Sanctions and the Costs of Russia’s War in Ukraine

Steam rises from the cooling towers of the lignite-fired power plant in J'nschwalde, Germany, Tuesday, April 5, 2022. On Tuesday, the European Union’s executive branch proposed a ban on coal imports from Russia over its war in Ukraine. (Patrick Pleul/dpa via AP)

Russia’s invasion of Ukraine has wreaked havoc and devastation on Ukraine and its people, while also posing a major threat to wider European security and sovereignty. The international community’s response, and that of the West in particular, has centered first and foremost around the use of autonomous (or unilateral) sanctions. All the while, the United Nations Security Council, which counts on Russia as one of its five permanent members, sits redundantly in the face of the conflict, accentuating the crisis in global governance of recent years.

Concerns over international sanctions—imposed by the likes of the United States (US), the European Union (EU), the United Kingdom (UK), Canada, Australia, Japan, and Switzerland against a growing range of Russian targets—centers around a set of key questions. Will they “work”?  What impacts will they have on the economies of Russia and others worldwide? Can they slow down, or halt, the Russian war machine? Can the more punitive aspects of these hard-hitting measures translate into concrete political change on the ground? Can their unintended consequences, such as those of a humanitarian nature, be mitigated?

Unprecedented Threat, Unprecedented Sanctions

While international sanctions against Russia have not quite (or yet) reached the breadth of some of the strictest contemporary sanctions regimes elsewhere in the world (think Iran, North Korea, Syria, Cuba, or Venezuela), they are still unparalleled on a number of levels. 

First, an economy of the size of that of Russia—highly integrated into world markets, a G20 member, and a leading energy supplier—has not been targeted through sanctions to this extent before. Shockwaves are already being felt around the world in light of fuel, fertilizer, and food price rises linked to the combined impacts of sanctions and the war. Financial markets, industrial production, and supply chains have taken a severe hit. Costs are inevitable on all sides of the equation.

Second, this is the first time that the central bank of a major economy has been sanctioned. While many spoke of SWIFT sanctions as the “nuclear option”—itself a dramatic move of last resort that will deal a heavy blow to Russian economic interests into the longer term—central bank sanctions have the potential for hitting even harder, in that all banking transactions to and from the country are impacted. Likewise, the large—and growing—number of other Russian banks now designated under Western sanctions regimes also marks a relatively novel, and more punitive, direction for the tool’s use. The Russian economy is expected to face the biggest fall in GDP since the collapse of the Soviet Union in spite of the raft of sanctions-proofing economic safeguards taken by President Putin. Not to mention soaring inflation, capital flight, and possible debt default. The full economic impact of the war and sanctions could take months, if not years, to reach full force.

Third is the never-seen-before mass voluntary boycott of Russia by hundreds, if not thousands, of international companies. The retreat of luxury goods firms and fast-food chains deals a major public blow to the Russian government—heightening the sense of a united global political front condemning Russia’s actions. Yet the withdrawal of firms dealing in technology, agricultural goods, non-essential pharmaceutical products, and remittance services, has the potential to impact a broader swathe of the Russian population in a more significant way, not just its elites. Whether this will translate to pressure exerted on President Putin by the Russian people remains to be seen.

Fourth, this marks one of the rare occasions where such broad and hard-hitting sanctions are imposed against a country that is able to retaliate in a number of meaningful ways. Russia has long used its own restrictive measures (such as halts to gas exports and controls over agricultural imports as punishment to former Soviet states for closening EU or NATO ties). A continued use of Russian “countermeasures” is thus to be expected. The hybrid threat associated with the use of disinformation is also a key feature of the conflict, including in relation to notions of legitimacy surrounding sanctions use.

More importantly, though, Russia is a country that has made documented use of retaliatory chemical weapons and cyber-attacks against adversaries, not to mention President Putin’s use of veiled nuclear threats. The fact that the West is still willing to employ its favorite economic weapon with such vigor, in spite of these risks, demonstrates the severity of the situation and the strategic importance that is placed on these ever-popular tools of foreign and security policy.  Indeed, doing nothing, or not doing enough, could lead to an emboldened Putin, willing to repeat his actions elsewhere in Europe.

Fifth, these sanctions appear to mark a turning point for the EU in its use of sanctions. The bloc, which for over twenty years has tended to follow the US’ lead in its use of autonomous sanctions, has often acted as a softer, and more dovish, counterpoint to the US’ more assertive sanctions stance. This divergence in approach reached a climax under the Trump presidency; widely criticized for its more hawkish use of sanctions designed to cripple target countries’ economies under the “Maximum Pressure” campaign. The approach—coined the “naïve” approach to sanctions by the Norwegian sociologist Johan Galtung in 1967—was met by consternation and criticism by international observers, including by those in Europe. Especially as many decades of sanctions scholarship have shown that crippling sanctions rarely, if ever, help to bring about sanctions’ stated policy objectives. Instead, studies suggest that something of a middle ground [i] in sanctions severity tends to render more favorable results.

