Why loosening sanctions would put more pressure on Russia, according to a think tank

• The West could spur Russian inflation by easing sanctions on capital flows, Sergey Aleksashenko says.
• Restrictions are keeping the ruble from depreciating, the former Russian central banker said.

The US and its allies keep tightening the screws on Russia, but loosening sanctions would be an easier way of pressuring the Kremlin and inflict pain on the economy, a Russian economist wrote for Brookings.

In a collection of policy briefs the think tank put out this month, author Sergey Aleksashenko argued that the West should ease restrictions on Russian capital outflows. Doing so could cause the ruble to depreciate, spurring inflation across the country.

"Instead of making it harder for Russians to move money outside the country, make it easier to depress the value of the ruble, make imports more expensive, and put pressure on Russian bank balance sheets," said the former deputy governor of the Bank of Russia.

While sanctions have focused on curbing Russia's significant dependence on oil exports, Aleksashenko also noted the country's strong reliance on imports. Around 60% of non-food consumer goods come from foreign markets, he said, and the same can be said for a quarter of food products.

As a general rule, import costs rise when a currency is devalued. If sanctions were designed around this, Russians would have to pay more for goods, Aleksashenko said.

Instead, the ruble's deterioration remains limited, given restrictions on capital outflows out of Russia. As Russians lost easy access to foreign currencies after the Kremlin's 2022 invasion of Ukraine due to Western sanctions, domestic demand has kept the currency supported.

To reverse this, Aleksashenko recommended that Western banks allow Russian households to engage in cross-border payments, and partially ease sanctions on entities such as the St. Petersburg Stock Exchange and National Settlement Depository.

"If one hundred thousand Russians (or small companies) transfer $10,000 out of Russia each month using different channels, the total capital outflow from Russia would amount to $12 billion in one year," he added. "This amount is equivalent to a $6.80 per barrel discount to the price of annual crude oil exports from Russia."

To be sure, calls for looser sanctions are not a typical talking point. Among Brookings' other briefs, some argued for the complete opposite to happen. One note asserted a need for a full embargo on Russia, encompassing everything from trade to investments and finance.

According to the think tank, these briefs were part of a May event.

Since then, the West has applied even more restrictions on Russia, including a broad-sweeping sanctions package in June. These curbs targeted entities such as the Moscow Exchange, which responded by cutting off dollar and euro trading.