Why sanctions against Russia may not work
The unprecedented U.S.-led Western sanctions against Russia have been likened to economic weapons of mass destruction (WMDs) that would ultimately destroy the Russian economy. In reality, the sanctions are like a double-edged sword — they inflict pain on Russia but also impose costs on their imposers.
The West, in fact, is caught in a trap: The sanctions and the deepening conflict, by helping to raise global commodity and energy prices, translate into higher revenues for Moscow in spite of a significant decrease in its exports. And the higher international prices, by fueling inflation, mean political trouble at home for those behind the sanctions.
Look at another paradox: Despite Russia being cut off from the world’s financial arteries, the Russian ruble has dramatically recovered through state intervention. But, as if to signal that Japan is paying a price for following the U.S. lead on Russia, the Japanese yen (the world’s third-most-traded currency) has sunk to a 20-year low against the U.S. dollar, ranking this year as the worst performing of the 41 currencies tracked — worse than the ruble.
Meanwhile, the runaway inflation and supply-chain disruptions are threatening Western corporate profits, while the interest-rate hikes to rein in inflation make a bad situation worse for consumers. With economic trouble looming large, April became the worst month for Wall Street since the pandemic-triggered March 2020 plunge. The S&P 500 fell 8.8 percent in April.
In the first two months of the war in Ukraine, those imposing the sanctions ironically helped Russia to nearly double its revenues to about €62 billion from selling fossil fuels to them, according to a report of a Finland-registered think tank, the Centre for Research on Energy and Clean Air. The top 18 importers, with the sole exception of China, were the sanctions imposers, with the European Union (EU) alone accounting for 71 percent of the purchases of Russian fuels in this period.
While Turkey, South Korea and Japan also remain reliant on Russian energy supplies, the EU’s imports of gas, oil and coal from Russia totaled around €44 billion in this two-month period, compared with about €140 billion for the whole of 2021.
Russia, even as its economy takes a hit from the Western sanctions, is doing its bit to keep international energy and commodity prices high, including by cutting off gas supplies to Poland and Bulgaria. Moscow could raise prices further through broader counter-sanctions and yet manage to cushion its export earnings.
The fact is that Russia is the world’s richest country when it comes to natural resources, including serving among the world’s largest exporters of natural gas, uranium, nickel, oil, coal, aluminum, copper, wheat, fertilizers and precious metals such as palladium, which is more precious than gold and used largely in catalytic converters.
Through no fault of theirs, the real losers from the Russia-NATO conflict, sadly, are the poorer countries, which are bearing the brunt of the economic fallout. From Peru to Sri Lanka, rising fuel, food and fertilizer prices have triggered violent street protests, which in some states have spiraled into continuing political turmoil. The debt woes of many poor nations have deepened.
In employing the full range of its economic weaponry, the West sought to unleash “shock and awe” on Russia, as if to underscore that sanctions are a form of war. But like armed conflict, as Russia’s invasion of Ukraine illustrates, sanctions are unpredictable in shaping outcomes and often lead to unintended or undesirable consequences.
Squeezing a major power, especially one that has the world’s largest nuclear-weapons arsenal, with a raft of harsh sanctions is fraught with danger, especially as increasingly sophisticated and heavier Western weapons pour into Ukraine, with the United States also supplying battlefield intelligence, including targeting data.
Almost every day brings a fresh reminder that this conflict is not just about the control of Ukraine or its future status. Rather, this is a full-fledged new Cold War between Washington and Moscow, with Europe as the theater of the growing confrontation. President Biden’s strategy of Containment 2.0 against Moscow is designed to ensnare Russia in a military quagmire in Ukraine, trigger the collapse of the Russian economy and bring about the overthrow of President Vladimir Putin.
As the war has progressed, Biden has become bolder, including deepening America’s involvement in it. Biden’s implicit call for regime change in Moscow and his administration’s publicly declared goal of a “weakened” Russia, however, run counter to what the president said about two weeks into the war: “Direct confrontation between NATO and Russia is World War III, something we must strive to prevent.”
Unfortunately, there has been little American debate on whether sanctions can weaken Russia or whether the generous military assistance to Ukraine can really bog down the Russian military in a protracted conflict. What if, instead of a weakened Russia, a nationalistic backlash spawns a more militarily assertive, neo-imperial Russia?
After its initial missteps that resulted in heavy Russian casualties, Russia is now militarily focused on consolidating its control in the resource-rich east and south of Ukraine. Russia has carved out a land corridor to Crimea and gained control of regions that hold 90 percent of Ukraine’s energy resources, including all its offshore oil and much of its critical port infrastructure. The Ukrainian ports on the Sea of Azov and four-fifths of Ukraine’s Black Sea coastline are now with Russia, which earlier established control over the Kerch Strait that connects those two seas.
Can the flood of weapons the West is sending to Ukraine undo these new military realities? If Russia stays focused on narrow military objectives centered on establishing a buffer zone in the occupied parts of Ukraine’s south and east, it could avert a quagmire, while remaining free to continue systematically targeting military infrastructure across that expansive country.
Let’s be clear: Sanctions historically have worked better against small, vulnerable states than large or powerful ones. But they have rarely produced timely change. The current Western sanctions could take years to seriously hurt the Russian economy.
The irony is that, despite employing all possible coercive economic instruments against Russia and making it difficult to negotiate an end to the war, the Biden White House doesn’t believe that sanctions alone will work, which explains why it has increasingly turned to weapons supply, including asking Congress for a staggering $33 billion in additional military and economic funds to fuel the conflict and stymie Russian war objectives.
But the sanctions, by signaling the advent of a new era of U.S.-led unilateralism, are likely to weaken and ultimately even undermine the Western-controlled global financial architecture that they are meant to defend. The sweeping sanctions, by spurring broader concerns about the weaponization of finance and its implications for any country that dared to cross a U.S. red line, have created a new incentive for non-Western states to explore establishing parallel arrangements. China will not only lead this process but also is set to emerge as the real winner of the NATO-Russia conflict.
Biden’s belief that “this war could continue for a long time” is backed by Chairman of the Joint Chiefs of Staff General Mark Milley, who testified that he expects it to last years. But as the conflict drags on and the boomerang effects of the sanctions deepen the cost-of-living crisis, the divides in the Western camp will widen and “Ukraine fatigue” will set in.
The West will be left with little choice but to negotiate with Putin to end the conflict, as predicted by Javier Solana, a former NATO chief who also served as Spain’s foreign minister. Such negotiations will be vital to halt Ukraine’s destruction and avert Europe from paying the main price.
Brahma Chellaney is a geostrategist and the author of nine books, including the award-winning “Water: Asia’s New Battleground” (Georgetown University Press). Follow him on Twitter @Chellaney.
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