In spite of this, the EU now appears to be aligning more closely with the US’ trajectory, marking a return to measures that approximate full-blown embargoes but with a modern twist. Whereas the EU formerly pushed for highly targeted sanctions regimes, some of their recent packages of restrictive measures have included broad sectoral measures, such as in the cases of Iran and Syria.  Russia represents another step on this gradual path of “re-comprehensivization” [ii] of modern sanctions regimes. Except this time, EU narratives have started to approximate Trumpian language. European Commission President Ursula Von Der Leyen recently spoke of “crippling sanctions” that “maximize pressure” on Russia and seek to “solidify the complete isolation of the Russian financial sector from the global system.” Similarly, EU parliamentarian Guy Verhofstadt—frustrated at the slow pace of EU sanctions adoption—called for “full sanctions against Russia” (receiving 513 votes in favor, versus 22 against, and 19 abstentions).

Finally, the measures are also unusual in terms of the speed with which they have been agreed to date (a matter of weeks) and novel forms of international coordination driving their design and enforcement. The EU and G7, for example, rapidly formalized the joint Russian Elites, Proxies, and Oligarchs (REPO) Task Force to coordinate financial sanctions against kleptocrats’ assets. Such a move pays heed to earlier recommendations by this author in a recent article, arguing that the efficacy of autonomous sanctions could be heightened through closer joint coordination and monitoring. Also notable are recent discussions on both sides of the Atlantic on whether frozen oligarchs’ assets could be used to support Ukraine. If successful, such a move would draw on similar actions, albeit with distinct legal underpinnings, in the cases of Afghanistan and Iraq, as well as drawing from law enforcement cases.

Ask Not if the Sanctions “Will Work”

The question of sanctions’ efficacy is at the forefront of debates on sanctions against Russia, yet it is a challenging one to unpack. First, sanctions do not operate in a vacuum in any given crisis. As a result, it is notoriously difficult to demonstrate causation over correlation with any confidence in isolation of other factors at play. Second, we are rarely able to unravel the invisible or less visible impacts of sanctions (e.g., what decisions have been made behind closed doors in light of the pressure targets exert). Third, there are multiple purposes at play in any given sanctions regime. Studies carried out by the Targeted Sanctions Consortium, for example, suggest that they can be more useful in signaling displeasure or disapproval towards a target than bringing about a change in behavior or constraining access to vital resources.

Studies that seek to assess sanctions’ effectiveness suggest low “success” levels overall. This is not to say that they don’t play a useful role in some contexts, however, particularly if combined judiciously and strategically with other areas of diplomacy and mediation. Indeed, contrary to popular misconceptions, sanctions have contributed to positive changes in a range of areas around the world, including conflict resolution, sustaining peace, human rights, counterterrorism, and dismantling criminal networks. These “successes” are often lower-profile, more piecemeal, or more temporary in nature, rather than the dramatic changes of behavior often anticipated by the general public, however.

What does earlier sanctions scholarship teach us about trends in the Russian context? First, sanctions imposed against countries that are more integrated into the world economy tend to be more effective, as are those imposed through a large coalition of actors. Second, sanctions against countries unable to forge viable new trade or financial ties (to fill gaps that may have been left by the sanctions) can also show greater levels of success. Third, sanctions applied swiftly are also typically more effective. These factors bode well relatively for the Russian case, where a broad raft of measures have been applied with lightning speed by a large coalition of actors, in comparison to other sanctions regimes around the world, which have taken years, if not decades, to evolve to a similar level of breadth and depth.

On the other side of the coin, sanctions against autocratic governments tend to be less effective, particularly when their leaders are driven by ideological motives and are able to control state media. In such cases, propaganda or disinformation can promote the idea of a common enemy and can scapegoat economic woes (such as those caused by war or exacerbated through corruption or economic mismanagement) on sanctions’ impacts. Those imposed against leaders with delicate egos can also be less effective, due to the overwhelming need to save face or demonstrate an image of strength in the face of adversity. Strategic communications on sanctions are vital, therefore, including in relation to objectives and the mitigation of unintended consequences. Psychology should also play a more important role in sanctions planning, as argued by UK international relations scholar, Dr. Jamie Gaskarth, in a recent talk to the Geneva International Sanctions Network.

Seeking to hit the Russian war machine where it most hurts and ensuring a strong punitive angle to the measures is currently the name of the game. Whether this translates into some form of notable change on the ground in Ukraine remains to be seen, particularly when oil and gas exports continue to generate some USD 1 billion per day for the Russian economy. But on this note, one thing is clear: economic pain does not necessarily equate to political gain and the two should not be conflated. Former North Atlantic Treaty Organization (NATO) Supreme Allied Commander, Philip Breedlove, alluded to in this in a recent interview:

“In the West when we deal with Putin, it’s almost always completely in sanctions—sanctions, additional sanctions, wider sanctions, special sanctions, extra special sanctions, magnificent, incredible sanctions… Sanctions have hurt Russia. They’ve hurt the Russian people. They’ve hurt the Russian economy, but they have never changed Mr. Putin’s actions… We’re going to have to do more than sanctions to change Mr. Putin’s behavior… What Mr. Putin responds to is force.”

