Economic Sanctions on Russia: Ineffective or Insufficient?

Russia had of course already invaded Ukraine back in 2014, but in February 2022 it dramatically escalated the earlier invasion.

The U.S. and Ukraine’s allies met Russia’s invasion two years ago with an unprecedented set of sanctions. They put a price cap on Russian oil exports, froze $300 billion worth of Russian foreign exchange reserves, and severed many of the links between Russia’s financial institutions and the rest of the world.

However, Russia’s economy seems to be doing pretty well. The IMF recently estimated economic growth in Russia of 3.2% this year. Russia seems to have found alternative pathways to export its oil and to buy imports, and the government has been stimulating the economy with higher defense spending in response to the war with Ukraine.

So have the economic sanctions against Russia essentially failed? Or do they need to be strengthened and redoubled? The Brookings Institution held a seminar on this subject in May, with nine experts presenting various views. (The quotation above is from the Brookings website, introducing the symposium). For example, one perspective is that if Russia was more connected to the international financial system, it might be easier for capital to flee Russia’s economy–which could be more painful to Russia’s power structure.

Here, I’ll focus on two of the essays with opposing views. Peter E. Harrell asks, “Has the US Reached `Peak Sanctions’?” As he notes, sanctions have become very popular foreign policy option. After all, they offer at least the appearance of doing something forceful, but without using military force, and while appealing to protectionism and anti-global instincts:

The last decade has been a golden age of sanctions. The U.S. dramatically expanded the number of people, companies, and foreign government instrumentalities it sanctions each year: In 2022 and 2023 the U.S. imposed more than three times as many sanctions annually as it did a decade earlier. U.S. export controls show a similar trend. By the early 2010s, sanctions had become a tool of “first resort” for a dizzying array of international policy problems from the Iranian nuclear program to global human rights abuses. Sanctions policymakers have been remarkably innovative, designing new ways to target trade and financial flows. The question today is whether the popularity and utility of these measures will continue or whether we have reached “peak sanctions” and will see a future of declining impact, even if the measures remain politically popular.

The sanctions do seem effective when targeted at changing the behavior of individual companies, and the effects of sanctions can be see in trade flows. But when it comes to whether sanctions can actually achieve foreign policy goals, the effectiveness is pretty mixed. Sanctions against Russia, Iran, Venezuela, and China–or over the long-run, sanctions against Cuba–haven’t noticebly altered the policies of those countries.

Harrel notes: “Political scientists and historians consistently find a sanctions success rate of around 40%.” But that partial success rate is based on historical data, and the more recent wave of sanctions seems less effective.

Rhetoric like “maximum pressure,” “crippling,” and “harshest ever” sanctions, combined with promises that sanctions can bring about profound changes in adversaries’ behavior at little or no cost to the U.S., set unrealistic expectations and make it hard to change course even when, as with Cuba, policy has objectively failed. Much as American leaders have learned to avoid over-promising military interventions, political leaders should not over promise the outcomes of the economic weapon.

On the other side, perhaps tightening sanctions against Russia still farther could have a greater effect. For example, Harrell discusses “secondary sanctions,” where the US and its allies would not just sanction Russia, but would also sanction any other country that was helping Russia get around the sanctions with its own trade or commercial ties. In this spirit, Torbjörn Becker and Yuriy Gorodnichenko argue “Time for a complete ban on economic ties with Russia.” They write:

[T]he sanctions imposed on Russia so far have been numerous (more than 4,500 entities and 11,500 individuals) and introduced over a long period of time. This makes the monitoring and implementation of sanctions complicated. The delayed implementation provided Russia with more time to adjust to and circumvent sanctions, while the effects of sanctions have been spread over time, often with a significant lag. The argument that has been used for this approach to sanctions is that the West should avoid the use of “nuclear” options; keep some sanctions “powder dry”; and avoid “high costs” in the sanctioning countries. Unfortunately, the slow pace, complex regulations, and patchy enforcement of implementing serious sanctions have provided Russia with some economic breathing space and thus blunted the effectiveness of sanctions.

They argue that the existing sanctions are working better than economic statistics from the IMF or the Russian government reveal: for example, Russian inflation is probably considerably higher than the officially announces 7% rate. They propose that Russia should get the North Korean treatment: that is, a ban on all trade, with a few limited exceptions for food and medicine.

Exports to Russia from the EU countries, for example, have fallen by half as a result of the existing sanction–but that still leaves half. A few hundred Western companies have left Russia, but a few thousand remain. Becker and Gorodnichenko argue that a complete ban, with a limited number of small exception, really can plug many of the loopholes in the existing trade sanctions with Russia. For example, they write:

The “full sanction” mode also allows Western companies to get out of contractual obligations with Russia. In a nutshell, the companies can claim force majeure and cancel their contracts with Russian counterparties. Western laws (e.g., the U.K. Sanctions and Anti-Money Laundering Act 2018) typically stipulate that companies cannot be held liable if their act of not meeting contractual obligations is in compliance with sanctions regulations. Furthermore, it will reduce the exposure of Western companies with Russian connections to mass civil legal action to compensate victims in Ukraine. In other words, the proposed approach would facilitate the exit of Western companies from Russia …

They recognize that Russia will still find trading partners for certain products: for example, exporting oil to China. But that said, a full embargo on trade with Russia means that all of the alternative deals happen under a cloud–and all of Russia’s alternative trading partners should be able to buy Russia’s oil at lower prices as a result.