Perspective 88. Sanctions on Russia: Are They Effective?

Since Russia invaded Ukraine, Western powers have invoked a broad range of economic sanctions on Putin’s regime. But considering past history with sanctions, do these measures have any chance of success?

Yes. As the international economy has become increasingly interdependent, vulnerability of even major powers to effective international isolation has also grown.

In perspective, the common wisdom in international relations theory used to be that sanctions were a big disappointment. This was prevailing doctrine back in the dark ages when I was a student. The League of Nations began with great hopes that economic warfare could replace the actual clash of weapons. Yet attempts to impose sanctions on the miscreants of the age – Italy, Germany, Japan – flopped badly. Attempted sanctions often hurt the sanctioners as much as their targets, sanctions were used by rogue regimes to rally their publics, and where sanctions had an impact it was on the entire population more than the culpable despots.

But today’s international economy is worlds apart from that of almost a century ago. Some indication of this could be seen in the use of sanctions against the apartheid regime of South Africa in the 1980s and 1990s; economic measures played a large role in the transition of that nation to majority rule. The key was that nation’s isolation, its dependence on international trade and finance, and the cooperation of the rest of the world in observing the imposed sanctions. Sanctions have also been useful in cutting off needed cash flows to outlaw movements like al-Qa’ida.

When Russia invaded Ukraine, the first set of sanctions (prepared in advance) led to an immediate drop of the Russian stock market by a third, and the value of the ruble fell through the floor. Russian GDP has dropped by an estimated 3-5 percent, which doesn’t sound like much, but forecasts for the future project a further drop of 8-30 percent. Sanctions unfortunately do take time to have their full effect.

Assets held outside the country represent a great vulnerability in today’s world. An estimated $300 billion in Russian assets has been effectively frozen. The SWIFT system, key for moving money around the world, is now closed to Russian banks, a move described as a “financial nuclear weapon.” Over a thousand foreign companies have left Russia over the last year.

While Russia can probably stagger along without McDonald’s, this exodus of businesses and cut-offs of imports have crippled both civilian and military production there. Automobile and appliance industries have collapsed. The lack of important components has apparently had a drastic impact on production of sophisticated weapons needed in the war. Russia has had to pull antiquated tanks out of storage, and weapons captured in Ukraine have included semiconductors recycled from dishwashers and refrigerators.

Russia still earns enough in oil and gas revenue to finance its continuing war effort. But the move to cap the price paid for Russian oil demonstrates how changes in the structure of the world economy (despite the lack of cooperation from Saudi Arabia and other presumed allies) has created new vulnerabilities. In this regard, as well, time will work on the side of sanctions. As European efforts to reduce dependence on Russian gas bear fruit, this last revenue stream will be reduced as well.

It is regretably true that, as in other sanction cases, much of the pain will be borne by the general population. But this may in time undermine public support for Putin and his paranoid capers.

These realities of an interdependent world apply to other problem cases as well. It was economic sanctions, supported by most major powers including Russia and China, that brought Iran to the negotiating table in 2015. Hardliners in Iran attacked the deal signed by their own government, moaning that it crossed nearly all the red lines that Iran had vowed never to cross in limiting its nuclear activities. But the economic pain left little choice. Clearly the key to once again blocking Iran’s path to the bomb is to restore the international sanctions, pre-2015 model, that were effective then.