This statement highlights what sanctions scholars have known for many decades: that sanctions do not serve as a cure-all solution, or a silver bullet capable of rapidly bringing about spectacular policy changes. Instead, they are but one part of a larger strategic toolkit. While sanctions can be useful in helping to achieve certain (often modest) aims, they need to be combined advantageously with other instruments (think defense, diplomacy, mediation, humanitarian action, trade, peacekeeping, and referrals to legal tribunals). Our studies on earlier US and EU sanctions against Russia (conducted by a multidisciplinary team of researchers based at the Graduate Institute, Geneva) showed that the effectiveness of the sanctions was sometimes compromised through conflicting policy actions (e.g., EU member state trade visits to Moscow at the same time as new restrictive measures were being agreed).

Advocates could argue that international sanctions adopted against Russian targets have been “successful” in a number of modest ways so far. They help to convey an emphatic message of disapproval and condemnation of Russian aggression in Ukraine. They contribute significantly to the raising of costs of the war and depriving the Putin government (particularly into the longer term) of vital resources required to continue engaging in the conflict. They allow for a highly visible show of unity among many in the international community, particularly in the absence of a UN-led response. Whether they will eventually allow for more ambitious political aims to be realized as well, such as halting the war, will depend heavily on the way in which other instruments of statecraft are used in parallel and whether harmful unintended consequences can be minimized.

Mitigating Unintended Economic and Humanitarian Consequences

Safeguards are needed to mitigate domestic economic costs if political support for the measures is to remain intact. In our study exploring impacts of 2014-2016 Russia sanctions on EU economies, the results surprised us. Those member states that, at the time, most opposed the adoption or renewal of sanctions within the EU (such as Italy, Cyprus, Greece, and Hungary) [iii] were among those who lost the least in terms of reduced export revenues. In contrast, those most supportive of the measures, including the Baltic States and Poland, lost the most. Many of the initial economic shocks linked to a drop in trade with Russia were rapidly addressed through the forging of new trade links. The EU also sought to financially compensate those hardest hit, such as in the agriculture sector. The situation today is distinct in terms of the reach and breadth of the measures adopted, of course, but these early trends highlight how political support for sanctions in any given country or international organization, does not always equate to costs borne (and that some of the costs can be mitigated if addressed at an early stage as part of the sanctions design process).

Humanitarian safeguards are also essential. If normal Russians are unable to access formal banking channels, or remit funds home to their families, they will soon join other “unbanked” swathes of the world, unable to access certain essential goods. While political momentum and compliance complexity push companies and banks to de-risk and over-comply with sanctions, care should be taken that their mass retreat from Russia does not feed into Putin’s narrative that Russia is under the attack of the West. Indeed, many of Russia’s growing and impeding woes will be blamed on sanctions. Broad standing licensing exemptions and clear guidance from governments on what is and is not allowed under these multiple, overlapping, and fast-changing sanctions regimes will be key in mitigating some of these challenges, as will steps to reduce de-risking behavior that can serve to amplify financial exclusion and reduce resilience among vulnerable communities.

While future outcomes remain uncertain, one thing is sure: the Russia case marks a new page in global sanctions practice yet lessons from earlier cases could help increase efficacy and minimize costs.

[i] Thomas Biersteker & Marcos Tourinho “Have UN Targeted Sanctions Worked?” in Sebastian von Einsiedel and George Lopez (eds.) The Sanctions Enterprise: Assessing a Quarter-Century of UN Action for Peace, Security and Human Rights (Cambridge: Cambridge University Press, 2017).

[ii] Moret, Erica “Part I, Chapter II: Unilateral and extraterritorial sanctions in crisis: implications of their rising use and misuse in contemporary world politics” in Research Handbook on Unilateral and Extraterritorial Sanctions. (Edward Elgar Publishing, 2021).

[iii] See also Moret, Erica & Shagina Maria “The impact of EU-Russia tensions on the economy of the EU” in Kulesa, Lukasz, Timofeev, Ivan & Dobbs, Joseph (eds.), Damage assessment: EU-Russia relations in crisis, Chapter 2: 17-24, (London: European Leadership Network, 2017).

Erica Moret is Senior Researcher at the Global Governance Centre and the Geneva Centre of Humanitarian Studies at the Graduate Institute for International and Development Studies (IHEID) and also serves as coordinator for the Geneva International Sanctions Network and independent advisor to the UN and EU.