“Can sanctions really stop Putin?” the editors of the New York Times asked last month. It’s a question on many minds as sanctions and military assistance to Ukraine have become principal means of trying to halt Russian aggression. Addressing the question requires assessing the measures now in place and understanding what sanctions can and cannot accomplish.
The economic sanctions enacted against Russia are among the most comprehensive ever imposed. Joining the United States in applying sanctions are the states of the European Union, Japan, South Korea, and others—more than thirty countries in all, representing a majority of the world’s economic output. The measures fall into three broad categories: financial sanctions that freeze Russian assets, export controls that deny access to advanced technology, and energy sanctions that reduce Russian revenues.
The long list of financial restrictions includes the following:
- cutting off Russian financial institutions from access to Western financing, thereby decoupling nearly 80 percent of the banking system from world markets;
- freezing the assets of Russian state institutions and the personal wealth of leading Russian oligarchs, senior government officials, and Putin himself;
- locking down more than half of Russia’s central bank reserve funds;
- barring Russian banks from the SWIFT system for global financial transactions.
These actions have shocked the Russian economy. Investment has dried up, imports have dropped, inflation is rising, markets have closed, and Russian state bonds have been downgraded to junk status. The ruble initially lost nearly 30 percent of its value, although the Kremlin has since propped it up through capital controls. Putin has boasted that “the strategy of economic blitzkrieg has failed,” but Moscow’s mayor says 200,000 jobs are at stake in his city and he is creating public service work for those affected. Elvira Nabiullina, Governor of the Central Bank of Russia, told lawmakers that sanctions are increasingly affecting “the real sectors of the economy.” Russia’s GDP is expected to contract by as much as 10–15 percent this year, wiping out years of recent economic growth. As political scientist Ilya Matveev put it, Russia is seeing “30 years of economic development thrown into the bin.”
Compounding the financial sanctions are global export controls targeting Russia’s military, aerospace, maritime, and other high-tech industries, along with the energy sector. These measures prohibit exports to Russia of equipment made with microchips built or designed in the United States. Since nearly all semiconductors in the world fall into this category, the controls provide significant leverage. Similar embargoes are being imposed by European states, Canada, Japan, Australia, and Taiwan in an unprecedented level of allied cooperation in export controls. The same export embargo applies to Belarus. Only food and medicine are exempted from these rules.
The export controls impair technology sectors that are key to producing advanced weaponry and have powered Russia’s economic growth in recent years. The Russian military has been dependent on imported parts from countries that are now participating in the U.S.-led embargo. Russia is trying to compensate by purchasing more of its microchip components from China, which already supplies most of Russia’s need, but the Chinese semiconductor industry remains dependent on foreign technology and lacks facilities for fabricating advanced components to meet the operational requirements of advanced military technologies. According to financial analyst Matthew C. Klein, sanctions are curtailing Russia’s ability to replenish damaged or destroyed equipment and may be limiting its military capabilities.
Energy sanctions are a third category of sanctions and are decisive in reducing Russian export earnings. In March, the United States banned the importation of all Russian oil, natural gas, and coal and prohibited investment in or financing of energy production in Russia. This was easy for the United States, which imports very little fuel from Russia, but Europe faces a much bigger challenge. Across the continent, 40 percent of the gas that heats buildings and runs factories comes from Russia. Last year, Germany depended on Russia for more than half its gas. Since the start of the invasion, EU countries have paid tens of billions of euros for Russian energy imports—hundreds of millions of euros a day. These revenues enable Putin to continue waging war and have offset some of the effects of financial sanctions, allowing Russia to maintain a positive current-accounts balance. Stanching Russia’s earnings from energy exports is crucial to the strategy of applying effective sanctions pressure.
