Photo illustration by John Lyman

Longform

/

Will Sanctions Stop Russia? Not Likely.

Russia’s invasion of Ukraine is the zenith of a long series of actions taken to continue the territorial split of its neighbor, thereby weakening the West’s support of integrating the latter into the Western sphere of influence. The destabilization of Ukraine started with the annexation of Crimea, where Russian President Vladimir Putin exploited and exacerbated the ethnolinguistic divide between Ukrainians and Russians by creating and supporting separatist movements.

To make this happen, the Kremlin used a well-known foreign policy tool: local separatism. Once the insurgents claimed independence, Russia uses the territory to expand its influence abroad while using the existence of ethnic Russian populations as an excuse. A case in point is Russia’s support of the secessionist territory of Transnistria, which has weakened Moldovan sovereignty and affected its integration with Western Europe.

Thus, it can be argued that Crimea’s annexation was pivotal for Putin’s strategy vis-à-vis Ukraine. Fundamentally, most of the ethnic Russian population provided a perfect pretext for Russia to get involved. Moreover, the location of a former Russian military base on the peninsula provided a military advantage to supply Russia with significant operational capacity in the immediate vicinity and increase defense capabilities. Finally, notwithstanding the sanctions, mainly from the United States and the European Union, the Kremlin decided to advance with its operations to destabilize Ukraine. Thus, sanctions became the number one tool for dealing with Russia’s aggression. Sanctions also became a defining aspect of Russian-Western relations.

Therefore, what makes this case crucial, valuable, and interesting, is its exceptionality and complexity. Russia, at that time, was the sixth-largest economy in the world, and, considering its critical role as an energy supplier and exporter of crucial raw materials, some international actors, including the EU, were constrained in applying sanctions.

Ukrainian soldier in the suburbs of Kyiv.
Ukrainian soldier in the suburbs of Kyiv shortly after Russia’s invasion. (Daniel Berehulak for The New York Times)

Notwithstanding the refurbishment of weaponry to the Ukrainian army and shelter for Ukrainian refugees, sanctions will remain the primary foreign policy tool against Russia. For this reason, this essay focuses on the impact of sanctions on Russia after the annexation of Crimea.

Sanctions seek to restore the status quo and change the target’s political behavior and deter future actions. Likewise, sanctions seek to cause regime change by removing the transgressors, condemning unacceptable behavior, and reasserting international norms.

Analysis

To begin with, throughout 2014, numerous countries such as Albania, Australia, Canada, the European Union, Iceland, Japan, Montenegro, Norway, Switzerland, and the United States have issued sanctions targeting travel and visa restrictions, financial restrictions, the freeze of assets, technology and weapons, sanctions on individuals, and so on. Consequently, several Russian banks have been restricted from raising money and carrying out business in sectors that are vital for the Kremlin, namely, deep-water shale projects in the Arctic.

In the case of the EU, the goal has been promoting a change within Russia’s actions regarding the situation in Eastern Ukraine. The U.S. has been less explicit about its goals, but it can be assumed that they more or less align with the Europeans. One thing is clear though, Western powers have tried to coerce Russian policy. Moreover, the EU used its sanctions as a strong warning of the consequences of invading another country. This means, that for Russia, to threaten or violate the territorial sovereignty of any other state will bring heavy costs.

Sanctions seek to restore the status quo and change the target’s political behavior and deter future actions.

The first two propositions suggest that the consequences and impact of the sanctions should have prompted Russia to reconsider its actions and, therefore, abandon its foreign policy goals and return to the status quo.

As a matter of fact, the impact of sanctions on Russia has been significant. Despite Russia’s large cash reserves, which cushioned the financial impacts in the short term, global oil prices plummeted, and banks were in deep trouble unable to access foreign capital, so vital for Russia’s economy. Unsurprisingly, Russia experienced high inflation.

Importantly, the embargo on gas and oil technology could have also been a big game changer for the Russia-Ukraine war considering how reliant the country is on foreign expertise for deep offshore and fracking operations. Russia tried to correct this issue with Chinese investments. Although Chinese investments are not free capital because they only serve Chinese interests.

Likewise, it is challenging to remain military competitive without access to trade and global networks of technology. However, even if access to military knowledge and trade had not gotten banned, low oil prices would have still made it difficult for Russia. In fact, oil contributed half of Russia’s government earnings and two-thirds of overall exports. No other export industry could compensate for such loss considering oil corresponds to 80% of Russia’s hydrocarbon earnings. Thus, sanctions coincided with a drop in world oil prices which contributed to aggravating Russia’s economy.

Furthermore, regarding EU food imports, Putin replaced European and U.S. brands with other brands. Consequently, many products, such as fruit and vegetables, came from Macedonia and Iran. There are other economic costs that the EU had to absorb, for instance, the ban on military exports cost France €1.2 billion in contract to supply Russia with amphibious assault ships. In any case, the EU’s economy could easily resist such losses.

