By Anna Brennan
Sanctions are commercial or financial penalties targeted at a state in order to punish or dissuade specific policies and actions, developed to be used as a powerful tool in economic statecraft, and described as a more humane approach to conflict or “a liberal alternative to war”. In this case, the United Kingdom, among other Western powers, is using economic sanctions to cripple Russia’s military invasion of Ukraine. Economic sanctions are most effective when used to solve disputes about minor issues that do not impact upon the sanctioned country’s territory, security, or wealth. They are also highly effective when the target state is trade-dependent on the state implementing the sanctions1. Russia is not entirely dependent on the UK and other western powers for trade – in fact Russia claims to be entirely self-sufficient in basic food products. The massacre of 406 Ukrainian civilians since the 24th of February and Putin’s unfaltering belief in the efficacy of the iron fist makes it indisputable that Putin’s War is not a minor issue that will be resolved by sanctions alone.
In unprecedented efforts to halt the conflict in Ukraine, the set of sanctions imposed by the UK are described by Prime Minister Boris Johnson as “the most severe Russia has ever seen”. The UK Government has implemented restrictions that range from increasing trade regulations against Russia and curtailing UK citizens in undertaking financial transactions involving major Russian financial institutions, to sanctions targeted at specific individuals like Vladimir Putin, foreign affairs minister Sergei Lavrov and defence minister Sergei Shoigu to freeze their assets. Hopefully this will impair Russia’s capability to raise capital in order to fuel its military campaign. Emergency powers are on the verge of being implemented, which will give the UK Government the legal ability to fast-track sanctions imposed on individuals that other countries have already sanctioned. This will allow the UK to increase the speed of implementation and intensity of its sanctions on Russia without spending valuable days and weeks building solid legal cases.
Yet, the Kremlin has stated that Vladimir Putin remains unaffected by the sanctions as he does not have international assets. Additionally, though the sanctions targeted at individuals are severe, it could be months before they become fully effective. There are also concerns that Russia could completely bypass traditional financial measures by using cryptocurrency instead. However, there is not enough money within the crypto trading system itself to be able to meet Russia’s needs. Russia has been removed from the SWIFT international payment network in efforts to disrupt the state’s international trade; however, the development of a bespoke internal system and China’s CIPS system provide viable alternatives for the state. As Russia continues to intensify their military action within Ukraine with the seizing of Ukraine’s nuclear power plant Zaporizhzhia, and now with the immoral control of where fleeing Ukrainians can go, questions have been raised about the effectiveness of the UK’s set of economic sanctions imposed on Russia.
Perhaps the most dangerous factor within the scenario is Russia’s dominance in the international gas and oil market. Russia is the world’s largest energy exporter – an embargo on Russian oil and gas would undoubtedly decimate the state’s economy. Yet, there is also the risk of Western economies suffering alongside this. Therefore, there is reluctance to target this sector because of European reliance on Russian gas exports – Europe imports almost half of its natural gas from Russia compared to less than 4% in the UK. Already, Russia is threatening to cut off fuel and oil supplies to Europe, which could drive the price of oil per barrel to an exorbitant $300. If the UK and other western powers continue to avoid sanctioning the Russian energy market, the Russian economy will maintain some level of protection from the other sanctions.
Recent discussions have seen Britain’s foreign minister, Liz Truss, vocalising the need to target Russia’s energy sector, seeking to “cut off the funding to Vladimir Putin’s war machine”. Furthermore, Johnson has pledged to work in tandem with Europe to “wean ourselves off – to end the dependency on – Russian gas” and has stated that the UK will aid its allies with renewable technology to enable the shift away from fossil fuels. Already, with the mere discussion of sanctioning Russia’s oil and gas market by the UK and its allies, oil prices have soared across the globe to almost $140 per barrel, a record high since July 2008. With energy prices skyrocketing before an embargo is even implemented, the true ‘cost’ of sanctioning the Russian energy market on the global economy is tinged with uncertainty and risk. In the West, inflationary pressure will only increase, and rising energy prices will hit the most deprived people within society hardest, alongside the major increase in the energy cap due to commence in April of this year.
Although sanctions are seen as a more humane method when compared to outright war, there is still a significant cost on the populations of target states, however successful they may be. This is because a primary target of sanctions is increasing economic pressure within a state to the point where the standard of living decreases and the population’s satisfaction with the government drops. For example, during the Gulf War, it is estimated that sanctions implemented by the UN Security Council contributed to an excess of 90,000 deaths per year within the Iraqi population2. This estimate is significantly higher than the 40,000 military fatalities and 5,000 civilian deaths reported during the war itself1. While many sanctions are targeted at the Russian elite, like oligarchs and influential political figures, the most gruelling effects of the sanctions will be experienced by the average Russian. Goods prices will skyrocket, interest rates will soar, and increasing numbers of Russians will attempt to withdraw their life savings as Russian banks go under. Multiple luxury goods companies like the Louis Vuitton Moet Hennessy group, Kering, Hermes and Chanel have suspended business in Russia. Even organisations like Netflix, Apple and the BBC have completely withdrawn from the country in protest. We are seeing the extraction of Western business from Russia before our very eyes, which will negatively impact the country’s sales and cause unemployment to skyrocket.
As always, it is the most vulnerable people within Russian society that will be most at risk from this. Although difficult to imagine, these people will be just like you and I – they will have their own livelihoods to worry about. Many Russians are anti-war and indeed anti-Putin – almost 4,500 protesters have been detained after anti-war protests spanned 53 Russian cities. This is a war that has been waged by Putin and his government and they bear this responsibility – not the Russian people.
Sanctions have been painted out to be the only viable course of action, but if they are falling short of the desired effect on Russia, and are predicted to harm the Western economy, what is the alternative? Short of waging a Third World War, there really is not much the UK and its Western allies can do. We are playing a waiting game, in the hopes that Russia’s military resources become depleted sooner rather than later. Yet, hope prevails as intelligence agencies across the globe have highlighted that Putin’s War is not going to plan: fuel and food supplies are limited, which has massively slowed down the Russian invasion. Furthermore, Putin has underestimated the strength of the retaliation of the Ukrainians, a fatal miscalculation that could cost him his war.
Unfortunately, sanctions alone will not change the mindset of Vladimir Putin, just as the sanctions during Iraq’s occupation of Kuwait in 1990 did not have much of an effect in influencing the decision-making of Saddam Hussein. In the words of Adam Tooze, “this is a man who, when backed into the corner, raises the stakes”. There is also no perfect trade-off or win-win scenario here – the global economy has to take a hit in order for the sanctions imposed on Russia to pay off. It will also take a careful and considered united global effort in order to effectively decimate Russia’s economy to the point where its military operations become unfeasible. Rising inflation levels and the increasing prices of oil and gas are a small price for the rest of the world to pay to stop Russia’s brutality against Ukraine.
With energy prices skyrocketing before an embargo is even implemented, the true ‘cost’ of sanctioning the Russian energy market on the global economy is tinged with uncertainty and risk. In the West, inflationary pressure will only increase, and rising energy prices will hit the most deprived people within society hardest, alongside the major increase in the energy cap due to commence in April of this year.
The views expressed in this article are the author’s own, and may not reflect the opinions of The St Andrews Economist.
Image – Unsplash
1 Pape, R.A., 1997. Why economic sanctions do not work. International security, 22(2), pp.90-136.
2 Mueller, J. and Mueller, K., 1999. Sanctions of mass destruction. Foreign Affairs, pp.43-53.