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May 4, 2021 at 4:10 PM
The US sanctions imposed in April against several banks, tech companies, individuals and part of its Russian sovereign debt were a new step in the continued effort by Washington and its European allies to punish the Kremlin for its reckless and aggressive acts against the neighbors of Russia and the West. . Similar stringent measures are gaining ground in Europe. Last week, by an overwhelming vote of 569 votes to 67, the European Parliament resolved that in the event of renewed Russian aggression against Ukraine, “Russia should be excluded from the SWIFT payment system, and all assets in the EU of oligarchs close to Russian authorities and their families in the EU should be frozen and their visas canceled. “
The latest round of sanctions has revived a debate whether the measures are painful enough, target the right people, or are effective at all. After all, the sanctions did not lead Russian President Vladimir Putin to turn the tide. But the criticism of the sanctions fails: the sanctions have already weakened Russia, limited its resources and limited Putin’s room for maneuver. Over time, and reinforced by additional measures, they could deprive Putin of the resources needed to harm the future.
As we know, the United States and its allies have applied a wide range of sanctions in response to specific wrongdoing by the Kremlin – including political assassinations on European soil, human rights violations, cyberattacks against Western governments, companies and institutions, the illegal annexation of Crimea. and the continuation of a war of territorial conquest in eastern Ukraine that has claimed more than 13,000 lives. The West has expelled Russian diplomats, sanctioned individuals and businesses, and cut off Russia’s access to a range of economic and financial transactions.
Yet critics have long argued that these limited sanctions do not deter Putin: that they only hurt ordinary Russians and punish the economies of Western countries by applying sanctions. And indeed, sanctions are a limited tool, especially in the short term. While the sanctions imposed after Putin’s invasion of Ukraine likely helped deter Russia from deeper aggression, neither diplomacy nor the current level of sanctions convinced Putin to withdraw from Ukraine, nor prevented the continued interference of Russia in the American and European elections.
While the scattered sanctions may seem limited and weak at the moment, their long-term impact is likely to be profound – especially when it comes to the decline of the Russian economy that feeds its kleptocratic power structure. A IMF study published in 2015 after the imposition of sanctions in response to the invasion of Ukraine concluded that Western sanctions and Russian counter-sanctions “may initially reduce [Russia’s] Real GDP from 1 to 1.5%. “That may not sound like much, but the report also predicted a medium-term GDP impact of up to 9% due to protracted sanctions” as less capital accumulation and technology transfers weaken already declining growth. the productivity. More recent assessments estimate that US and international sanctions reduce Russia’s GDP growth by 1.5% each year.
Our colleagues from the Atlantic Council, Anders Aslund and Maria Snegovaya, suggest a even greater impact: Since 2014, sanctions may have reduced average Russian GDP growth by more than 2.5 percentage points each year. Part of the reason for this heavy blow is that the Russian central bank and government, in their attempt to insulate the economy from Western pressure, have preserved and accumulated capital, which severely hinders them from pursuing fiscal policy. or more expansive monetary.
As a result, the Russian economy has grown at a dismal average of 0.3% per year since the West first imposed sanctions in 2014. While part of the weak growth is falling oil prices and gas (on which Russia’s petrostatic economy depends), the sanctions have also clearly had a major effect on the decisions of investors, businesses and government.
The long-term effect of sanctions could be profound. If Aslund and Snegovaya’s estimate is correct, the Russian economy could grow 64 percentage points less than without sanctions after 20 years. If the IMF’s slightly lower estimate is correct, the relative reduction would be 35 percentage points. Either way, that would mean a Russia with far fewer resources to devote to military adventures, subversion, disinformation, and repression. The last few years have already seen Moscow reduce ambitious plans for military spending, in part as a result of sanctions.
The rogue behavior of not only Putin, but also of Russia’s vast military, security and intelligence establishments, is deeply ingrained in the country’s political culture and is unlikely to change drastically. In addition to the current sanctions, therefore, it is time for Washington and its allies to develop and implement a long-term comprehensive effort to hamper Russian economic growth as long as Moscow remains on its aggressive course, thereby reducing the Kremlin’s potential by matter of power projection.
Even if the West must cooperate with Moscow to the extent possible – on arms control and climate policy, for example – it must assume that Russia will remain aggressive as long as Putin and his entourage remain in power. Western allies must therefore plan for what could turn out to be many years.
In such a plan, sanctions should not be limited to a few economic objectives or to the Russian state. Under Putin, much of the business, media, and cultural elite were enlisted to support the Kremlin’s attacks on other countries, be they military or cyber. Via the Russian oligarchs and their companies, Putin has also bought the support of former Western government officials and establishment figures, notably in Britain, Germany and Austria. These people can also be targeted.
Here are some additional measures that could bolster efforts to curb Russian economic growth:
- Significant expansion of individual sanctions targeting Putin’s cronies, favored oligarchs and Western figures in his employ, who often act as vectors of the Kremlin’s influence in the West;
- Increased financial sanctions targeting Russian financial institutions such as the VEB development bank, which the Kremlin uses to fund pet projects;
- Further limit the Russian government’s access to Western financial markets, for example through restrictions on secondary trading in its sovereign debt;
- Wider sanctions in the energy sector targeting investment and not current production – for example, restricting the access of Russian energy companies to finance;
- Intensified and internationally coordinated technology export controls, based on the first sanctions related to Ukraine.
Of course, the United States and its allies should establish clear conditionality. Targeted sanctions should be removed if, for example, a settlement in the Donbass is concluded. But there are few signs of Russian interest in such a deal.
A vital step to strengthen sanctions would be greater financial transparency, as painful and embarrassing as it would be in much of the West. This would include measures to expose Russian ownership of assets and business entities, thereby reducing the possibilities of money laundering and influence peddling. These transparency measures should be developed with Great Britain, the European Union and Switzerland. In addition, financial transparency requirements should be established in all cases and not primarily target Russia – these are measures of international good governance and not a sanction or sanction.
Each of these measures alone would be important for its economic impact and as signals to Putin. Taken collectively as part of a long-term comprehensive strategy – and jointly developed by the United States, the European Union, Britain and other key European governments – they would signal that the democratic world is rising to the challenge. authoritarian posed by Moscow and other actors seriously.
The time has come for a serious, strategic and transatlantic conversation on a policy of sustained economic pressure on the Putin regime. An effective, systematic and long-term approach to sanctions to last as long as Putin’s aggressive course remains the mode of government in Moscow will increase the chances of a better relationship with Russia in the post-Putin future. Today’s task is not simply to push back the Kremlin for its past actions. The goal of Western policy should be to deprive Putin’s Russia of the resources and the potential to harm the future.
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