Don't expect a 'magic bullet', Russia not Iran, just a negative-sum game

The West needs to be realistic about what sanctions on Russia can achieve and not expect them to be a magic bullet.

Only a handful of countries outside the West have joined in the sanctions against Russia. (Source: Shutterstock)

Unclear effect

The West's economic war against Moscow following Russia's special military operation in Ukraine has had only limited results in the short term.

On September 26-27, the Fletcher School at Tufts University (Massachusetts, USA) organized a conference on the topic "Global Consequences of the Russia-West Economic War". The event attracted the participation of 20 experts and scholars to discuss the impact of comprehensive sanctions against Russia imposed by about 50 countries following the conflict in Ukraine.

The workshop, organized by Tufts University professors Christopher Miller and Daniel Drezner, failed to provide a definitive answer to the central question: Are sanctions effective — and the related question of whether they should be ended, continued, or strengthened?

Western leaders have been vague about the goals of the sanctions, which have changed over time. Initially, the goal was to deter Russia from launching a military campaign. But that has not worked.

The next goal of the sanctions was to collapse the Russian economy, forcing massive bank runs and losing control of the ruble, hoping to turn the country’s elite against the government. For the first week or two, this seemed to work. But the Russian Central Bank promptly imposed strict controls to stem capital outflows and end the convertibility of the ruble. The Russian economy remained resilient.

The sanctions then shifted their focus to financial drain, raising Moscow’s costs in the hope that this would make the Kremlin more willing to come to the negotiating table and end the campaign. By lowering their stated goals, Western leaders could continue to claim that the sanctions were working.

“The goal was to shock the system, create chaos, and force Moscow policymakers to turn their attention to developments inside Russia,” said Edward Fishman, a former US Treasury official. “But we underestimated the skill of Russian financial regulators and the extent to which they were prepared for sanctions after the 2014 annexation of Crimea.”

Meanwhile, Maximilian Hess, author of Economic Warfare: Ukraine and the Global Conflict Between Russia and the West , argues that Russian President Vladimir Putin has been preparing Russia for economic war with the West since passing the Magnitsky Act in 2012, which sanctioned individuals involved in the death of Russian banker Sergei Magnitsky.

Traditionally, sanctions have been effective in only about a third of cases. Success comes only if they are multilateral, involving a majority of major economic actors.

In the case of sanctions against Russia, there was unexpected solidarity between Europe and the US, which at times caused the birch country to "struggle" due to its dependence on oil and gas exports to Europe.

However, only a few non-Western countries have joined the sanctions, such as Japan, South Korea, Singapore, Australia. China, India, Türkiye and others have increased trade with Russia, increasing purchases of its oil.

Despite their perceived ineffectiveness, sanctions remain a popular tool. They are better than doing nothing or going to war. They can be more important as a way to demonstrate political commitment among allies than for their economic impact.

Need to look at reality

“Sanctions are an industry, and it has been growing steadily over the past 20 years,” noted Peter Harrell, a former National Security Council official, starting with President Bill Clinton’s use of sanctions to target drug cartels and then expanding as part of the war on terror after September 11, 2001.

The US has been encouraged by the success of sanctions against Iran, forcing it to negotiate the Joint Comprehensive Plan of Action (JCPOA) in 2015 to curb its nuclear program. But Russia’s economy is much larger, more diversified and more globally integrated than Iran’s, so the impact of Moscow’s sanctions has been more modest.

“We need to be realistic about what sanctions can achieve and not expect them to be a magic bullet,” Mr Harrell concluded.

While the sanctions were broad, they were heavily focused on the financial sector, cutting Russia off from the SWIFT global financial network, banning transactions with most Russian banks. Interestingly, former US Treasury official Fishman revealed that the decision to freeze the assets of the Russian Central Bank was only made after the conflict in Ukraine.

However, the West fears that a sudden interruption of Russian energy exports would cause a spike in inflation, so Russian oil and gas will continue to flow into Europe until 2022. And banks that process payments for oil and gas exports are exempt from sanctions.

The US controls key nodes in the financial sector and the US dollar remains the dominant currency for international trade and investment. But as Peterson Institute researcher Elina Rybakova points out, Washington lacks such significant leverage over energy markets and is still struggling to come up with ways to monitor and regulate the export of critical technologies.

Meanwhile, Harvard University expert Craig Kennedy alluded to the fact that sanctions can be a negative-sum game, harming the country that imposes them. This is certainly true for Germany, which is affected by a 400% increase in natural gas prices in 2022.

The conference organizer, Professor Daniel Drezner, pointed out that there have been a number of unintended and unresolved consequences, such as the rise of a “submarine fleet” of uninsured tankers transporting Russian oil to India and China, and the expansion of a network of underground financial transactions that facilitate Moscow’s evading sanctions.

By making it harder for Russians to export capital, the sanctions have spurred investment in the Russian economy itself and further tied the country's elite to the Kremlin.

Analysts agree that the sanctions, while having limited effect, are still posing significant challenges to Russia's long-term economic growth prospects, especially in terms of access to investment and technology to develop new oil fields.

Sergei Vakulenko, a fellow at the Carnegie Endowment for International Peace's Russia Eurasia Center, argues that Russia is "facing only a modest decline in oil production, not a dramatic drop." That seems to be a price President Putin has anticipated and is willing to pay to further his goals.

It is difficult to say how the Russia-West conflict will end, or what the end state will be. Will a future Russia rejoin the West at some point? Or will Russia become a resource supplier to some other country not currently aligned with the West, or will Moscow be willing to “multi-orient” on the geopolitical landscape?

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