Of course, Russia had already invaded Ukraine in 2014, but in February 2022 it dramatically escalated the scale of its previous invasion.
The United States and its allies in Ukraine responded to Russia’s aggression two years ago with an unprecedented series of sanctions: they capped prices on Russian oil exports, froze $300 billion of Russian foreign exchange reserves, and severed many links between Russia’s financial institutions and the rest of the world.
But the Russian economy seems to be doing pretty well. The IMF recently estimated Russia’s economic growth rate this year at 3.2%.Russia appears to have found alternative routes for exporting oil and purchasing imports, and the government is stimulating the economy by increasing defense spending in response to the war in Ukraine.
So are economic sanctions against Russia essentially a failure, or should they be strengthened and redoubled? The Brookings Institution hosted a seminar on the topic in May, with nine experts sharing their perspectives. (The above quote is from the Brookings website introducing the symposium.) For example, oA new perspective As Russia becomes more connected to the international financial system, it may become easier for capital to leave the Russian economy, which could cause further pain for Russia’s power structures.
Here I will focus on two essays that take opposing views. Peter E. Harrell says:Has the US Reached ‘Peak Sanctions’? As he points out, sanctions have become a very popular foreign policy option. After all, sanctions at least provide the appearance of doing something strong, but they appeal to protectionist and anti-globalist instincts without resorting to military force.
The past decade has been a golden age for sanctions. The United States has dramatically expanded the number of individuals, companies, and foreign government entities it sanctions each year. In 2022 and 2023, the United States will impose more than three times as many sanctions annually as it did a decade ago. U.S. export controls have followed a similar pattern. By the early 2010s, sanctions had become the “first resort” for a dizzying array of international policy issues, from the Iranian nuclear program to global human rights abuses. Sanctions policymakers were remarkably innovative in devising new ways to target trade and financial flows. The question today is whether these measures will continue to be popular and useful, or whether we will reach “peak sanctions” and see a future where, while politically popular, their impact diminishes.
Sanctions seem to be effective when they are aimed at changing the behavior of individual firms, and their effects are reflected in trade flows. However, the effectiveness of sanctions in actually achieving foreign policy goals is quite mixed. Sanctions on Russia, Iran, Venezuela, China, or even Cuba over the long term have not significantly changed the policies of those countries.
“Political scientists and historians consistently put the success rate of sanctions at about 40 percent,” Harrell says. But that partial success rate is based on historical data, and recent waves of sanctions appear to be less effective.
Rhetorical expressions such as “maximum pressure,” “paralysis,” and “the toughest ever” sanctions, combined with promises that sanctions can bring about profound changes in adversary behavior at little or no cost to the United States, set unrealistic expectations and make it difficult to change course even when policies are objectively failing, as in the case of Cuba. Just as American leaders have learned to avoid overpromising military intervention, political leaders should not overpromise the results of economic weapons.
On the other hand, it would be more effective to further tighten sanctions on Russia. For example, Harrell discusses “secondary sanctions,” in which the United States and its allies not only sanction Russia, but also sanction other countries that help Russia circumvent sanctions through their own trade or commercial relations. In this spirit, “It is time to completely ban economic relations with Russia,” argue Torbjörn Becker and Yuri Gorodnichenko. They wrote:
[T]The sanctions imposed on Russia to date have been numerous (over 4,500 entities and 11,500 individuals) and have been introduced over a long period of time. This has complicated the monitoring and implementation of sanctions. The delay in implementation has given Russia more time to adapt to and circumvent the sanctions, but the effects of the sanctions have often been dispersed over time with significant delays. The argument used for this approach to sanctions is that the West should avoid using the “nuclear” option, that some sanctions should be kept “powder-dry,” and that “high costs” should be avoided in the sanctioned countries. Unfortunately, the slow pace of implementing serious sanctions, the complex rules, and the sloppy enforcement have given Russia some economic leeway, thus slowing down the effectiveness of the sanctions.
They argue that existing sanctions are working better than economic statistics from the IMF or the Russian government show. For example, Russian inflation is likely to be significantly higher than the officially reported 7%. They suggest that Russia should be treated like North Korea: a ban on all trade, with some limited exceptions for food and medicine.
For example, EU exports to Russia have been cut in half due to existing sanctions, but half still remains. Hundreds of Western companies have left Russia, but thousands have stayed. Becker and Gorodnichenko argue that a complete ban, with a few small exceptions, would close many of the loopholes in existing trade sanctions against Russia. For example, they write:
The “full sanctions” mode would also allow Western companies to escape their contractual obligations with Russia. In simple terms, companies would be able to claim force majeure and cancel their contracts with Russian counterparties. Western law (e.g. the UK Sanctions and Anti-Money Laundering Act 2018) generally provides that companies cannot be held liable for non-performance of their contractual obligations if their actions are in compliance with sanctions. Furthermore, it would reduce the exposure of Western companies with ties to Russia to massive civil lawsuits in Ukraine to compensate victims. In other words, the proposed approach would make it easier for Western companies to withdraw from Russia…
They acknowledge that Russia can still find trading partners for certain products, such as oil exports to China. But a blanket embargo on trade with Russia means that all alternative trade takes place under the cloud, and as a result, all alternative trading partners must be able to buy Russian oil at lower prices.
For those seeking further background on the use of economic sanctions as a policy tool, I recommend two articles from the Winter 2023 issue: Economic Outlook Journal (where I work as an editor) I suggest the following as a useful starting point:
- “Economic Sanctions: Evolution, Consequences, and Challenges,” by T. Clifton Morgan, Constantinos Syropoulos, and Yoto V. Yotov
- ““Financial Sanctions, SWIFT, and the Architecture of the International Payment System” Marco Cipriani, Linda S. Goldberg, Gabriele La Spada
