The US-led sanctions campaign depressed the Russian economy in the first year of the Ukraine war. The second year is about filling the cracks.

(CNN) general Unprecedented sanctions led by the United States Designed to isolate one of the world’s largest economies and leave Russia vulnerable, But not powerless.

Instead of the expected double-digit GDP decline, Russia’s economy shrank by about 3% last year. After the initial crash heralded by President Joe Biden, the country’s currency has stabilized. And while US export controls limited Russia’s ability to obtain components necessary for manufacturing Some advanced military equipmentRussia has found countries willing to help keep its war machines buzzing.

If it was the first year of the entire US-led sanctions campaign About cutting Russia of the global economy and the deterioration of its military-industrial complex, the second year will focus on closing the cracks.

Biden administration officials say they will apply a laser beam-like focus to clamping down on Russia’s efforts to evade sanctions, which include adversaries like China as well as allies and partners like Turkey, India and the United Arab Emirates.

That focus will include an important shift: After a year focused on trying to get countries to comply with U.S. sanctions through a mixture of technical assistance and subtle diplomacy, the administration now plans to take its efforts directly to individual companies.

Deputy Treasury Secretary Wally Adeyou told CNN in an interview that the administration would offer “a clear choice” to those companies.

“If they continue to sell Russian material to support their war effort, they won’t have access to our alliance economies, which frankly is a much larger customer for them,” Adeyou said.

That effort began on Friday, when the administration announced sanctions against “more than 200 individuals and entities, including Russian actors and third countries throughout Europe, Asia, and the Middle East who support Russia’s war effort.” These sanctions were imposed with the United States’ G7 partners and other allies.

However, the one-year macroeconomic effects are less than what Biden administration officials initially publicly projected. But, while Russia has managed to ease some short-term pain, Biden administration officials and sanctions experts increasingly anticipate dire long-term consequences awaiting them. Isolated Russian economy.

“The contraction this year is less than I predicted publicly, but in my view what Putin has done is prop up growth this year, in accounting terms, by sacrificing long-term growth potential,” said Dalip Singh, Biden’s former deputy national security deputy. Adviser and one of the main architects of Russia’s sanctions.

“The permanent result of this war will be that Russia loses Europe and the G7 as energy consumers, and that will dry up the main source of remaining export revenue. It will leave Russia with a smaller, weaker and more isolated economy,” Singh said.

These new efforts come at a critical moment in the war—both Ukraine and Russia appear to be preparing for a spring offensive, and the soaring tunnels of artillery-based warfare are drawing attention to dwindling Western ammunition stocks. This has raised the stakes for the West to deal a major blow to Russia’s defense industrial base and its ability to fund its war effort.

Russia finds countries willing to make a deal

The recently enacted Russian oil price cap has taken away a large chunk of Russia’s revenue. But amid crushing Western sanctions, Russia has found alternative sources of revenue by increasing its exports to China, Brazil, India and Turkey. Some of those same countries are also filling Russian demand for key products and technologies that the United States and its coalition have cut out.

Lawmakers on both sides of the aisle are increasingly urging the administration to take more aggressive action with countries that help Russia circumvent sanctions.

“I think we need to put more pressure on these countries and not allow them to become an exit valve for Vladimir Putin and his efforts to fund the war machine,” said Senator Chris Van Hollen, a Maryland Democrat. Advanced F-16s should be withheld from Turkey.

Several administration officials declined to say whether they were considering taking more coercive steps to include friendly countries such as Turkey and India in the sanctions effort. Instead, they have emphasized a combination of tough diplomacy and increased enforcement of sanctions to close existing loopholes.

“I wouldn’t say we’re standing around, gritting our teeth in frustration,” a senior administration official said. “Instead, we’re just doing the hard work of making sure our sanctions are effective.”

The latest round of sanctions, expected this week near the one-year anniversary of the war, is expected to make this point, focusing on sanctions-evading networks and Russian military production.

Treasury and Commerce officials have traveled to countries key to efforts to circumvent Russia in recent months to secure more cooperation. Just last month, Treasury Undersecretary for Terrorism and Financial Intelligence Brian Nelson traveled to the United Arab Emirates and Turkey—two close US security partners that have also been epicenters of Russia’s sanctions evasion—and warned of new measures that could lead to repression.

“Countries around the world seeking to shut down the Russian war machine should try to evade our controls at their peril,” said Deputy Secretary of Commerce Don Graves.

“Deglobalization of a large economy”

Sanctions experts say the scale of US sanctions on an economy as large and interconnected as Russia is unprecedented.

“This is a prime example of the deglobalization of a large economy, which we have never seen before,” said Vladimir Milov, a Russian opposition economist and politician who served as deputy energy minister in 2002.

In the early days after Russia’s invasion of Ukraine, the United States and its allies worked quickly to impose devastating sanctions on Russia’s central bank and its major private banks, freezing some $300 billion in Russian reserves and cutting them off from the world’s well-known financial messaging system. Swift. Since then, the United States has imposed sanctions on more than 2,000 Russian companies and people.

Russia’s industrial production has suffered, the country’s military is struggling to obtain key components to produce some weapons, and hundreds of international companies have exited the Russian market, adding to the impact of US sanctions.

Anastasia Fedek, assistant professor of finance at the University of California-Berkeley and a member of the International Working Group on Russian Sanctions, pointed out the long-term effects that the war and the sanctions regime will have on the Russian economy.

“These will be cumulative effects,” she said. “I think that looking into the future, the outlook is not at all positive for the Russian economy.”

While a senior administration official acknowledged that the administration did not anticipate the extent to which energy prices would rise in the aftermath of the Russian invasion — which in turn increased revenues on Russia’s primary exports — officials are convinced that the Russian oil price cap will deal a blow to Russia’s capacity. to finance its war effort.

Already, Western oil sanctions are starting to take their toll, dropping Russia’s oil and gas revenues by 46% last month compared to the previous year and leaving Russia with a budget deficit of $25 billion.

Asked about the most important moments in the year of US sanctions against Russia, both Adeymo and Singh pointed to the first round of crushing financial sanctions within days of the invasion as the moment that decided Russia’s economic fate.

“I distinctly remember getting up at 3 am, talking to my EU counterpart, Bjorn Seibert, and saying, ‘It’s about time,'” Singh said. “By 5 p.m. the package was announced and it was a moment when the world’s major democracies moved faster and stronger than we had in decades.”

“When we look back a decade from now, that will be the moment when the Russian economy transformed from an economy that was opening up, was growing and becoming more Europeanized, and where the Russian economy began to deteriorate and began a slow decline that would make it look more like Iran’s economy a decade from now.