Facing high energy prices and lacking alternatives, Germany and other European countries were initially reluctant to reduce their imports of Russian fuel, but when the war began and evidence of atrocities emerged, they took action. Two days before the February 24 attack, Germany announced the shuttering of the recently completed Nord Stream 2 gas pipeline, an $11 billion project that now sits idle. Berlin has announced it will end Russian coal imports by the summer. The EU Council has approved a plan to phase out all purchases of Russian oil, including crude and refined products, by the end of the year. Pressure is mounting for faster progress in stemming the flow of euros to Russia.
The imperative to reduce dependence on Russian energy imports lends new urgency to the European Green Deal, a landmark measure adopted by the EU Parliament last year to cut climate-altering emissions and achieve net carbon neutrality by 2050. The plan includes reliance on natural gas as a transitional fuel while ramping up renewable energy, but that course of action is now being questioned. Meeting climate change goals while also reducing dependence on Russian gas will require speeding up emission reductions, increasing investment in job-creating energy alternatives, and implementing greater energy conservation and efficiency.
The private sector has added new dimensions to the sanctions, with international companies condemning Putin’s aggression and withdrawing en masse from doing business in Russia. Software firms, communications companies, banks, energy corporations, and retail chains in every line of business have closed outlets and pulled up stakes—more than 750 companies and counting, according to the Yale School of Management. With international public opinion overwhelmingly sympathetic toward Ukraine, the businesses are motivated by reputational concerns. Russians who worked in these companies have lost their jobs, contributing to a brain drain as tens of thousands of tech workers flee the country, further undermining the vital technology sector.
The sanctions imposed by the United States and other governments inevitably create hardships for ordinary citizens. The freezing of financial assets and the embargo on strategic imports are generating unemployment and inflation that cause harm for people who had no say in Russia’s decision to go to war. These costs are likely to increase if the war drags on and as the effects of sanctions ripple through the economy. Food and medicine are exempted from sanctions and Russia is self-sufficient agriculturally, so hunger and disease are unlikely, but the moral dilemma remains. Sanctions are creating economic hardships for the Russian people. They also create the risk of political backlash and the hardening of support for the regime as Putin blames the United States and its allies for the pain Russian citizens are suffering.
Because of these negative effects, many on the left are critical of sanctions. But these concerns need to be weighed against the potential life-saving role of sanctions in facilitating negotiations to end the bloodshed. As former Treasury Secretary Jacob Lew has argued, sanctions are not merely instruments of economic punishment and military containment; they are also tools for achieving diplomatic agreement and can be used as bargaining chips to reach a political settlement. Historic examples of this dynamic include negotiations with Libya in the 1990s to end its sponsorship of terrorism, and the 2015 Iran deal that blocked Tehran’s pathway to nuclear weapons capability (although the Trump administration later reneged on the deal).
As the current sanctions against Russia gain strength, they will provide leverage that can be used to negotiate an end to the war. An offer to ease sanctions if Putin reverses course could be crucial. Secretary of State Antony Blinken stated in March that sanctions could be eased if there is “irreversible” Russian military withdrawal. The New York Times editorial suggested specifying the circumstances that would make it appropriate to roll back sanctions and communicating these conditions, with clear benchmarks, to Moscow. As of this writing, Putin remains obdurate, but as Russian military losses mount and the bite of sanctions deepens, he may find himself in need of an exit ramp. Offering sanctions relief as part of a negotiated agreement could help to end the war and save Ukraine from further loss of life and destruction.
Sanctions have limitations and, on their own, are unlikely to reverse Putin’s aggression, but they are imposing serious costs on the Russian economy and, in combination with continued military support for Ukrainian resistance, are degrading Russia’s military capability. They can also be the vehicle for diplomatic bargaining to end the war. The policy success of sanctions will depend on multilateral persistence in maintaining and increasing economic pressures and on consistent messaging from U.S. and European leaders that sanctions relief is available when Russia agrees to end its attack and withdraw troops.
David Cortright is Professor Emeritus at the University of Notre Dame’s Kroc Institute for International Peace Studies and the co-author, with George A. Lopez, of The Sanctions Decade and other books and articles on sanctions.