Sanctions hit Russia’s middle class hard

A week after the invasion of Ukraine, life in Russia changed radically. Unprecedented Western sanctions have freed virtually any sector: finance, transport, travel, culture and sports. These punishments are causing the Russian economy to bleed deeply.

The ruble has lost about a third of its value in just a few days, and there are reports of queues in front of ATMs and problems paying with cards or payment systems such as Google Pay or Apple Pay. Appliances, but also Western clothes and shoes are in danger of becoming scarce goods, just as they were in Soviet times. Some experts are already predicting a double-digit economic contraction this year if the current situation continues.

However, the economy would not be so shaken, according to the Kremlin, which admits problems and tries to spread optimism. “It is clear that Russia’s economy is feeling strong pressure, a strong blow, but there is potential for resistance. There are plans and countermeasures that are being taken vigorously. It will not die,” said Dmitry Peskov, a spokesman for President Vladimir. Putin, this Wednesday. The perception of the state leadership is that the situation in the markets will soon calm down.

Since the annexation of Crimea in 2014, Russia has adapted to Western economic sanctions. For this, a euphemistic term was found: instead of “sanctions”, the Russian media prefers to speak of a “new economic reality”. But now the blow is much stronger, and the government has created a crisis center led by Prime Minister Mikhail Mishustin, who is trying to keep the turmoil under control.

Overflight bans for Russian aircraft have greatly affected the country’s commercial aviation. Travel companies also report a drop in bookings of up to 70%. Russians who still manage to reach the beach of dreams must carry a lot of money – and the reason for this is the exclusion of some banks in the country from the Swift payment system. Three hospitals in Thailand, for example, serve only Russian tourists in exchange for cash. And then flying home won’t be so easy.

As expected, the Russian Central Bank reacted to the ruble’s collapse and doubled the benchmark interest rate to 20% in order to counteract the spiral of currency devaluation and inflation. But the central bank itself is also under unprecedented pressure and seems surprised by the West’s decision to freeze two-thirds of its reserves. According to the Reuters news agency, the head of Russia’s central bank, Elvira Nabiullina, reportedly said in a video to employees that she expected a milder scenario.

Middle class is hardest hit

The Russian middle class is the most worried about the crisis, writes the economics newspaper vedomosti. Currently, some restaurants in Moscow have seen a 60% drop in the number of customers, but the sanctions are felt by all citizens – not just the middle class. “Russians used to perceive sanctions as a kind of ‘punishment for the elites’. Now there is a perception that it will be everyone’s turn,” the paper wrote, citing a psychologist.

Sergei Utkin, a well-known Moscow economist, warns in the newspaper Kommersant about “giant economic losses and the destruction of the way of life of entire social classes”. And all this is a result of the Russian military operation in Ukraine.

Apparently, however, almost nobody in Russia counted on sanctions in the areas of sport and culture. More and more Russian teams are being banned from participating in competitions. Sporting events such as the Champions League final in St Petersburg have been cancelled, resulting in millions of dollars in losses for the local hotel industry.

Russian artists are losing jobs or contracts in the West, like Munich Philharmonic conductor Valery Gergiev, a Putin supporter. He turned down the request of the German city’s mayor, Dieter Reiter, to speak out publicly against the invasion of Ukraine – and, as a result, he was fired.

But one industry is being hit particularly hard: cinema. Russia will be left out of the world premiere of the new film in the “Batman” franchise, which will hit theaters around the world this Thursday (03/03). The production is one of the top three premieres this year that American producers have already canceled in the country.

As a result, movie theater companies – which typically make more than three-quarters of their revenue from Western films – expect to lose up to 70% in revenue. If the situation doesn’t improve by May, experts say several cinemas in Russia will close.