Sanctioned Control: The Geopolitics of Economic Punishment

By Michael J. Medina

This article was written before the beginning of Russian military operations in Ukraine.

            The early months of 2022 in the world of international politics have largely been concerned with tensions between Ukraine, Russia, and the Western NATO powers. Media reporting on this ongoing standoff and military-diplomatic row has often focused on the martial outcomes of the situation, a fair stance to hold given the gargantuan stakes posed by the potentiality of a large-scale war in Eastern Europe.

            Another angle worth considering in regard to the situation is that of economics, particularly the dismal science’s role in the pursuit of geopolitical aims. Historically speaking, the imposition of economic measures in the realm of international politics is nothing new. The subsidies and tariffs of early-modern mercantilist Europe are easily locatable as historical examples of economic measures serving state political interests. Reaching back even further into Ancient Greek history, evidence exists of naval blockades being employed to prevent the movement of goods and supplies, representing perhaps the earliest and most physical instances of “trade barrier” imaginable.

            In the 21st century, states and international alliances such as NATO have a much larger variety of economic measures at their disposal. In the particular case of Russia and the Western powers, the modern sanction toolkit has often been employed to deliver targeted economic pain and punishment, particularly amongst US-aligned states. This article does not judge one way or another on claims regarding the justification (or lack thereof) of sanctions’ usage. Instead, this article’s goal is to introduce readers to sanctions as a concept within contemporary economic theory, before examining their role in the current Russia-Ukraine crisis.

            The umbrella term “sanctions” refers to a wide variety of commercial and financial punishments/penalties that a country or a group of countries place upon their intended target. The potential targets of sanctions range from entities as large as a sovereign state or as small as private individuals. The method of sanction employed by a country or alliance is similarly diverse as its potential targets, covering actions from tariffs to banking restrictions to full trade embargos. While active debates still exist regarding the efficacy of particular sanctions, these debates, as well as discussions surrounding the moral status of more-extreme measures, do not seem to have led to any decrease in their contemporary usage.  Even in the United States, by far the most prolific employer of sanction activities, non-partisan institutions have noted the continuous abundance of sanctions in foreign policy, regardless of their seeming ineffectiveness when employed.

Given their inherently political nature, it should come as no surprise that sanctions have frequently been employed in international conflicts, particularly in the last century. The imposition of economic punishments such as sanctions on banking or trade actions allows a country to harm its geopolitical enemies and opponents while avoiding military alternatives. Even in cases where martial conflict is unlikely or outright unsuitable, countries can and have employed sanctions in favor of political objectives. One especially famous example of such employment is the case of Apartheid South Africa, whose regime change into multiracial democracy in the 1990s was in part hastened by the debilitating economic hurt wrought by UN sanctions in the preceding decade.

In a similar vein, Western countries, particularly the United States, have often used sanctions as a means to affect social and political change in foreign and/or perceived hostile regimes by largely economic means. For example, the US and NATO countries from the Cold War until the present have imposed ample sanctions on Russian state actors, on largely “human rights” grounds. Both 1974’s Jackson-Vanik Amendment and 2012’s controversial Magnitsky Act exemplify these social-political sanctions, exemplifying a continual American strategy to weaken its opponents in Russia through sanction measures.

            With all of this in mind, it is clear why the United States and its allies in Britain and the European Union pressed the Russian state with sanctions on an extraordinary scale. Given the sky-high stakes of war, the US and its NATO allies have utilised sanctions as a method to weaken the Russian economy. This action, from the Western perspective, aimed to dissuade Russian military action in Ukraine, fulfilling NATO’s political agenda without a drop of blood being shed. This potential strategic impact, combined with a long Western history of imposing sanctions on Russian actors in strategic self-interest, provides ample explanation for why the US and its allies are pursuing a sanction-based course of “punitive” action.

            However, despite the goals of the US and its allies, it is not obvious that the planned rounds of sanctions will actually dissuade Russian action. Ukraine has always been and will continue to be a “red line in the sand” in Russian geopolitical strategy, a key interest that cannot be compromised from the perspective of Russian international security. Therefore, from Russia’s standpoint, withstanding the pain of international sanctions is likely worth it to prevent the expansion of NATO or the EU to its Western borders. There is no guarantee that Russia will or will not act a certain way, regardless of sanctions. At the end of the day, Russia is a sovereign state that weights and chooses its own actions. Following a cost-benefit analysis, Russia might simply view sanctions as worth the cost of political security.

            Additionally, the US-led international sanctions regime that has dominated economic-political action since World War II stands at risk, potentially in the very near future, from foreign institutional alternatives. When US media and officials discuss potentially removing Russia from the SWIFT international banking system as an extreme economic punishment in the current crisis, these discussions must mention the existence of a Russian alternative. Given the critical importance of SWIFT in world politics as the largest international payment transfer system, the Russian government is right to be concerned about the implications of participating in an economic mechanism controlled by its geopolitical rivals.

Russia’s SPFS system is a parallel institution to the West’s SWIFT, developed after the last Ukraine crisis in 2014, with the exact purpose of protecting Russian Central Bank assets and transactions from sanctions of the sort being suggested. Given the system’s continued development in the eight years since the Ukraine and Crimea crises which led to its inception, there is reason to suspect that removing Russia from SWIFT, while certainly painful, might not be the trump card the West believes it is. This suspicion is furthered by the fact that since 2019, Russia has expanded SPFS’ integration with both the Eurasian Economic Union (EAEU) and with China’s own CBIBPS SWIFT-alternative system.

These actions would, taken together, seem to suggest the pursuit of a plan by Russian authorities (with their allies in China and the CIS) to construct a true alternative to the Western-dominated financial system. Such an alternative would allow both countries, as well as other potential partners including Turkey and Iran, to exercise their sovereignty with less fear of reprisal from the US hegemonic order. Should this integration of SWIFT-alternatives continue to develop and grow in influence, it might remove much of the power from the West’s current toolbox of sanction measures. Whether or not this will come to pass is still a matter of speculation, but the trends examined above present the possibility of a world that might sooner rather than later be one lacking a Western monopoly on international economic conflict measures.

The current Russia-Ukraine crisis ultimately serves as a prime example of the role sanctions play in contemporary geopolitics. While alternatives to programs such as SWIFT may soon present existential threats to the current international financial order, the present situation shows how sanctions can, have, and perhaps will, be used to further political objectives. The institution of international sanctions continues to remain a cornerstone of international disputes, a means of economic punishment that ultimately gives their wielder a sort of “sanctioned” control in the midst of a crisis.

The views expressed in this article are the author’s own and may not reflect the opinions of The St Andrews Economist.

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