-free for Russia. The International Monetary Fund estimates the economy will shrink by 8.5% this year as imports from the west collapse. Russia has stockpiles of goods essential to keep its economy going, but over time they will be used up.

But Europe is only gradually weaning itself off its dependency on Russian energy, and so an immediate financial crisis for Putin has been averted. The rouble – courtesy of capital controls and a healthy trade surplus – is strong. The Kremlin has time to find alternative sources of spare parts and components from countries willing to circumvent western sanctions.

When the global movers and shakers met in Davos last week, the public message was condemnation of Russian aggression and renewed commitment to stand solidly behind Ukraine. But privately, there was concern about the economic costs of a prolonged war.

These concerns are entirely justified. Russia’s invasion of Ukraine has given an added boost to already strong price pressures. The UK’s annual inflation rate stands at 9% – its highest in 40 years – petrol prices have hit a record high and the energy price cap is expected to increase by £700-800 a year in October. Rishi Sunak’s latest support package to cope with the cost-of-living crisis was the third from the chancellor in four months – and there will be more to come later in the year.

As a result of the war, western economies face a period of slow or negative growth and rising inflation – a return to the stagflation of the 1970s. Central banks – including the Bank of England – feel they have to respond to near double-digit inflation by raising interest rates. Unemployment is set to rise. Other European countries face the same problems, if not more so, since most of them are more dependent on Russian gas than is the UK.

The problems facing the world’s poorer countries are of a different order of magnitude. For some of them the issue is not stagflation, but starvation, as a result of wheat supplies from Ukraine’s Black Sea ports being blocked.

As David Beasley, the executive director of the World Food Programme put it: “Right now, Ukraine’s grain silos are full. At the same time, 44 million people around the world are marching towards starvation.”

In every multilateral organisation – the IMF, the World Bank, the World Trade Organization and the United Nations – fears are growing of a humanitarian catastrophe. The position is simple: unless developing nations are energy exporters themselves, they face a triple whammy in which fuel and food crises trigger financial crises. Faced with the choice of feeding their populations or paying their international creditors, governments will opt for the former. Sri Lanka was the first country since the Russian invasion to default on its debts, but is unlikely to be the last. The world appears closer to a full-blown debt crisis than at any time since the 1990s.

Putin has rightly been condemned for “weaponising” food, but his willingness to do so should come as no surprise. From the start, the Russian president has been playing a long game, waiting for the international coalition against him to fragment. The Kremlin thinks Russia’s threshold for economic pain is higher than the west’s, and it is probably right about that.

If proof were needed that sanctions are not working, then President Joe Biden’s decision to supply Ukraine with advanced rocket systems provides it. The hope is that modern military technology from the US will achieve what energy bans and the seizure of Russian assets have so far failed to do: force Putin to withdraw his troops.

Complete defeat for Putin on the battlefield is one way the war could end, although as things stand that doesn’t appear all that likely. There are other possible outcomes. One is that the economic blockade eventually works, with ever-tougher sanctions forcing Russia to back down. Another is a negotiated settlement.

Putin is not going to surrender unconditionally, and the potential for severe collateral damage from the economic war is obvious: falling living standards in developed countries; famine, food riots and a debt crisis in the developing world.

The atrocities committed by Russian troops mean compromising with the Kremlin is currently hard to swallow, but economic reality suggests only one thing: sooner or later a deal will be struck.
Newsletter

Related Articles

0:00
0:00
Close
UK Met Office Issues Heatwave Alerts for London and Southern England
Keir Starmer Blocks Earlier World Cup Kick-Off Time for England Match Against Mexico
NHS Digital Transformation and Media Consolidation Highlight UK Policy Priorities
UK Government Pushes Digital Trade Rules to Cut Export Costs for Businesses
Bank of England Plans Leverage Rule Changes to Support Government Bond Market
UK Police Operation Targets Organised Immigration Crime Networks With Hundreds of Arrests
Yvette Cooper Calls for Global AI Rules to Prevent Security Risks
NHS Begins Major AI Expansion Through £10 Billion Digital Investment Programme
UK Government Tightens Rules on Political Donations to Limit Foreign Influence
Keir Starmer Defends UK Defence Spending Plan at NATO Summit in Turkey
Comcast’s Sky Agrees £1.6 Billion Deal to Acquire ITV Media and Entertainment Division
Senior NHS Doctors Vote in Favour of Renewed Strike Action Over Pay Dispute
Andy Burnham Set to Succeed Keir Starmer as Labour Leadership Nominations Open
Microsoft Lays Off 4,800 Employees and Xbox Suffers the Hardest Blow
Deep Purple Has Released Its Best Album in Decades
Office for National Statistics Updates Historical Investment Data Review to Improve Accuracy
Department for Science, Innovation and Technology Highlights Economic Gains From Digital Inclusion
Debate Intensifies Over UK Defence Strategy and Domestic Security Priorities
Report Warns Full Transport Accessibility Could Add £176 Billion to UK Economy Annually
Medicines Regulator Approves First Targeted Treatment for Advanced Merkel Cell Skin Cancer
Government Commits £22 Million to Brighton Seafront Infrastructure Renewal and Transport Safety
National Security Bill Returns to House of Commons Amid Calls to Protect Humanitarian Work
Government Tightens Overseas Political Donation Rules to Strengthen Safeguards Against Foreign Influence
NHS Maternity Reform Expands Central Oversight After Critical National Review
Dover Border Warnings Highlight Post-Brexit Pressure on Cross-Channel Trade
Private Nuclear Consortium Advances £35 Billion Small Reactor Strategy in UK
UK Labour Leadership Signals Shift Toward Reindustrialisation and Regional Power
House of Lords Debates Rail Nationalisation Bill to Create Great British Railways
Scottish Affairs Committee Expands Inquiry Into SNP Financial Conduct
Evri Launches £1.2 Million Defamation Case Against BBC Over Panorama Investigation
Port of Dover Warns of Border Delays as EU Entry-Exit System Looms
Nigel Farage Referred to Standards Watchdog Over Alleged Undeclared Benefits
UK Government Faces Scrutiny Over Claimed AI Datacentre Investment After FOI Findings
UK and India Finalise Trade Agreement Rules Ahead of Mid-July Implementation
UK Government Establishes National Maternity Commissioner After Major Review of NHS Care Failures
Private Consortium Plans £35 Billion UK Nuclear Programme Targeting Small Modular Reactor Rollout
Andy Burnham Sets Out Ten-Year Reindustrialisation and Devolution Plan as Leadership Transition to UK Premiership Advances
Morocco and France Advance as 2026 FIFA World Cup Enters Quarterfinals.
Historic 2026 Tour de France Opens in Barcelona With Revamped Team Time Trial.
Global Mergers and Acquisitions Approach $4 Trillion Defying Geopolitical Tumult.
Negotiators Advance 20-Point Framework for Gaza Ceasefire and Demilitarization.
OECD Warns Middle East Conflict Will Depress Global Economic Growth.
Ukrainian Drones Strike Major Oil Terminal in St. Petersburg.
World Meteorological Organization Issues Urgent Alert Over Rapidly Intensifying El Niño.
United States Commemorates 250th Anniversary With Diplomatic Summits and Global Flotilla.
Iran Begins Days-Long Funeral for Supreme Leader Khamenei Amid Strait of Hormuz Standoff.
Technology giant reports surging carbon emissions driven by artificial intelligence infrastructure demands.
Artificial intelligence adoption accelerates workforce reductions across the technology and financial sectors.
Global technology and financial conglomerates collaborate to launch a new stablecoin standard.
United States regulators lift export restrictions on a major frontier artificial intelligence model.
×