The Anatomy of US Sanctions: Will Economic Warfare Deter Russia?

Priyanjali Simon
17th May 2022

Picture Courtesy: Reuters

A day after the Winter Olympics came to a close, Russian President Vladimir Putin signed decrees recognising the independence and sovereignty of the Luhansk People’s Republic and Donetsk People’s Republic regions of Ukraine and ordered troops to occupy separatist territories. The decree warranted Executive Order 14065 by the Biden administration stopping new US investment in, US exports to, or US imports from the regions. Russia’s invasion of Ukraine has provoked the Biden administration to impose a slew of crippling sanctions against Russia. The executive decision taken by the American presidency targets core financial institutions of the Russian federation intending to straitjacket the government’s abilities to raise capital, cut off western financing and punish Russian elites.

The US, European and Asian countries have implemented unprecedented economic punishments against Russia. But as unique as these sanctions are in the scope and the number of countries levying them, many questions on the nature of these sanctions are cropping up. Questions regarding whether the full spectrum of sanctions will alter Russia’s behaviour? Or will this be yet another significant addition to Russia’s villain origin story with numerous sanctions piling on, will Moscow begin donning an increasingly hostile approach towards the US? Russia recently announced sanctions against 398 members of the US Congress in order to “mirror” the sanctions imposed on the State Duma by the Biden administration. According to the statement, all 398 members of Congress are blacklisted and are prevented from entering Russia. The list compiled on the basis of reciprocity raises questions on whether the purpose of sanctions have been defeated. Moreover, US sanctions on Moscow post the 2014 invasion of Ukraine has proved to be futile in changing Moscow’s attitude. The purpose of sanctions is to deter the unwanted outcome of a country or regime; but over time, the popularity of sanctions has waned. Even President Joe Biden expressed “sanctions never deter,” during the news conference following the NATO summit.

Critics have argued that sanctions are often ill-conceived and seldom effective in changing the target’s behaviour. Advocates however argue that sanctions have evolved in recent years and continue to be an important foreign policy tool. To understand why countries still rely on sanctions and further assess in what conditions they have worked and have not, it is imperative to look at what US sanctions are, its trajectory as a US foreign policy tool, how the US should reconsider looking at sanctions and whether they will be effective on Russia.

Sanctions and Its place in US Foreign Policy

 The use of sanctions have increased significantly since the First World War. This has increasingly become a popular policy instrument that can be used to punish or deter unwanted outcomes. The restrictive measures are broadly applicable beyond the sanctioning country’s borders and can be deployed both unilaterally and multilaterally. Since its initial use in the First World War, the United States has championed employing sanctions on other countries. According to the Office of Foreign Assets Control (OFAC), the body responsible for managing US embargoes and sanctions, reported 7,967 sanctions were in place as of 2019 and U.S. leaders have frequently been embracing these economic constraints. Unilateral sanctions allow the US President to exercise power, often expeditiously without input from the Congress and limit losses of life from military action. Sanctions can appear to be a proportionate reaction to a challenge where the interests at stake are not particularly  vital and is a tool for the government to express its dissatisfaction with a certain behaviour. They can be used to reinforce a commitment to a behavioural norm, such as upholding human rights or opposing nuclear proliferation. American reluctance to use military force may also be another motivation. Biden’s State of the Union address affirmed that US troops would not engage with Russian forces in Ukraine. With America’s recent withdrawal from Afghanistan, there is deep concern of yet another prolonged war as Biden reiterated in an NBC interview “That’s a world war when Americans and Russia start shooting at one another.” Over the years, what has made American sanctions unique is that it stems from the American financial system’s significance in the global economy and the dollar’s standing as the world’s primary reserve currency, in this regard sanctions are an economically powerful US foreign policy tool in American hands because the majority of the world economy is conducted in US dollars and ultimately subject in some way to US law. US sanctions have not always been effective, but economists have studied that certain pre-conditions enable constructive sanctions

When are Sanctions Effective?

The Peterson Institute for International Economics (PIIE) suggests  sanctions are most likely to be effective when:

  • The objective isn’t particularly lofty. This reduces the importance of international cooperation, which is sometimes difficult to achieve. It has been proposed that sanctions are most effective when it is done multilaterally.
  • The sanctioned country is significantly smaller, economically weaker, and politically unstable than the country imposing the sanctions. Cuba and Venezuela are a testament of when US sanctions have worked under this condition. In Cuba, tourists today can still see the effects of the sanctions and 60 years of a highly inefficient centrally planned communist economy. Under the embargo, the United States can send food and medical supplies to Cuba, but the restrictions severely limit the number of products that can be supplied, even from other countries.
  • Prior to the application of sanctions, the sanctioner and the target are amicable and conduct extensive trade. In this regard, the target country may be willing to change its behaviour to safeguard its trade with the sanctioner. But the sanctioner would have to be an economic powerhouse in order to achieve this end.
  • Moreover, the sanctioner should expect autocratic regimes to resist foreign pressure more often than democracies. The small support base and the control over the redistribution of public resources enables most autocratic regimes to survive economic sanctions. Russia is an example of how it has survived US sanctions over time. Since Putin entered office in 1999, Russia has made macroeconomic stability a priority, reducing deficits and keeping government debt low. Several new, privately held banks expanded fast in the year following the imposition of sanctions, borrowing dollars from Russia’s central bank and using the funds to give loans to sanctioned companies. Moscow’s oil export to European and Asian countries have also kept the economy afloat.

Will US Sanctions Work on Russia?

The size, speed, and sweep of present sanctions, which are backed not only by the US but also by the European Union and numerous Asian partners, are unprecedented. There are parts of the sanctions which will work and parts that won’t. The restrictions on Russian oil and natural gas imports, has been a widely discussed topic, and there has undoubtedly been a rise in Russian crude exports to other parts of the world. But global food prices are also expected to climb. Russia and Ukraine are both important agricultural commodity exporters, with the two countries contributing the majority of grain consumed in regions like West Asia. Because these are globally traded commodities, price hikes are expected to occur even in places like the United States. In the future, alternative financial arrangements in roubles will not be able to fully compensate Russia for the US’s harsh financial isolation. It appears increasingly likely that Russia will default on its foreign-currency debt, owing to a failing domestic economy, rising inflation and low viable foreign-exchange reserves. Despite the US failure to prevent the invasion, current sanctions may act as a deterrent in the future: Putin, for example, may refrain from threatening Moldova, Finland, and Sweden (non-NATO members) in his desire for a larger Russian empire. China may also learn a lesson from the international condemnation of Russia and rethink its military preparations.

*Priyanjali Simon is an Associate Fellow at the Kalinga Institute of Indo-Pacific Studies (KIIPS).   

Disclaimer: The Views in the Article are of the Author