October 31, 2022
Rawi Abdelal and Alexandra Vacroux, Harvard University
Russia invaded Ukraine, first in 2014 and then again in February 2022. The United States and Europe—the West—imposed waves of sanctions on Russian individuals, firms, and the country itself. Six months into the West’s efforts to isolate Russia, it is reasonable to ask if sanctions are working.
But this the wrong question. What does “working” mean here? To assess the effectiveness of sanctions, we need to understand first what they were meant to accomplish—and then evaluate whether they have accomplished these goals, at least better than the available alternatives.
Sanctions are an instrument of statecraft like any other. They exist on a continuum of disciplinary tools that range from expressing displeasure in private conversations to wiping out possessions or populations. Sanctions are used when diplomacy—talking—is not enough but military engagement—shooting—is not (yet) an option.
The West has tried to engage Russia with diplomacy since the Cold War ended in 1989. Some years have gone better than others, but since President Putin was reelected in 2012, channels of communication have steadily narrowed. Military to military exchanges and the 18 bilateral presidential commissions ceased after Russia annexed Crimea in 2014. Dialogue became increasingly difficult in Track 1, 1.5, and 2 venues. Under the Trump Administration, mixed signals sent by the White House and Congress undermined the credibility of the United States and NATO as entities capable of rallying domestic and international resistance to Russian aggression. The insurrection at the U.S. capitol on 6 January 2021 almost certainly signaled to the Russian regime that the United States had entered an era in which the country was both deeply divided and obsessed with those societal divisions. The messy U.S. withdrawal of American forces from Afghanistan later in 2021 was taken by Moscow as evidence that the United States was no longer interested or able to protect non-treaty partners from further attacks.
Might the Russians have been deterred from invading Ukraine in February? On the one hand, the fact that they amassed troops and materiel along the long border beginning in 2021 and simultaneously intensified the crackdown on domestic opposition suggests that preparations for invasion had been quietly underway for months, if not years. On the other hand, we know closely connected political and business elites in Russia who believed up until the last minute that compromise was possible. In December 2021 Russia proposed draft treaties to the United States and NATO that would have barred Ukraine from ever joining the latter. These were dismissed as non-starters by the West, which argued that every country should have the right to choose its own alliances. Russian political elites seem to have expected that the West would come back with a compromise proposal to keep Ukraine out of NATO for a certain number of years; haggling over how long would, in their way of thinking, have eventually resulted in a negotiated solution rather than war.
We will not address here the question of whether that outcome would have been fair or acceptable to Ukraine—or indeed whether negotiating with a government that was threatening invasion as the alternative to some grand geopolitical settlement would have been appropriate. We mention it to point out that war may not have been inevitable. Had Russia grasped that the West could pull together to effectively isolate the world’s 11th largest economy, or had the West believed that talking to Russia about Ukraine without involving Ukraine was acceptable, war might have been avoided. It might be, as some have claimed, that Putin’s sense of manifest destiny would have driven him to seize at least parts of Ukraine anyway, but we have no way of knowing. What we do know is that there were other tools in the toolbox, but we chose not deploy them.
The West thus believed that acceptable diplomatic outcomes were undesireable or unattainable before the war began. But it was not prepared to order NATO forces to shoot directly at the Russian military. The threat of dire sanctions, followed by the imposition of sanctions emerged as the tools of choice. These are two different instruments.
Might the threat of sanctions have deterred Russia from invading Ukraine? Probably not. The Russians expected to be sanctioned, as they had been after Crimea. They expected to hear schoolmarmish condemnations followed by rather ineffectual sanctions on some economic sectors. They expected to be able to circumvent these sanctions in relatively short order with techniques that have proven to be effective since 2014. The Russians, however, were taken by surprise when the Federal Reserve Bank of New York decided to confiscate foreign exchange reserves that the Central Bank of Russia had been building up as a rainy day fund. Their astonishment is in itself surprising: if the West hoped to scare Russia into not invading Ukraine, one might have expected that the most dire sanctions on the table would have been articulated in a deep, wolfish voice. Instead, the Russians were threatened with being cut out of the SWIFT bank messaging system (inconvenient for sure, but not as bad as having your money taken). The surprise that the West could actually coordinate a freezing of foreign reserves abroad did impress the Russians, but by then troops were already moving West and expecting to take Kyiv in a matter of days.
The threat of sanctions did not stop the Russian invasion. What are the actual sanctions supposed to do against Russia, for Ukraine, and for the West?
Are the West’s sanctions against Russia signaling displeasure with the war in Ukraine? Yes.
Are the West’s sanctions punishing the Russian economy in general? Yes. It is becoming increasingly clear that the most important effect has been to rupture the supply chains that deliver imported inputs to Russian factories and firms. Over time, the economy may be able to find new suppliers or produce vital components domestically, but it is unclear that most Russian industrial firms – and their workers—can hang on long enough to see that day.
Are the West’s sanctions punishing individual Russian citizens? Yes. Russian airlines can no longer carry Russian tourists to many of the destinations they used to enjoy. Imported products are disappearing from the shelves as inventory dwindles. Employees of many of the over 1,000 international companies that pulled out of the country may find it hard to get new jobs as the economy shrinks. And now the West is debating blanket visa bans for Russians. It may be satisfying to ascribe collective guilt to 141 million people, but it is unlikely to make them feel guilty. It will, however, further complicate the lives of those in Russia who bravely oppose the war or the regime knowing that if need be, they can try to escape.
