Russia: sanctions under scrutiny

After Russia invaded Ukraine on 24 February, Western countries imposed sanctions unprecedented in scale on the Kremlin and its political and economic leadership. Thirty-five Western countries supported them, but not a single developing country took part. Switzerland, which over the past 20 years has supported EU sanctions in almost half the cases, also got behind them eventually, owing to growing international and domestic pressure.

It is the first time that sanctions have been imposed even against the central bank of a G20 country, and yet it is difficult at this stage to assess whether or not they will work. But what does “work” mean? What are they meant to achieve? And what impacts are they having (in particular) on the Russian people?

“Sanctions pursue a series of overlapping goals, and even the countries that impose them do not always know precisely what goal is being pursued”, says Dmitry Grozoubinski, Executive Director of the Geneva Trade Platform. “As pertains to Russia, there are four goals: regime change, change of Russian policy, financially choking off the military establishment, and expressing Western repudiation.”

Regime change has never been achieved in this way

The former Australian diplomat stresses that the first goal has never been achieved in this manner. Sanctions have never been able to force regime change, except perhaps in the case of South Africa during apartheid. “The Russian people are accustomed to tightening their belts, especially when they feel attacked by foreign powers”, he says. “The financial sanctions affect chiefly the young and educated, and also city dwellers. Many of them are leaving the country even though they are the ones best placed to bring about regime change.”

As pertains to a change of policy, both Grozoubinski and Erica Moret, Coordinator of the Geneva International Sanctions Network, take the view that this is difficult to achieve: while Russia can clearly not ignore the sanctions, it is hard to tell whether they are a decisive factor for or against the continuation of the war, the start of diplomatic negotiations, the use of chemical weapons or the bombing of a school or a hospital.

On the other hand, Dmitry Grozoubinski notes that they have proved an effective means of choking off Russia’s military resources. Some experts believe that the sanctions imposed on Moscow following the annexation of Crimea in 2014 are the reason for Russia’s glaring lack of leading-edge military technology: the arms industry is unable to source the necessary components, especially semiconductors, on Western markets, and it is unlikely that China and India will be able to fill these gaps.

As regards the symbolism of the sanctions, experts point to the fact that the industrialized countries must be prepared to pay the price of their repudiation – this is already happening, despite their unwillingness, at least so far, to forego gas supplies altogether.

“The Russian economy is on its knees”

The impacts on the Russian people are catastrophic. For example, this led the Russian Professor Maxim Mironow of the IE Business School in Spain to tweet: “The Russian economy is on its knees”. In his view, the citizens will be especially hard hit by the collapse and the slowdown of the processing industry, as it will no longer be possible to import Western components and machinery. This applies to all sectors – 90 per cent of the seeds for Russian potatoes are imported, for example.

“One of the trade-related challenges is that an international transaction does not consist only of purchase and sale: it needs insurers, financial institutions, transport companies – and most of them have ceased their activities for fear of loss-making operations or boycotts,” Dmitry Grozoubinski adds. “Many pharmaceutical producers are still selling to Russia, but what will they do when there are no more ships, as none is prepared to take uninsured cargo on board? And if the banks are excluded from the Swift system, traders based in Geneva will face unsurmountable problems.”

Sanctions less and less targeted

Erica Moret adds: “The sanctions are becoming less and less targeted. Around the year 2000, following the humanitarian crises in Cuba, Haiti, Iraq and elsewhere, the United Nations and various governments, including the USA, attempted to impose targeted sanctions – such as freezing the assets of several persons or companies, travel restrictions or a ban on the purchase or sale of weapons. The past 20 years, however, have witnessed the growing use of blanket sanctions, which are de facto sanctions on entire sectors, such as the finance or the energy industry. On paper they may well remain targeted, but in practice they are akin to an embargo against a country. Iran, North Korea, Syria and Venezuela are cases in point. Besides, studies have shown that sanctions imposed on the central bank or the energy industry have considerable humanitarian impacts, as they tend to drive up inflation and joblessness.”

According to the scientist, it is, however, extremely difficult to gauge the impact of sanctions, taken in isolation from other factors: correlation is not synonymous with cause. In the cases of Sudan, Venezuela and Myanmar, the disastrous humanitarian situation is attributable not only to the sanctions, but also to government oppression, corruption, bad governance and human rights violations. “It is important to underline this, as the topic is much politicized. In their argumentation, governments invariably blame all problems on sanctions, even though there are also other factors at play.”

The problem of overcompliance

Erica Moret points out that, besides the broadening of sanctions, the introduction of further anti-corruption and anti-money laundering rules binding on the private sector and banks can further complicate the picture. The fear of having to pay billions in penalties can lead to overcompliance, so that banks prefer to withdraw altogether from countries like Syria or Iran. “Overcompliance and de-risking often have greater consequences than sanctions, as even the toughest sanctions provide for exceptions, which theoretically permit the trade in medicines, food, and the like. Overcompliance, in contrast, affects the entire supply chain, insurers, transport, the technology sector…”

Erica Moret considers it still too early to assess the repercussions of this phenomenon on Russia, but what is certain is that the boycott by multinational corporations is bound up both with the sanctions and considerations of reputation and corporate responsibility. In terms of symbolism, this plays a key role, as it demonstrates to the Russian people that most Western companies are against the war; this also gives greater prominence to the message from the “international community”. One danger inherent in broad sanctions, however, is that they could further bolster popular support for the government, especially in countries where the media are controlled. The disappearance of luxury items from the market may as yet have no humanitarian implications; the departure of pharmaceutical, food and technology companies, however, may well do.