The Sanctions War Is Just Beginning

The international sanctions campaign that countries and companies have mounted against Russia in the wake of its invasion of Ukraine is a remarkable achievement of multinational diplomacy and corporate responsibility. Much of the world has voluntarily terminated business with Russia, severing trade ties and financial relationships with the country and shocking the Kremlin by freezing many of its foreign assets. The speed, scope, and scale of these punitive economic measures and the nature of their target—one of the world’s largest and most important economies—are all without precedent.

But the effort to squeeze Moscow economically is just beginning, and it will become more difficult to sustain as time goes on, especially if the Kremlin’s opponents target sectors that bite more sharply into the global economy. Disruptions in energy, food, agricultural goods, and trade routes will generate friction within the sanctions coalition—which currently counts Australia, Canada, Japan, South Korea, the United States, and the European Union among its members—especially if the burdens seem unbalanced or unfair. Russia will seek to exacerbate that friction through retaliatory measures, as it did last week when it shut down a major oil pipeline that runs from Kazakhstan to the Black Sea, allegedly due to bad weather. The sanctions coalition will probably prove more durable than Russia would like, but these points of tension will make it more difficult to roll out big measures with regularity and will create pressure for strict enforcement to ensure that evasive behavior by China, India, and other countries doesn’t sap away the potency of the sanctions regime.

As a stalemate between the Russian military and the Ukrainian resistance begins to look more probable, those hoping to check Moscow’s ambitions should bear in mind that Russia can readily exploit such a scenario by amplifying tensions within the coalition in order to tear it apart. Taken together, these factors portend a more challenging future for the sanctions campaign than its early successes might suggest. The United States and its allies must therefore dig in for the long haul—working together to identify the optimal next set of sanctions measures, craft a collective response to sanctions evasion and Russian retaliation, and present a unified front in the face of a potential Russian stalemate in Ukraine—if they seek to sustain an effective sanctions regime against Russia.

TREADING LIGHTLY

Those arrayed against Russian President Vladimir Putin face a delicate balancing act: they must exert enough pressure to convince him to change course but not so much that he retaliates. Although the United States and its partners are not responsible for Russia’s actions—Putin chose this crisis and bears responsibility for it—every new sanctions decision must be weighed carefully, taking into account Russia’s likely response and any possible external repercussions. For instance, sanctioning all of Russia’s oil and natural gas exports would deal a serious blow to the Russian economy—but doing so would also exacerbate the budding energy crisis, given European and global reliance on Russian energy flows.

The market’s need for Russian hydrocarbons has encouraged people to find other ways of targeting this revenue stream, including by using U.S. sanctions to force revenues into escrow accounts managed by outside parties or subjecting the revenues to exceptionally high taxes or tariffs. All these are laudable ideas. But Putin also has a say in Russia’s energy exports—and were he to decide that turning off the taps was worth the self-inflicted financial pain, as he seems to have decided in the case of the Kazakh pipeline, then the market crisis that those imposing the sanctions were trying to avoid could be thrust upon them regardless.

This tension is part of the reason that sanctions have thus far prioritized either discrete targets, such as specific banks or oligarchs, or long-term Russian economic interests, such as investments in its oil and gas industry. This approach makes sense and ought to be the immediate priority, along with the rigorous enforcement of existing measures. Instead of going for quick and seemingly simple punishments, the sanctions coalition should focus on developing measures that make it harder for Russia to operate internationally—targeting the service sectors that enable its insurance and transportation businesses, for instance—and that raise costs for Russia in more subtle ways and thereby complicate its ability to retaliate.

EQUAL PARTNERSHIP

This careful, measured approach to sanctions will also help sustain the international partnership standing up to Putin. Without a UN Security Council resolution to make sanctions implementation obligatory, the sanctions coalition is dependent on mutual goodwill, shared sacrifice, and common purpose. But such cohesion is highly vulnerable to the sorts of hardships that ramping up sanctions will require.

Prior to the war in Ukraine, Russia was a relatively normal trading partner with most of the world, making it painful for many countries to decouple from Moscow overnight. The sanctions coalition should therefore help those countries that are especially vulnerable to Russian retaliation or to the impacts of sanctions themselves. The United States has already taken some steps to alleviate the pain of other coalition members—for instance, by seeking alternative supplies of energy for Europe and potentially offering energy support as a part of planned new sanctions.

