In recent decades, Western financial sanctions have increasingly replaced military action. The example of Russia shows the limitations of this strategy.
Western sanctions against Russia became large-scale. They have not been weakened since Putin launched a full-scale war against Ukraine two months ago. The main reserves of the Central Bank of Russia are frozen. The country's oligarchs are trying to hide their wealth offshore. Western capital cannot actually be invested in Russia, and manufacturers of high-tech components have virtually stopped exporting them. Most Russian banks are now disconnected (or will soon be disconnected) from the Swift financial messaging network. More than 400 Western companies have left Russia. Russian coal is under embargo and pressure is mounting to extend the ban on oil and gas.
Yale University Professor Nicholas Madler in an essay for Wall Steet Journal recalls that in Warsaw US President Joe Biden said that “these economic sanctions are a new type of economic state-building that can do damage that is not inferior to military power.” At first, many expected that such devastating economic pressure would force the Kremlin to abandon the invasion. Some even hoped that the sanctions would cause internal unrest that would undermine the Putin regime . And while Russia's growth prospects are now very bleak, the end result of the sanctions has been as difficult to predict as the war itself .
For decades, Western elites have seen sanctions as an easy replacement for military conflict . After the end of the Cold War, many expected countries to become more peaceful as they joined the global capitalist order. Economic sanctions offered a convenient way to deter rogue states at low cost and acceptable risk. As a result, the use of sanctions increased sharply between the 1990s and 2010. At times, the United States still resorted to deploying troops, but Washington punished most autocratic regimes, from North Korea to Sudan and Belarus to Cuba, by quarantining and forgetting them.
Russia's invasion of Ukraine has shown the shortcomings of such an approach. The Russian Federation is a hermit kingdom, and the economy of the G20. For two decades after the end of the Soviet Union, it sought to integrate into world markets. The West imposed sanctions after Russia's occupation of Crimea in 2014, but they did little to reduce Russian military power. The threat of sanctions a few months before the start of the war also failed to prevent Putin's invasion on February 24.
Historically, Sanctions work better against small countries than against large ones. In the 1920s, the threat of sanctions quickly and effectively deterred states such as Yugoslavia and Greece from unwanted actions. But for large powers such as fascist Italy or imperialist Japan, economic pressure tended to be a weapon of depletion rather than deterrence. The big economy is almost always It will take months, if not more, to really feel the effects of sanctions . If the goal is to quickly undermine Russia's resource-rich military, a hostile nuclear power with a large army, sanctions are limited.
European leaders are belatedly acknowledging that economic pressure alone cannot end the war of this scale. Luxembourg's Foreign Minister Jean Asselborn said last week that European leaders had to choose between “sanctions or weapons”. He added: “My conclusion – and if you had told me this two months ago, I would have said, 'Are you crazy?'” Is that it is now a weapon. In fact, the sanctions only add to the fierce resistance of the Ukrainian army, which is equipped with more and more NATO military equipment.
The United States and Europe have shown remarkable unity in adopting the current sanctions regime. > President Ronald Reagan's efforts to impose sanctions on the Soviet Union, Libya and Nicaragua in the 1980s were more controversial, with opposition from German chancellors and British Prime Minister Margaret Thatcher. European leaders have successfully persuaded the Reagan administration to lift sanctions that would prevent European firms from building pipelines from Siberia. The relevance of this long-standing pipeline dispute to the recent Nord Stream 2 saga has not gone unnoticed by US Secretary of State Anthony Blinken, who once wrote a book about this forgotten Atlantic Alliance crisis.
Maintaining sanctions against a country the size of Russia will require the United States to govern not only its NATO allies but also non-Western ones. In general 37 advanced economies coordinate campaign to isolate Russia . This group controls about 55% of world GDP . But most of the international community remains outside this coalition .
Many Latin American, African and Asian countries reluctant to join sanctions partly because they depend on Russian goods and raw materials. Most emerging economies cannot afford to stop purchasing Russian wheat, corn, oil, copper, nickel, aluminum, and nuclear technology without alternative sources of supply. If the West wants to persuade or force more than half the population of the global South to give up trade with Russia, it will have to help them mitigate the shock of abandoning Russian goods, otherwise they will face global inflation, debt crises and regional recessions in the future .
When the time comes for peace talks, sanctions will be a useful tool . At present, a negotiated settlement may seem implausible, but history has shown that the military goals of the warring parties may change over time, especially in protracted conflicts. In the case of real negotiations, the phasing out of sanctions could be associated with the withdrawal of Russian troops from Ukrainian territory.
We do not know what victory in this economic war will look like
Western negotiators could similarly use frozen assets. To date, the governments of the United States, Britain, the EU and Switzerland have frozen the assets of Russia's central bank worth about $ 400 billion and private assets worth at least $ 240 billion. The West has thus benefited significantly, but it has also suffered serious financial losses due to sanctions. At the end of 2020, the volume of foreign direct investment in Russia amounted to 446 billion dollars. Most of this money was lost as Western firms left the country. Portfolio investments worth another $ 120 billion have become irreversible or are in danger of default. Putin can nationalize the assets of the remaining Western companies, just as the Bolsheviks decided in 1918 to cancel all debt and property rights of Western investors .
The expropriations of the 2020s, as well as the expropriations of the 1910s, will determine the West's relations with Moscow for many years to come. But if political changes in Moscow lead to rapprochement in the future, Western powers will not only have to rebuild Ukraine, but also help rebuild Russia's sanctions-damaged economy. The interwar accusations that followed the Russian Revolution and the Treaty of Versailles are a reminder that justice for the victims of aggression must be combined with generous provisions that improve international relations and promote economic stability.
Economic sanctions against Russia have opened a new battlefield: foreign exchange markets, strategic technologies, corporate supply chains and foreign assets. But the technical ingenuity of the new generation of sanctions cannot answer important policy and strategy questions. We do not know what victory in this economic war will look like and whether it can lead to a stable and lasting geopolitical solution. Can a nuclear state, whose economy and institutions are destroyed by sanctions, move to democracy without outside help? Sanctions on their own do not respond. This West will require positive economic measures and far-sighted diplomacy.
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