Financial and economic sanctions: When enough is enough?

Financial and economic sanctions: When enough is enough?

Photo: / evgeniybiba
8 March 2022

The Russian aggression in Ukraine is a war crime that is on full display in real time. Viewers can watch live as Russian forces indiscriminately bomb residential areas and critical infrastructure, shell a nuclear power plant, and kill innocent civilians trying for flee the war. 

Anybody who cares about humanity is outraged by this aggression. But not people in Russia. At least not most of them. Polls and anecdotal evidence suggest that Putin continues to find strong support among Russian citizens. The brave people who protest in Moscow and other cities are too few in numbers to make a difference. After years of hateful propaganda, many people in Russia genuinely believe that Ukraine is run by Nazis and that the Russian government is doing a “military operation” in Ukraine to pacify them. 

Because no country is interested in engaging Russia militarily and Ukraine has no plans whatsoever to invade Russia, only Russians can stop this war of aggression. Putin is certainly not interested. A coup by Russian elites, co-opted into Putin’s regime, is wishful thinking. Hence, it has to be a mass movement that is motivated enough to stop the war. What would help them understand that the war is wrong, or at least that the war is not worth it? 

Obviously, the bodies of dead Russian soldiers being returned to their families will start to register with the Russian public. Just like human losses of the Soviet Union in Afghanistan made the regime very unpopular, Russian losses in Ukraine will erode support for the war. But this can take years of tragic deaths before the war comes to the doorstep of sufficiently many people in Russia. Clearly, the message should be delivered faster.   

Financial and economic sanctions on Russia can help to deliver this message. Indeed, they have already started to inflict some pain on the Russian economy. The ruble is in free fall. The banking sector is under stress. Trade ties and supply chains are disrupted. This creates a dissonance between propaganda (“Russia is winning”) and reality (shortages of goods, inflation, job losses). It will begin to dawn on many Russians that something is not quite right but Russia has not stopped the war yet and hence the screw of sanctions has to be tightened further. 

The obvious next step is to cut off Russian exports of oil and gas. This step will greatly limit the ability of the Russian government to finance their war of aggression. Olaf Scholz, the German Chancellor, announced that Russian energy is not on the table for now. This is morally wrong and it is up to Germany’s allies to convince them of the importance of this key step.  

However, even if the civilized world is unwilling to do the obvious, there are many other instruments to raise the cost of war for Russia. For example, Saddam Hussein, who used chemical weapons to kill civilians, was allowed to sell Iraqi oil but his regime could only use oil revenues to buy goods of a humanitarian nature (food, medical supplies, etc.). Gazprom could be denied control over gas pipelines and storage facilities in the EU to avoid the artificial shortages they themselves created in the wake of the Russian invasion. Gazprom and Russian oil companies should not have access to international capital markets directly or indirectly so that they are not “cash cows” for the Russian government. Payments for Russian oil and energy could also be delayed to reduce liquidity available to the Russian government.   

In addition, the civilized world has not exhausted other instruments to limit the ability of the Russian government to wage their war of aggression against Ukraine. More Russian banks can be excluded from international financial markets. By refusing to service aircraft, Boeing and Airbus effectively ground a large share of the Russian fleet. Software providers can similarly short-circuit many modern forms of economic activity. For example, if major providers of cloud services exit the Russian market, many businesses in Russia will find their operations disrupted. Because Russia is so integrated into the global economy, the vulnerabilities are endless. 

Where does this stop? It stops when Russia stops the war in Ukraine, when Ukrainian cities are not bombed, when innocent Ukrainians are not killed, when Russian forces withdraw from Ukraine. 

Will it work? The Soviet Union collapsed because it was unable to provide its citizens with basic goods and services. If the Soviet repressive machine could not cope with riots and dissent, Putin’s repression machine will not be able to handle these either. Internet is far more powerful than Radio Freedom to spread the truth. 

So far sanctions on Russia have been imposed in a piecemeal manner in response to atrocities in Ukraine: a leveled city in Ukraine is followed by a new tier of sanctions on Russia. Apparently, this approach has not deterred Putin from escalating the war. Only massive economic costs that bring on popular unrest in Russia will bring Putin to serious peace negotiations. So economic sanctions should be massive too. After all, “shock and awe” doesn’t have to apply to just military strategy. 



The authors do not work for, consult to, own shares in or receive funding from any company or organization that would benefit from this article, and have no relevant affiliations