Sanctions against Russia for invading Ukraine are the most comprehensive imposed against a major power since the Second World War. But are they effective? They plainly have not deterred Russia from making war. But answering that question in a comprehensive way requires the distinction among four stages of effectiveness, including whether they prevent something bad from happening. The classic objectives of economic sanctions can be grouped similarly to the objectives of criminal justice: do they deter bad behavior, but also can they be enforced, are their punishments effective, and do they lead to changed behavior by the targeted countries? Deterrence, enforcement, punishment, and rehabilitation are classic objectives of criminal justice, and they apply equally to economic sanctions.
Although deterrence clearly failed to stop Russia’s aggression, the sanctions imposed after the Russian invasion of Ukraine could still deter other countries like China from undermining the sanctions. The sanctions may also deter China from carrying out its own aggressive acts against Taiwan. As for effectiveness, the sanctions have proven among the most powerful in modern history, largely because so many countries have gone along with them. The punishment to the Russian economy, and to rich and poor Russians individually, has also been extraordinarily severe. But nearly three weeks after Russia invaded Ukraine, there is not the slightest evidence that Moscow will change course and “rehabilitate” itself in the eyes of the West.
FIRST STAGE: DETERRENCE
As Sun Tzu declared 2,500 years ago, “The greatest victory is that which requires no battle.” Deterrence through threatened sanctions is a modern application of the general’s wisdom, and the first stage of effectiveness. On December 7, 2021, well before Russian President Vladimir Putin recognized the Donetsk People’s Republic and the Luhansk People’s Republic (carved out of Ukrainian territory on February 21, 2022), President Joseph R. Biden, Jr. threatened “high impact” sanctions but did not make a public commitment by disclosing specifics. Unfortunately, Western threats failed to convey the extent and certainty of sanctions awaiting the Russian invasion.
Many experts argue that if President Biden and European leaders had declared in advance, in public, and in detail the path-breaking sanctions now imposed on Russia, Putin might have reconsidered. But advance threats from Washington and European capitals were ambiguous and deterrence failed, perhaps because Putin grossly underestimated not only Ukrainian opposition but also the worldwide condemnation and punishment evoked by the invasion. The size, speed, and sweep of existing sanctions—supported not only by the United States but also by the entire European Union and several Asian allies—are exceptional. It is entirely possible that Putin was unreceptive to Western threats leading up to the invasion because unified and damaging sanctions against Russia have little historical precedence.
Moreover, except for canceling the Nord Stream 2 gas pipeline from Russia, Western economic sanctions, including the freezing of Russian central bank assets, have exempted sales of fossil fuels. Crude petroleum, refined petroleum, and petroleum gas constitute roughly 35 percent of Russian exports, while all fuels and minerals make up 59 percent of exports. Putin clearly believed that his economy could easily weather the fallout from his war and that Europe would not risk cutting off Russian gas and oil supplies. Perhaps threatening to hit Russia where it would really hurt—by sanctioning exports of fossil fuels—would have made an effective deterrent. But Europe’s energy shortages at the height of winter made an embargo politically impossible.
Despite their failure in deterring the invasion, current sanctions may serve future deterrence: Putin might, for example, desist from threatening Moldova, Finland, and Sweden (not members of the North Atlantic Treaty Organization [NATO]) in his quest for a grander Russian empire. As well, Beijing might draw a sobering lesson from the worldwide condemnation of Russia and reconsider military plans for eventual unification with Taiwan. China is more integrated with the world economy than Russia: Two-way Chinese trade was 36 percent of GDP in 2019 while two-way Russian trade, excluding oil and gas exports, was 25 percent. The prospect of Russia-style sanctions on China would entail a drastic fall in living standards.
