Experts said that the U.S. sanctions announced against Russia this week are among the most severe ever imposed on Moscow. However, the slow pain they inflict might not be enough to stop President Vladimir Putin's aggression of Ukraine.
President Joe Biden and several U.S. allies including the United Kingdom, Japan, and the European Union have pledged to reconsider further restrictions on Moscow in punishment for the invasion.
Former U.S. Treasury officials and State Department officials have confirmed that the sanctions are substantial in scale and extent. However, the U.S. has few options in case Russia and Putin don't respond, due to its long-standing reliance on the national safety tool.
However, Russia's economy is already suffering from the effects of war. The sanctions could cause Russian stocks to plummet, lower the value of rubles (which hit an all-time low on Thursday) and make it more difficult to do business in Russia.
"We're counting on sanctions, but the ones that the Biden administration has put together are really tough," said Daniel Fried. He is a diplomat and ex-ambassador to Poland and was the State Department's coordinator for sanctions policy. The recent sanctions were "a huge deal," he said.
When trying to influence a country not considered an ally, the United States and its allies have the power to use sanctions.
Because many transactions are conducted through New York City, the U.S. can impose severe sanctions. The dollar is also the world's reserve currency, and is used for payments around the globe. When money is received from sanctioned persons or entities, it flows through the U.S. immediately.
Thursday's announcement by Biden was that the U.S. was building a coalition of partners to counter Russia's invasion. This would restrict Russia's ability in dollars, euros, pounds, and yen.
The sanctions will prevent approximately $1 trillion worth of Russian bank assets from entering the U.S. financial markets and those of its partners. The sanctions will also restrict tech exports from Russia and hurt the country's tech sector.
Biden stated that "this is going to impose severe costs on the Russian economy both immediately and over the long-term." We have deliberately designed these sanctions to have the greatest impact on Russia and minimize any impact on our allies and the United States.
However, it could take years for the sanctions to affect the Russian economy. Brian O'Toole was a senior advisor to the Director of the Office of Foreign Assets Control. This office enforces economic and trade sanctions and administers them.
O'Toole, a fellow at The Atlantic Council, said that "I do worry that there's not an immediate economic impact on Russia" and that it could give Putin the impression that the pain of sanctions are less than he anticipates. This would be a motivation to push the envelope.
Fried stated that it took many years for the Soviet Union to respond to sanctions the United States placed on them after they invaded Afghanistan in 1979.
According to the International Monetary Fund (IMF), the 2014 sanctions imposed on Russia following its annexe of Crimea were effective in that both penalties and low oil prices slow down Russia's economic growth over the years.
Fried stated that he believed it convinced Putin to abstain from military engagements over the next eight years. However, those sanctions remained in place. It appears that Putin is now willing to take a chance again.
Fried stated that sanctions are just like any other tool in foreign policy. They're imperfect. "But in 2014 after we hit him he backed down. We had eight years of relative peace, although not all the way. He's back. Perhaps we should have kept the pressure up."
Although sanctions have become the cudgel for American diplomacy and are becoming more common, their effectiveness is still under debate.
The Treasury Department published this month a review of U.S. Sanctions. It noted that their use as national security tools had increased by 933 percent between 2000 and 2021. This is compared to 912 sanction designations at beginning of millennium to over 9,400 last year.
The agency highlighted multiple successes of U.S. sanction, including pushing Iran to the negotiation table in 2015 and protecting tens to billions of dollars from former officials following the uprisings in Libya in 2011. It also noted that the United States had financially crippled drug cartels in Colombia and undermined more than 1,600 terrorist organisations around the globe. However, the Treasury Department acknowledged that American allies and adversaries are turning increasingly away from the U.S. Dollar, which could "erode the effectiveness of our sanction."
Venezuela tried to flot a cryptocurrency in 2017 to evade U.S. sanction. They are dependent on banks for enforcement.
"People are definitely trying to find workarounds," stated Ben Coates, a Wake Forest professor whose research focuses on the history and effects of economic sanctions. "I don't think anyone has succeeded yet. But if they did, that would change things drastically."
These economic sanctions are for now the only way the U.S., its allies, and Russia to be held accountable. Each day has brought new financial pain.
First, Biden signed Monday's executive order prohibiting investment, trade, or financing to two speculative countries that Russia recognized following their claim of independence from Ukraine.
Tuesday's second round of sanctions saw the U.S. block two of Russia’s largest banks from being able to operate in the U.S. or European financial system. VEB is one of the banks. A senior administration official stated that VEB is "a glorified Piggy Bank for the Kremlin". The White House believes Promsvyazbank finances Russian military activities. Together, they have blocked $85 billion worth of Russian assets.
The sanctions imposed on Tuesday also prohibited the Russian Central Bank's financing in the U.S., and in some European countries. This means that Russian government bonds cannot be sold in many Western markets. Their values have plummeted. According to the White House, a few Russian oligarchs were suspected of "participating" in the Russian regime's Kleptocracy. They are now barred from accessing any property in the United States and cannot engage in transactions.
The White House announced a broad range of economic sanctions and export restrictions against Russia on Thursday after Russia invaded Ukraine.
The latest sanctions were coordinated with other Group of Seven industrial leaders but did not include to kick Russia out of the Society for Worldwide Interbank Financial Telecommunication or SWIFT banking system. The move was requested by leaders in Ukraine and many members of Congress, but the U.S. has limited ability to unilaterally do so.
Experts say that while the U.S. sanctions have been quite severe, one of the most important aspects of this week's announcements is that the Biden administration coordinated an international response to Russia. The European Union is following the White House's lead. The United Kingdom has added sanctions and Germany has suspended the Nord Stream 2 pipeline worth $11 billion, which would have brought fuel cheaply from Russia.
Germany's decision not to withdraw the pipeline is a major blow to Russia. It caught many observers off guard as it will likely also hurt Germany.
A senior administration official stated Tuesday that it was not about the money. This decision will remove Russia's geostrategic chokehold in Europe by its natural gas supply, and it's a significant turning point for the world's energy independence.
It remains to be seen how the Russian people react to changes in their economic reality.
O'Toole stated that although the 2014 sanctions against Ukraine led to "a rally around a flag effect", they were only directed at the elites of the country and did not harm the larger Russian population. After Putin's approval rating plummeted following Russia's annexation, the latest sanctions could have a greater impact on everyday Russians. It is also unknown what the Russian people think about Putin's latest military move.
O'Toole suggested that it is possible for them to be less accepting of Putin's international ambitions, after having been in a prolonged recession due to the 2014 sanctions and the recent economic hardships during the pandemic.
This could be truer as sanctions increase and Russians are forced to shoulder more of the financial consequences. Some people are skeptical that targeted sanctions don’t adversely affect larger populations. For example, the current sanctions against Afghanistan are likely to worsen a situation of starvation in Afghanistan.
O'Toole stated, "The goal is to cause enough economic damage to get Putin to take notice." They can't do it without something that also hurts the vast Russian population."
Biden stated that the U.S. could face repercussions from the latest sanctions.
The stock market plunged on Thursday morning, and oil prices shot up within hours. Coates stated that there is some hope that inflation will be raised.
He said that the idea that the U.S. could issue sanctions without any real costs to itself is unlikely. "We could be thinking about sanctions differently in five years, one year or even a few months than we are today."
