Yahoo Finance Why sanctions against Russia aren't working
Momentum seems to be shifting to Ukraine on eastern Europe’s bloody battlefields. But Russia still has the resources to ride out a long war, despite US-led sanctions meant to starve the marauding nation and its president, Vladimir Putin, of warmaking capability.
After Russia invaded Ukraine in February 2022, the United States and many allies imposed sanctions on Russia widely touted as some of the toughest ever. They’ve tightened over time and now include limits on Russia’s ability to bank with the outside world, a ban on many technology imports to Russia, boycotts of Russian energy products, and a price cap on Russian oil meant to starve Russia of its top source of cash.
Yet Russia lumbers on. “Russia is not under the kind of pressure that the US economically thought it would be a year ago,” Ian Bremmer, president of the Eurasia Group, said at the Milken Institute’s annual conference in Los Angeles. “They’re under military pressure, beyond where the US thought. But not economic pressure.”
Ukraine’s economic output plunged by 29% in 2022, as the Russian invasion wreaked havoc. Yet Russia’s GDP dipped by just 2% last year, as robust oil and natural gas sales, largely to nations not participating in sanctions, offset damage caused by the west’s punitive measures.
“Have our sanctions meaningfully curtailed Russia’s ability to wage war? No!” Robin Brooks, chief economist at the Institute for International Finance, tweeted recently. “Our financial sanctions did not prevent Putin getting all his cash in return for energy exports.”
Ukraine’s allies could do more. But there are risks of blowback and unforeseen consequences. Ukraine’s allies want to crimp Russia’s oil revenues, for instance, without actually forcing Russian oil off the market, since that would raise energy costs everywhere and undermine public support for sanctions. The voluntary price cap on Russian oil purchases by several large nations is $60 per barrel. But Russia is still selling tons of oil at a profit to other nations not participating in the price-cap plan, such as China and India. Russia’s oil exports actually hit a post-invasion high in April, according to the International Energy Agency.
Europe and the United States are also being careful not to target Putin personally, to avoid creating the impression that they’re trying to overthrow him, which could make Putin more reckless. “We know of people who are very close members of Putin’s inner circle who aren’t being subject to sanctions,” former Russian business tycoon Mikhail Khodorkovsky, founder of the Russian Anti-War Committee, said at the Milken Conference. “We know there are banks that are Putin’s personal money bags that are not being sanctioned.” He likened the sanctions regime as trying to empty a basin of water with a teaspoon when a ladle is needed.
Russia has also become adept at evading sanctions, which the US and other nations first imposed after Russia seized Ukraine’s Crimean peninsula in 2014. An April report by the Center for Strategic and Intl. Studies (CSIS) found that 15 months of sanctions have impeded Russia’s ability to rapidly reconstitute military gear it’s losing in Ukraine. But the report also detailed a variety of crafty ways Russia still gets what it needs to keep the war going.
To obtain desperately needed computer chips and other components, Russia is now importing more dual-use products that could have both commercial and military applications than it was before the war. That includes semiconductors that are crucial to many weapon systems. Many of those products have to go through “numerous obscure suppliers and multiple land corridors,” according to CSIS, but they still make it to Russia.
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Iran is a big help. It obtains Western military equipment in Iraq, and commercial equipment in many other places, and ships it across the Caspian Sea to Russian ports. There’s discussion between Moscow and Tehran of building a sanction-busting rail line around the Caspian that would allow Russia to get products from India. That’s in addition to attack drones and other equipment Iran is selling to Russia.
Though China isn’t sending Russia weapons, it does provide dual-use technology. Turkey, the Balkan Peninsula and Central Asian states such as Georgia, Armenia, and Kyrgyzstan harbor fruitful smuggling routes. Russia sets up front companies in Europe, Asia, and Africa to obtain banned technology. “Russia still possesses a remarkable degree of adaptability to Western sanctions,” the CSIS report concludes. “The size and scope of this war is forcing Moscow to work on an unprecedented scale.”
None of this means Russia is winning in Ukraine. It isn’t. But there seems to be little chance that sanctions will debilitate Russia, as Ukraine and its allies hope. When asked on a recent webcast if Russia can keep fighting, Dara Massicot of the Rand Corporation said, “That’s where the bad news comes in. They can sustain it.”
Russia can lose militarily, of course. But that would probably require even more advanced weaponry than the United States and Ukraine’s other allies have already provided. Ukraine’s military has outperformed at virtually every level, and it may retake even more terrain in a counteroffensive many analysts feel is imminent. Yet dislodging hundreds of thousands of enemy troops from an area the size of Pennsylvania is a herculean job that would require technical superiority Ukraine currently lacks.
The United States and other allies have drip-fed Ukraine much of the advanced equipment it has pleaded for, such a tanks and air-defense systems. Ukraine now says it needs fighter jets and longer-range missiles, among other things, which it might eventually get. If anything, Russia’s ability to survive sanctions adds to the case for amping up military aid to Ukraine.
“A long war is in Russia’s interest,” Marie Yovanovitch, the former US ambassador to Ukraine, said at the Milken Conference. “That will increase the cost to the United States. Giving Ukraine everything they need now is the way to go.”
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Twitter at @rickjnewman
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