Shifting objectives undermine the usefulness of sanctions against Russia

Maximilien Hess, author of new bookEconomic War: Ukraine and the Global Conflict Between Russia and the West, argued that Putin has been preparing Russia for an economic war with the West since the passage of the Magnitsky Act in 2012, which imposed sanctions on individuals involved in the deaths of the Russian banker Sergei Magnitsky. .

Historically, sanctions have done just that work in about a third of cases. Success will only come if they are multilateral and involve a majority of the main economic actors. In the case of Russia, there was unexpected solidarity among Europeans and between Europeans and the United States, which hit Russia hard given its dependence on oil and gas exports to Europe. However, only a few countries outside the West have joined the sanctions (Japan, South Korea, Singapore, Australia). China, India, Turkey and others increased trade with Russia and bought the oil that no longer reached Europe.

Despite their relative lack of success, sanctions remain a popular tool, largely because they are better than doing nothing or going to war. They may be more important as a means of signaling the political commitment of allies than for their economic impact. Peter Harrell, a former National Security Council official, noted that sanctions have been a growth area over the past two decades, starting with Bill Clinton’s use of sanctions to target drug cartels and expanding as part of the war against terrorism after September 11.

The United States was subsequently encouraged by its success sanctions against Iranforcing the country to negotiate the Joint Comprehensive Plan of Action (JCPOA) in 2015, limiting its nuclear program. However, Russia’s economy is much larger, more diversified and globally integrated than Iran’s, so the impact of sanctions has been more modest. Harrell concluded that we should be realistic about the potential effects of sanctions and not expect them to be a silver bullet.

Although the sanctions were broad, they mainly targeted the financial sector, excluding Russia from the SWIFT financial transactions network, banning transactions with most Russian banks. Interestingly, Fishman revealed that the decision to freeze the central bank’s assets had only just been made After large-scale invasion. However, the West feared that an abrupt halt to Russian energy exports would lead to higher inflation, keeping oil and gas flowing into Europe until 2022. And banks that managed payments for oil and gas exports were exempted from sanctions.

The United States controls crucial nodes of the financial sector and the dollar remains the main currency for international trade and investment. But Elina Rybakova of the Peterson Institute pointed out that Washington lacks such influence over energy markets and is still struggling to find ways to monitor and regulate exports of crucial dual-use technologies.

Meanwhile, Harvard’s Craig Kennedy alluded to the fact that sanctions can be a negative game, hurting both the country imposing the sanctions and the target. This was certainly the case for Germany, hit by a 400% increase in natural gas prices in 2022.

Organizer Daniel Drezner pointed out that there have been a number of unintended consequences, the consequences of which have not yet been analyzed. They include the rise of a shadow fleet of uninsured tankers shipping Russian oil to India and China, and the expansion of a phantom network of financial transactions facilitate Russian evasion of sanctions.

By making it harder for Russians to export capital, the sanctions have boosted investment in the Russian economy and tied the business elite, the main proponents of Westernization, even more closely to the Kremlin. The war has further institutionalized the militarization of Russia’s economy, politics and society, and it may be very difficult to turn the country off this path in the post-Putin future.

Finally, Drezner pointed out an important unintended consequence for Russia: the war united the West, led to Sweden and Finland joining NATO, and forced Germany to rearm. This negates Russia’s decades-long strategic goal of separating Europe and the United States.

Analysts agree with claims that sanctions, for all their limitations, undermine the long-term economic growth prospects of the Russian economy, especially with regard to access to investments and technology needed to develop new oil fields. Sergei Vakulenko, a researcher at the Carnegie’s Russia Eurasia Center, said Russia is facing a gradual decline. (in oil production) but no sudden drop. This appears to be the price Putin is willing to pay to continue his war in Ukraine.

It is difficult to say how (and when) this conflict will end or what the final situation will be. Will the future Russia ever join the West? Or is Russia destined to become a resource base for China and other countries now out of alignment with the West or eager to exert multi-vector influence on the geopolitical landscape?