Still, there are limits to how much compensation can be provided to those economies badly hurt by the sanctions campaign, and the diversity of Russia’s trading partners and business interests means that there will be times when one sanctioning partner will feel unduly burdened. For this reason, a sense of shared sacrifice and burden sharing is essential, particularly within regional groups such as the EU, where sanctions decisions will be made by consensus.

This dynamic also explains why backfilling from China, India, and other countries is being treated as a pernicious threat to the sanctions campaign. Backfilling—the practice of entering into markets abandoned by others in response to sanctions or other policy instruments—can be poisonous to a sanctions campaign because it can enable the target to satisfy its needs despite the sacrifices of sanctioning countries. During the most intense portion of the sanctions campaign against Iran, from 2010 to 2013, partners were frequently prepared to take sanctions actions themselves if assured that other partners would cooperate and that spoilers such as China would not rush in to occupy market share and reap profits. Unsurprisingly, the United States has made discouraging backfilling in Russia by China, in particular, a priority, even if this means accepting that normal Chinese and Indian trade with Russia will continue for the time being.

DEAL OR NO DEAL

Perhaps ironically, one of the most significant potential stressors to the sanctions coalition is diplomatic progress toward resolving the conflict in Ukraine, since Russia will inevitably press for an early end to the punishing sanctions regime. It is highly likely that any potential deal will involve steps toward the restoration of Ukrainian sovereignty, starting with a cease-fire and the repatriation of Russian forces to their side of the border. Even if these steps take place quickly, Russian leaders will almost certainly insist on the suspension or termination of sanctions alongside developments on the battlefield. They will probably argue that all sanctions ought to be terminated as soon as military hostilities are over, even if a long-term settlement takes months or years to negotiate. Some in the coalition will probably be inclined to agree to terminate sanctions to reduce pressure on the price of energy and other commodities.

The suspension of sanctions as part of a deal on Ukraine will be a significant point of contention within the sanctions coalition. Some partners, such as the United States, will be reluctant to relax sanctions pressure until a permanent, enduring settlement is reached. Others may want similar assurances made for their own security, especially countries in eastern Europe. Ukraine may insist on reparations from Moscow and will want to preserve access to restricted Russian reserves as a vehicle for guaranteeing such payments. Even well-meaning states that share interests with the United States are likely to have different perspectives on what a reasonable quid pro quo with Moscow ought to entail. Countries will likely also disagree on how to respond if Russia cheats on a deal. Any negotiation with Moscow on sanctions relief will therefore almost certainly be preceded by detailed, complicated talks among the sanctioning partners. Less durable arrangements, such as a cease-fire, will be even more likely to cause infighting among partners that disagree about the wisdom of rolling back some sanctions in the face of a frozen conflict.

PROCEED WITH CAUTION

The uncertainties around the sanctions campaign do not diminish its achievements to date. But the United States and its partners should not forget that the world is in uncharted territory, imposing serious costs on a country that still possesses significant economic levers of its own—not to mention a massive nuclear arsenal. Putin has already made clear that he considers the sanctions campaign to be a form of economic warfare and the larger conflict a fight for Russia’s survival. Unlike Iran, North Korea, or other countries under international sanctions, Russia can wreak physical and economic havoc on a global scale.

The sanctions coalition should therefore continue to exercise caution and thoughtfulness in its development and implementation of sanctions. This campaign is likely to last longer than a few weeks or months, so the sanctioning powers would do well to assess the potential effects of all measures before they are deployed. The coalition should also begin discussions on the suitable grounds for relieving sanctions—and the best order for their rollback. These plans do not have to be set in stone, but they should be used to identify and resolve areas of disagreement as soon as possible. They could also be communicated informally to Russia, so that Russian leaders understand the opportunity costs of continuing the war in Ukraine. Members of the sanctions coalition should also share information about their efforts to counter backfilling and coordinate diplomatic approaches toward actors seeking to undermine the sanctions regime. Finally, the coalition should develop plans to replace goods previously sourced from Russia and Ukraine that have been made unavailable by the war or by sanctions. There is no way to prevent economic disruptions from the conflict, but identifying ways to share the burden of these disruptions and reduce their costs will go a long way toward preserving the coalition for the fight to come.

Richard Nephew is Senior Research Scholar at Columbia University’s Center on Global Energy Policy and served as Deputy Coordinator for Sanctions Policy at the U.S. State Department from 2013 to 2015.

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