SECOND STAGE: ENFORCEMENT
Once sanctions are authorized by the president or prime minister (or by the legislature), the next stage of effectiveness belongs to the domain of officials charged with implementation. In the United States, those are predominantly Treasury officials in the Office of Foreign Assets Control (OFAC), customs officials in the Customs and Border Protection (CBP) agency, and intelligence officials in the Central Intelligence Agency (CIA). Their task is to close inevitable loopholes in the shipment of goods, provision of services, and movement of money. Other members of the sanctions alliance— Canada, Europe, Japan, South Korea, Switzerland, and Australia—have parallel agencies and officials.
Smuggling and evasion accompany sanctions, since shortages drive up prices of target-country imports, drive down prices of its exports, and mark up the cost of transferring funds. Earnings from smuggling and evasion can be substantial. But given the sophistication of Treasury, CBP, and CIA officials (and their foreign counterparts), direct smuggling and evasion from the territory and financial institutions of the sanctions alliance should be limited.
More troublesome will be sanctions busting through the territory and financial institutions of neutral or friendly countries. In the UN General Assembly vote denouncing Russia on March 2, 2022, four countries sided with Moscow (Belarus, North Korea, Eritrea, and Syria), while 35 countries abstained, including China, India, and Pakistan. These countries are prime candidates for sanctions-busting transactions. They are logical destinations for Russian gas and oil sold at steep discounts, as well as sources of consumer and industrial goods shipped to Russia at high prices. State Department and Treasury officials are now trying to dissuade neutral countries from overt sanctions busting and may threaten secondary sanctions to back up their arguments.
China especially poses a threat to enforcement of sanctions. Under its new Anti-Foreign Sanctions Law, China bars its citizens from complying with foreign sanctions. As Russia imports approximately 68 percent of its computers, semiconductors, and smartphones from China, the Anti-Foreign Sanctions Law, if invoked, would allow Russia to evade the US Commerce Department’s export controls targeting its defense, aerospace, and maritime sectors. Indeed, US officials claim that Russia has already asked Chinafor military supplies.
THIRD STAGE: PUNISHMENT
The third stage of effectiveness is the extent of economic punishment visited on the target country. Rarely does deprivation exceed 10 percent of a target country’s GDP; in the great majority of sanctions cases over the past century, punishment has not exceeded 5 percent of GDP. Unlike many targets, Russia had a flourishing stock market and a convertible ruble before the invasion. Between February 20, 2022, just before Moscow’s recognition of the two ersatz republics, and March 11, 2022, the ruble collapsed from 77 per US dollar to 117 per US dollar, a drop of 35 percent. Shortly after the invasion of Ukraine, Russia closed its stock market. Rich Russians lost substantial paper wealth. Meanwhile, Western assets of Russian oligarchs were frozen, including mansions and yachts that could be identified.
More significant for ordinary Russians, the rate of inflation in 2022, forecast by economists polled by the Russian central bank, is expected to reach 20 percent, and the economy is forecast to drop 8 percent. More realistic, the Institute of International Finance, based in Washington, forecasts a GDP drop of 15 percent. The voluntary withdrawal of Western firms from Russia—over 300 at latest count—will deprive rich and ordinary Russians everything from McDonald’s to Mercedes. Russian firms will experience an acute shortage of spare parts and intermediate components as their Western suppliers depart.
By historic yardsticks, the economic hardship now inflicted on Russia ranks among the brutal episodes of modern times, far greater than the mild punishment inflicted for the annexation of Crimea in 2014. In recent decades, only North Korea, Cuba, Iraq, and Iran have suffered comparable losses from the imposition of sanctions. By singling out Russian elites, including Putin himself, for travel bans and asset freezes, Western leaders seek to penalize the Russian ruling class, but financial and trade freezes are bound to bring misery to the Russian masses.
Fearing escalation to the realm of nuclear war, NATO allies refused to declare a no-fly zone over Ukraine, but they have supplied considerable conventional weapons to Ukrainian forces in the form of small arms, anti-tank, and anti-aircraft missiles, plus expert advice on cyber war. All this amounts to a quasi-military component alongside economic sanctions, a familiar marriage from past episodes, including Cuba and Iran.
