Ukraine’s President, Volodymyr Zelenskyy, left Washington last week without the assurances he sought. The 2024 outlook for Ukraine appears gloomy, with ongoing elections in the U.S. and the European Union potentially complicating the prospects of additional aid packages. However, a much-needed morale boost arrived this past week as U.S. President Biden signed a new Executive Order to expand sanctions against Russia. While the duration of Ukraine’s resilience remains a pressing question, Biden’s new order comes as a newly released book demonstrates the effectiveness of Western sanctions.
Nearly two years have passed since Putin’s Russia brazenly invaded Ukraine, triggering swift Western sanctions. As Putin confidently declares his bid for another presidential term, his allies proudly tout the resilience of the Russian economy, dismissing the sanctions as inconsequential. However, beneath the bravado lies a stark truth—what might be a façade of economic strength. The impact of sanctions, it seems, may finally be revealing itself, contrary to the narrative of invulnerability perpetuated by the Kremlin.
Earlier this month, Putin unabashedly boasted that Russia’s “GDP is already higher than it was before the Western sanctions attack,” presenting a narrative that suggests isolation from the West has been a boon for the country. Other controversial voices have echoed Putin’s narrative of Russia’s apparent triumph over sanctions. One such voice is former Austrian Foreign Minister Karin Kneissl, now living in self-imposed exile in Russia. During a recent BBC interview, Kneissl claimed that many Western leaders have “to admit that sanctions against Russia did not yield the desired results.” However, such claims may be a stretch too far.
In her recent book, The Russia Sanctions, New England Law Professor Christine Abely meticulously dismantles the notion that sanctions have been ineffective. Abely argues that claims of ineffectiveness, even in Western discourse, often stem from a misunderstanding of the purpose of economic sanctions. While potent, sanctions alone cannot achieve regime change or immediately halt a war—they don’t replace military action. Instead, over a google hangout, Abely asserts that their primary function is to broadcast an unequivocal message: “Russia’s invasion of Ukraine and the violation of territorial sovereignty is considered a breach of international law.” Moreover, by targeting a state’s financial resources, sanctions aim to hinder its capacity to fund and conduct warfare by seeking to reduce revenue as much as possible. At their core, sanctions also ensure that the sanctioning nations do not inadvertently fund Russia’s war effort in Ukraine, compelling Russia to seek funds elsewhere.
With a few exceptions, sanctions imposed by over 30 nations on Russia ladder up to Abely’s yardstick. As highlighted by Abely, recent figures suggest that Russia “has fewer resources than they would have had if the sanctions had not been imposed.” In stark contrast to Putin’s optimistic narrative, the European Union’s projections for 2023 (as of October) paint a gloomy picture for Russia’s economy. They indicate a forecasted drop in Russian exports, according to the World Bank, or a near-stagnation, as suggested by the IMF.
The efficacy of the sanctions can be attributed to their comprehensive scope, targeting a wide array of entities. Many designated targets are subjected to sanctions, contributing to their overall impact.
Moreover, any semblance of economic growth in Russia is, to a significant extent, tied to the heightened production of war materials like tanks and missiles, surpassing pre-war levels. Earlier this month, Putin touted that 2023 will see 3.5% growth, while the International Monetary Fund has predicted a more modest 2.2% rate. Abely, however, contends that this apparent growth masks a fundamental shift in resource allocation: “Russia is diverting large amounts of economic resources to war production.” This diversion, precisely the intended outcome of sanctions, compels Russia to make trade-offs, sacrificing other sectors of its economy including health and education for military production.
Further sacrifices might be on the horizon as defense spending is set to increase by a massive 70% in 2024 alone, according to official plans. This intense military production is also not without its own side effects, such as high inflation, even as it tapers off in other countries. This remains true even as Russia seeks to expand trade relations with several non-sanctioning countries, notably China, India, and others in the Middle East and Latin America.
The sanctions’ impact is also poised to escalate as enforcement efforts intensify. In mid-2022, the G7, comprising the West’s most powerful nations, agreed on a price cap for Russian oil imports. Despite this, as the Center for Strategic and International Studies notes, numerous European entities have managed to circumvent the cap, engaging in tactics that involve obscuring oil trade prices and filing questionable paperwork.
However, the U.S. Treasury has already sanctioned several companies, and Biden’s new Executive Order signals impending increases in penalties and enforcement by Western nations. Additionally, Yale’s analysis raises questions about Russia’s actual profits from oil sales, considering heightened costs due to Western sanctions impacting drilling and transportation. For instance, Rosneft, a Russian oil giant, reported having to incur nearly $10 billion in additional capital expenditure over the past year, equating to roughly $10 of extra expenses for every barrel of Russian oil exported, following the departure of over 1000 Western companies from Russia. This withdrawal has also resulted in a shortage of high-tech products necessary for production, including vehicle parts for defense manufacturing.
When increased production costs are taken into account, it is likely that “Putin is hardly swimming in excess profits,” a trend likely to continue as Western nations tighten their enforcement of the oil price cap. This might force Putin into investing more in oil infrastructure at the potential expense of military expenditure or other sectors of the Russian economy—a scenario in line with the goals of Western sanctions.
Adding to this pressure, despite benefiting from higher global oil prices earlier, Russia, like the rest of the world, has been grappling with falling global oil prices. This decline is attributed to various factors, including reduced demand from China. In a potential sign of Putin’s desperation, he recently “risked arrest or worse” by traveling to the Middle East to negotiate higher oil prices. The effectiveness of such efforts in the long run remains uncertain, especially as both China and the U.S., driven by their own strategic interests, increasingly favor lower oil global prices. Moreover, pressure on oil-exporting countries at the COP28 climate talks, even if only partially successful in the short term, indicates a forthcoming shift in demand for oil as clean energy becomes more widely accepted and economically preferable in the medium to long term.
While Western sanctions may not decapitate the Russian state, they have, in large part, achieved their objectives in just over two years. As one French diplomat put it, sanctions’ impact, while “not immediate…[do] work.” Coupled with falling oil prices and shifts in China’s geopolitical stance, these sanctions may compel Russia to make further trade-offs to sustain its military spending. Their success buys time for Ukraine’s military efforts, contingent on other factors like ongoing Western financial support—though its certainty remains uncertain amid congressional gridlock. For now, at least, sanctions are acting as a drag on Russia’s economy and, in turn, the Russian war machine.
Michael Sheldrick is the author of the upcoming book: “From Idea to Impact: A Playbook for Influencing and Implementing Change in a Divided World.” Available for pre-order here.
This article was originally published on Forbes.