From the very beginning Russian invasion in Ukraine, America, Europe and their allies launched a flurry of sanctions against thousands of individuals and companies from Russia.

Half of Russia’s $580 billion foreign exchange reserves have been frozen, while most banks are now cut off from the global payment system. America is no longer buying Russian oil, and the European embargo will go into full force in February.

Purpose of the sanctions

In addition to satisfying the citizens of Western societies, these measures also had some strategic goals. The short-term goal, at least on the first level, was to provoke a liquidity and balance of payments crisis in Russia that would make it harder to finance the war in Ukraine and, accordingly, change the Kremlin’s incentives.

In the long run, the goal is to reduce Russia’s manufacturing and technological potential so that Putin has fewer resources if he wants to invade another country as well. The ultimate goal of sanctions is to keep other leaders from continuing military conflicts.

New Doctrine of Western Power

However, behind these ambitious goals is also a new dogma about the power of the West. America’s undisputed dominance faded in the 1990s, and the West’s willingness to use military force was curtailed after the wars in Iraq and Afghanistan.

Sanctions were seen as a good “answer” because they allow the West to influence Russia through control of its financial and technological networks. For the past two decades, economic sanctions have been used as a “punishment” for human rights violations, to isolate Iran and Venezuela, and to put pressure on companies like Huawei.

However, the embargo on Russia has taken the concept of sanctions to a new level as it aims to weaken the world’s 11th largest economy and one of the largest exporters of energy, grains and other commodities.

What are the results?

In three to five years, isolation from Western markets is expected to cause havoc in Russia. By 2025, a fifth of civilian aircraft will likely be shut down due to lack of spare parts.

Modernization of telecommunications networks is delayed, and consumers will feel the absence of Western companies. Moreover, as the state and the tycoons confiscate Western assets, capitalism will increasingly take the form of clientelism.

Russia is losing some of its most talented citizens, who resent its dictatorial reality and the prospect of their country becoming a gas station for China.

The problem is that this blow to the Russian economy has not materialized yet. According to the IMF, Russia’s GDP will shrink by 6% in 2022, much less than the 15% that many expected in March.

Energy sales will create a $265 billion current account surplus this year, the second largest in the world after China.

After a brief crisis, Russia’s financial system has stabilized and the country is finding new suppliers for some imports, including from China. Meanwhile, Europe is facing an energy crisis that could trigger a recession. Natural gas prices are up 20% this week as Russia cut supplies.

Disadvantages of sanctions

Thus, financial sanctions appear to have certain disadvantages as a means of exercising power. One of them is time delay. Denying access to technology monopolized by the West will only hit Russia years later, and regimes like Russia are able to withstand the initial hit of an embargo because they can carefully reallocate their resources.

Although the West’s GDP is much larger than Russia’s, there is no point in hoping that Putin will not continue to use natural gas as leverage. The biggest drawback of sanctions is that they do not impose full or partial embargoes on more than 100 countries, which account for 40% of global GDP.

A globalized economy can adapt to crises and new opportunities, especially when most countries are unwilling to pursue the policies of the West.

China case

So we need to get rid of the illusion that Western sanctions are a cheap and asymmetric way to deal with China, an even bigger power.

To prevent or punish an invasion of Taiwan, the West could freeze China’s $3 trillion in reserves and cut off its banks.

But, as with Russia, China’s economy is unlikely to collapse, and Beijing could retaliate by banning Western supplies of electrical goods, batteries and pharmaceuticals, emptying its shelves and wreaking havoc.

Since more countries depend on China than on America as their biggest trading partner, a global embargo will be even more difficult to implement than in the case of Russia.

So the lesson is that fighting authoritarian regimes requires action on multiple fronts. Military power is important. Democracies need to be less open to their opponents. Sanctions play a very important role, but the West must not allow them to become more widespread. The more some countries fear Western sanctions, the less willing they are to impose embargoes on other partners.

new era

The good news is that, 180 days after the Russian invasion of Ukraine, democracies are adjusting to this new reality. Powerful weapons are being sent to Ukraine, NATO is strengthening Europe’s borders with Russia, and Europe is finding new sources of natural gas and accelerating the transition to clean energy.

In addition, America is reducing its dependence on Chinese technology and urging Taiwan to improve its military defenses.

It is worth noting that authoritarian regimes like the Chinese are closely monitoring the issue of Western sanctions against Russia and are sure to learn from this.

The war in Ukraine has ushered in a new era of military conflict, in which military power, technology and economics are intertwined elements. And in this era, the West no longer has a place to consider itself superior, because no one can deal with aggression only by economic means.

^{Source: The Economist}