FOURTH STAGE: REHABILITATION
The fourth, most important, and most difficult stage of effectiveness is rehabilitation, or changed behavior by the selected country. Deterrence and rehabilitation are the twin goals of economic sanctions. The prospect of punishment is meant to inspire deterrence, while the actual imposition of punishment, coupled with strict enforcement, is meant to force rehabilitation. Following Putin’s invasion, rehabilitation would require removing all troops and tanks from Ukrainian territory and withdrawing recognition from the two new republics. As long as Putin remains a modern czar, those goals are unattainable. He has staked his political future and possibly his life on annexing Ukraine. The best that can be envisaged—and even this seems farfetched—is an agreed line of demarcation at the Dnieper River, leaving Kiev and eastern Ukraine under Russian control, but allowing western Ukraine to survive as an independent state.
Mediation by China or another third country has been mentioned. If Russia runs short on war materiel as it slogs through Ukraine, owing in part to the effectiveness of sanctions as punishment, a ceasefire might be negotiated, though prospects are slight. If that happens, swift and strong sanctions will deserve partial credit, but credit will be shared with quasi-military support provided to Ukraine from Europe and the United States, as well as the resolve demonstrated by President Volodymyr Zelenskyy and the Ukrainian people.
Since complete rehabilitation is unattainable as long as Putin remains in power, some commentators wishfully hope for regime change. Over the past century, regime change has indeed been the objective of more than 100 sanctions, with more than a third of them successful, but the successful episodes typically targeted small countries in chaotic conditions with weak internal security. Russia is a large country with historically strong secret police, now the FSB, successor to the KGB and the Okhrana. Hopes that oligarchs and army generals will stage a coup are vastly overoptimistic.
Popular protest seems another avenue for regime change, but numbers cited for demonstrations (mainly in Moscow) are too small to overcome an entrenched security apparatus. As of March 10, fewer than 20,000 Russians have been arrested for protesting, indicating that the total number of protestors may be under 100,000 in a nation of 145 million. As well, it is reported that tens of thousands of Russians have departed to Turkey and Central Asia. While both protestors and exiles reflect broad Russian sentiment against the war, they do not threaten Putin’s commanding position.
Threatened sanctions proved ineffective as deterrence. Enforcement by countries in the sanctions alliance should prove highly effective with respect to goods and finance originating in their territory and conducted through their companies. However, significant sanctions busting can be anticipated both by neutral countries and countries friendly to Russia. Soon the sanctions alliance will need to decide whether to augment diplomatic protests with secondary sanctions to discourage neutral or friendly commerce with Russia. This question finds antecedents in the Napoleonic Wars, when the United States played a neutral role but was subjected to economic and military pressure by Britain.
Punishment of Russia generally and especially the Russian elite has been swift and effective. On a punishment scale of 1 to 10, sanctions already imposed rate at least an 8. Few in the West, and even fewer in Russia, anticipated the massive blockade against trade (virtually everything except energy and humanitarian supplies), freezing of Russian central bank and private bank assets, freezing assets of oligarchs, and wholesale departure of Western firms. On top of sanctions already imposed, frozen Russian assets may be seized by alliance governments, the proceeds used to support Ukrainian refugees and reconstruction, and possibly to compensate alliance firms whose assets are seized by Russia.
In the end, rehabilitation remains elusive and, if partially achieved through a ceasefire and partition between west and east Ukraine, credit must be shared with quasi-military support for Ukraine and the country’s valiant armed resistance.
Once Putin recognized two ersatz republics and invaded Ukraine, harsh sanctions were inevitable. But as often happens, the record on effectiveness is mixed, if all four stages are considered. Against a strong and resolute adversary, military force, with all its risks, may be the only means to achieve rehabilitation.
Gary Clyde Hufbauer is a Senior Research Staffer at the The Peterson Institute for International Economics.
Megan Hogan is a Research Analyst at the The Peterson Institute for International Economics.
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