Nevertheless, Russia started to shift toward import substitution in terms of food policy and technology. This policy was not only supported by the people but also by big agro-holdings that became strong lobbyists.

Importantly, despite the sanctions and low oil prices, the International Monetary Fund expected that Russia would grow again in 2016. Precisely, during the global financial crisis in 2008, the country experienced a dramatic recession.

GraphAs can be seen, the largest drop happened in 2008 during the global financial crisis, which meant a stop to years of bonanza owing to the 2000s commodities boom. Subsequently, the economy improved until the annexation of Crimea in 2014. Notwithstanding these, Russia started to grow again (not more than 3%), and the state enlarged its role in the economy. However, the growth lasted until the global pandemic and oil crisis in 2020.

Very importantly, while sanctions meant that each party imposed significant losses on the other, economic warfare avoided the flow of oil and gas from Russia to Europe (up to 2013, the state company Gazprom got 58% of its gas revenues from the European market).

Sanctions seek to cause regime change by removing the transgressors and reasserting international norms.

Sanctions were meant to inflict discomfort in society which would have prompted the Russian people to exert pressure on Putin and the Kremlin. However, a closer look at Russian society can help us understand why sanctions did the opposite.

To begin with, the U.S. and EU-led sanctions inspired patriotism and nationalism in many Russians. The economic sanctions helped the government mobilize its citizens. The Kremlin had a clear-cut visible enemy to blame for economic problems. Therefore, despite the attempts of the coordinated efforts between the U.S. and the EU to adopt ‘smart sanctions,’ namely, sanctions that do not target the public but oligarchs, officials, and the elite, support and Putin’s popularity increased and remained above 70% throughout 2014-2015.

Ukrainian civilians fleeing Russian shelling
Ukrainian civilians fleeing Russian shelling at the beginning of the war.

Thus, Putin was able to increase his influence on elites and ordinary citizens. On the one hand, because sanctions made it difficult to get funding from abroad, the state increased its economic role in nationalizing companies. On the other hand, Putin helped his wealthy allies by offering credit lines and obtaining their support. Notably, he was able to increase the legitimacy of the regime.

However, the sanctions and low oil prices meant a widespread punishment on the Russian economy and the population given that the government had to make budget cuts. Yet the Kremlin secured support from its key supporters. Therefore, not only the people became “patriotic” but also became more dependent on the state for support.

Economically, despite the initial hit, the sanctions pushed the Kremlin toward autarchic growth and the development of alternative economic institutions. Politically, Russia shifted its diplomatic strategy toward the East. Thus, Russia expanded not only ties with Asian countries like India, Vietnam, and North Korea but also with the BRIC countries (Brazil, India, China, and South Africa) and with members of the Shanghai Cooperation Organization. Because Russia did not remain diplomatically isolated but actively expanded its ties with other countries, the relationship with these countries helped mitigate the political and economic impacts of sanctions.

***

The sanctions against the Kremlin because of Crimea have been short in scope. And even though the sanctions coincided with low global oil prices, the impact on Russia has been significant but low and short-term. Moreover, because of these, Russia has protected several sectors by increasing the presence of the state in the economy.

Likewise, the sanctions offered an opportunity to expand the current administration’s influence on the elite and society. Thus, the sanctions helped legitimize the seizing of Crimea and the regime: it provided a hostile foreign enemy as a scapegoat. Therefore, sanctions failed to generate pressure on the regime.

Furthermore, sanctions did not stop Russia’s aggressions, nor did they change Putin’s foreign policy goals. Perhaps they initially constrained the Kremlin from seizing more territory, yet the aggressions continued by focusing on aiding rebels in Eastern Ukraine. However, Russia has demonstrated that it is resilient but at the expense of economic growth.

Importantly, if sanctions need to be multilateral in nature to be effective, this is difficult to achieve in the case of Russia. Russia is a major power and because it sits on the UN Security Council, it is not subject to UN sanctions. The particularity of Russia, the raw materials, and the global supply of gas and oil make it attractive to third parties to continue to trade with by buying crucial commodities below the global market price.

Additionally, the overuse of sanctions on behalf of the United States and the EU might have prompted Russia and other countries to invest in plans that make sanctions less painful. Considering that sanctions illustrate the power of the U.S., up to this point, not only to isolate a target from the global financial system but also to coerce other countries to comply with these, it is not surprising that increasingly more countries started to seek new ways to avoid them.

Thus, Russia, together with the BRICS, were encouraged by the sanctions to create their own financial institutions, build domestic financial-payment systems as an alternative network, and be able to conceal transactions. In other words, Russia was encouraged to decouple from the U.S.-led economy and financial system to avoid further vulnerabilities.

What sanctions have achieved is sending the message that it is necessary and important to uphold international norms and universally condemn Russia’s unprovoked invasion. However, considering the attempts of Russia and other major countries to decouple from the U.S.-led economic order, it will increasingly be more difficult to uphold international norms and bring them back to the status quo.