Reading all of this, you could be forgiven for thinking that the coalition of nations sanctioning Russia are on a fool’s errand, and that Russia is simply too big to fail. Bruegel contends that this is not so, that the sanctions are hurting Russia, and that rosy statistics are concealing some serious damage to the Russian economy.

The ruble’s strength is a fine example of this. To the casual observer, the ruble has recovered and is in good health. In fact, the ruble is critically weak: it has been propped up by capital controls that make it difficult to sell rubles and which force Russian companies to buy the currency against their will — or better judgment. As Bruegel puts it, the current exchange rate is not a reflection of the value of the Russian economy’s fundamentals. Rather, it is a testament to the fact that financial sanctions are isolating the ruble internationally.

Russia’s pivot to new markets for key imports was speedy and effective, but it will not be enough to rescue some important parts of Russia’s economy, Bruegel says. The self-sanctioning by corporations wishing to distance themselves from Russia has been particularly damaging, in sectors including auto production and transportation. The withdrawal of foreign car manufacturers and the shortage of inputs has hit passenger car production extremely hard, with a 95% decline in May 2022, compared to the previous year. Air transportation has also collapsed, following the cancellation of aircraft leases and maintenance contracts, and the closure of several countries’ airspaces to Russian planes. …

In other words, the sanctions have teeth, but for Russia to feel the bite, coalition nations will need to sink those teeth in deeper and hang on for the long term, Bruegel says. They need to find unity on effective measures such as the oil insurance ban mentioned above, and to restrict oil and gas shipments further. The combination of a large and likely persistent fall in Russian imports, and the permanent decoupling of European economies from Russian energy supplies, will have significant negative consequences for the Russian economy in the medium to long run, the report says.