After Vladimir Putin’s large-scale invasion of Ukraine in February 2022, Western sanctions on Russia came quickly and harshly. Overnight, Moscow lost access to the staggering $300 billion of its foreign exchange reserves held by the G7 countries, the ruble lost almost a quarter of its value against the US dollar, and Russia’s industrial base was crippled.
The sanctions compiled by the US, EU, G-7 governments and others, which began in 2014 after Putin’s annexation of Crimea, were tightened in 2022. They hit most major Russian banks and included punishing export restrictions on microchips and other key military technologies; Sanctions against Putin’s inner circle and Russian oligarchs; and an innovative price cap that penalized Russian oil sales while preventing a major oil price increase.
Those sanctions had teeth, but they are easing as Russia adapts and learns to evade them. The Russian economy has begun to grow again, against the backdrop of increased military spending, which has reached 10% of GDP, compared to 3-4% before the full-scale invasion. There are many reports of goods, including banned ones, entering Russia via third countries (e.g huge jumps in German exports to Kyrgyzstan, with many of these products being quickly transported to Russia). And Russia is using a “shadow fleet” of oil tankers and fraudulent accounting to undermine the oil price cap.
While the largest Russian banks have been cut off from the international financial system, particularly the SWIFT clearing mechanism, smaller banks and Gazprombank, the major energy bank, remain in the international SWIFT system. This eased the financial pressure.
Critics say the sanctions have failed. Some even say that sanctions are useless anyway. As a former U.S. State Department sanctions coordinator, I helped put together the first sanctions against Russia in 2014. They were significant, and what came after 2022 was even more significant.
Just look at the state of the Russian economy. The IMF continues to assess the country’s economic prospects as “bleak.” Massive defense spending has artificially inflated Russia’s GDP. Capital controls that force Russian companies to sell their hard currency to the state have pushed up the value of an otherwise weak ruble. However, these dramatic measures cannot fully offset the impact of economic pressures. The West can also tighten the screws by tightening sanctions and enforcement measures. As Ukraine’s counteroffensive stalls, it is time to apply economic pressure on Russia and not let up.
Read more: Insight into Volodymyr Zelensky’s fight to keep Ukraine in the fight
The USA and Europe have many options for this. They can tighten export controls on niche technologies that Russia needs for its warfare. They can close loopholes in the oil price cap by tracking Russia’s “ghost fleet” of tankers and oil brokers who falsify invoices to avoid the restrictions. They can use the roughly $300 billion in frozen Russian assets to help Ukraine — a piece of poetic justice that taxpayers in the U.S. and Europe might appreciate. They can extend financial sanctions to all Russian banks (with exceptions for food, medicine and non-military transactions) to deepen Russia’s isolation. They can take action against exports to countries like Kyrgyzstan that are actually intended for Russia. The US, EU and UK are already taking some of these steps and Washington announced new sanctions on December 12th. You can do even more.
In the short term, increasing economic pressure on Russia may show that Putin cannot, as he hopes, wait out the West and force Ukraine into submission. As the West learned during the Cold War, economic pressure can work.
After the Soviet invasion of Afghanistan in 1979 and the imposition of martial law in Poland in the early 1980s to crush the country’s democratic movement, the US attempted to exert economic pressure on the USSR. These efforts were viewed at the time as inconsistent, controversial and a failure. Looking back, we see that they worked: they deprived the Soviet economy of important subsidies of Western investment and technology. In the 1980s, the Soviet economy stalled and sank. A few years later, the Soviet empire collapsed.
The Putin economy is similarly rigid, with little room for entrepreneurship amid corruption and nepotism from top to bottom. Russia’s huge military spending and lack of investment will increase pressure on the Russian economy by depriving the rest of the economy of resources, just as was the case with the Soviet economy. China and Russia’s other friends cannot fully offset its economic vulnerabilities.
The fight with Putin’s Russia will be a long-term challenge. The United States and its allies have economic tools. We should use them. And mean it seriously.
More must-reads from TIME
Source : time.com