Are the West’s sanctions demonstrating solidarity with the regime in Kyiv and the people of Ukraine? Yes. And this is important. Russia is clearly the aggressor here. Putin has justified the war in a number of self-aggrandizing ways, lately by claiming that he is exercising Russia’s right to reconsolidate territory it once held. Russia does not have the right to own any of Ukraine, and the justifications it has put forth are ludicrous at best and criminal at worst.
Are the West’s sanctions depriving the Moscow regime of resources to pursue its strategic and military goals in Ukraine? No, definitely not. True, the first full quarter since the invasion dragged the Russian economy back to 2018 levels. The latest Central Bank projections suggest that Russian GDP will fall by about 5 percent this year, far less than the 8.5 percent predicted by the IMF in April. Russia may be spending over $300 million a day to fight the war. But it is earning $800 million or more every day from the sale of energy to Europe and the rest of the world. The war is expensive, but not prohibitively so. And if necessary, the Russians have already shown that they are prepared to spend less on other parts of the budget to continue funding the war.
Are the West’s sanctions against Russia galvanizing Russian citizens against the war and the Moscow regime? No. It is difficult to know what exactly is happening inside of Russia, now that travel there is impossible. The state-controlled media, which is nearly all that people can watch or listen to these days, emits a steady flow of propaganda to entice the public to support the war against the alleged (but imaginary) Nazis running Ukraine. Public opinion polling in an authoritarian state is highly problematic, given that expressing the “wrong” opinion can have serious consequences. Ambivalence about the so-called “special military operation” does seem to be rising. The number of Russian casualties, which could be as high as 70,000, is unknown and not discussed. Only when families begin burying their sons, husbands, and fathers will the reality of the war truly sink in. This is not going to happen soon given the Kremlin’s incentive to keep the bodies from getting home.
Could the West’s sanctions against Russian oligarchs mobilize their resistance in a way that could change the course of the war? That is simply not how power and money are related in Putin’s Russia. In many societies money buys power. In Putin’s Russia the relationship is the reverse. Power begets money. An oligarch (by which we mean a very rich person who collects rents, usually from a state-owned company) who comes out against Putin is an ex-oligarch. He will quickly lose not only his position, but also his houses, his yachts and cars, and possibly his freedom or his life. The Kremlin is probably eager for someone to try this so that they can be used to demonstrate what happens when you are thrown over the castle walls and into the moat.
Are the West’s sanctions against Russia making some citizens and governments of the West feel better about themselves? Yes. Is this good enough? Not really. If our objective is to help Ukraine “win,” which Ukraine articulates as pushing Russia completely out of Ukraine, then we are not doing enough. We have provided the Ukrainians with enough military equipment to keep the Russians from taking a lot more territory. But the Russian army and its irregulars are already dug into about a fifth of the country, and they have no intention of leaving. Sham referenda in which residents of Ukraine’s southeast voted to join Russia preceded the Russian president’s decrees formally to announce annexation of Ukrainian territory. Dislodging the Russians will require arming the Ukrainians a lot more. It may also require direct NATO involvement, which would be akin to starting World War III.
If our objective is to “weaken Russia,” as Secretary of Defense Austin claimed rather infelicitously after a visit to Kyiv, then we may be succeeding. But to what end? Even a weakened Russia can embed itself in Ukrainian territory, where it assumes it will outlast the feckless West. Time, the Russian political elites believe, is on their side. Moscow is betting that Western voters will not stand for higher energy prices, or colder houses, or politicians who “care more about Ukraine than their own people.” Meanwhile, Putin is not worried about Russian voters voting anyone out of office.
Moreover, a weakened Russia is not going to be interested in a stable and prosperous world order. As a pariah state, Russia may be even more dangerous than it is now. Russians assume that once imposed, sanctions will never be lifted. So there is not much left for Russia to lose by continuing to act as a spoiler for U.S. foreign policy, aiding and abetting disinformation campaigns during Western elections, and trying to foment polarization within and between Western countries. Yes, Russia will become more economically and geopolitically dependent on China. The Kremlin has already accepted the cost of this tradeoff.
The current outcome also is not good for the West. Europe will barely cope with the coming winter without Russian natural gas and oil—German regulators plan to impose rationing if the country cannot reduce gas use by 20 percent. The dollar will also suffer, gradually losing its dominance in the global financial system as countries build up foreign reserves less vulnerable to confiscation and alternatives to SWIFT. Previous efforts to cut countries out of global systems have targeted much smaller economies like Venezuela, North Korea, and Iran. Doing the same for a large player like Russia requires sanctions that will bite the sanctioner as much as the sanctionee.
The West’s sanctions on Russia in response to the war in Ukraine are delivering many effects. Some are problematic for the West. Many are bad for Russian political and economic elites, as well as ordinary Russian citizens. Those sanctions are also playing a role in reshaping the global economy and international financial architecture. The sanctions may well be the West’s best alternative as a reaction to a war that perhaps could have been avoided—relative to diplomacy or direct military engagement. But the question of whether the sanctions are “working” is vastly more complicated than has been acknowledged.
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Return to Money, Sanctions and International Law prompt.