Oleg Korenok, Swapnil Singh, and Stan Veuger![]()
Four months into Russia’s brutal invasion of Ukraine, initial optimism about the effectiveness of the unprecedented sanctions imposed by the United States and its allies has started to fade. The ruble, which was trading at 75 rubles per dollar in January, collapsed to a low point of 135 in March. It has since recovered to 55, well above where it was prior to the invasion. Output, while not stellar by any means, has not collapsed either.
Does that mean the sanctions regime has been a failure? We do not believe so.
Any assessment of the sanctions and their effectiveness needs to take their indirect nature into account. While they were imposed in response to the Russian invasion, their nature is economic and thus slow-moving. Their effects cannot be expected to materialize on the same timeline as a military attack. Their point—besides deterring future aggressors and punishing Russian elites and their cronies—is to restrict economic activity. Reduced economic activity is then expected to translate to reduced military power.
But that cannot happen overnight. Measures that weaken the domestic economy—such as Western companies pulling out of Russia—reduce Russia’s ability to pay soldiers and to fabricate weaponry. Measures that restrict exports limit Russia’s ability to purchase arms and technology from overseas. Measures that restrict imports limit Russia’s ability to maintain its industrial facilities and produce high-tech military supplies. Aviation is perhaps the most salient affected sector, but manufacturing and repairing cars and tanks have become very difficult due to a lack of parts as well. Russia is even dependent on Western cooperation to be able to continue exporting natural gas.
But all of these wear down Russia’s war-making ability only gradually, eroding its logistical and technical capabilities. Moscow is aware of this—which is one reason Russia is pushing so hard in Ukraine’s east now, hoping, even after giving up its initial hopes of seizing Kyiv, to score a victory before its war-making capabilities are worn down.
That said, the Russian economy has already been unmistakably and grievously harmed by the sanctions in ways that will become increasingly apparent. Russia’s stock market, which reflects not just current but also future economic conditions, has been decimated since February. Major multinational corporations have pulled out of the country, taking their know-how with them. And the recovery of the exchange rate reflects financial repression more than anything else.
At the same time, one major bright spot remains for Russian President Vladimir Putin’s regime. The International Energy Agency reported in May that Russian oil revenues were up 50 percent this year. This has come despite a U.S. ban on purchases of Russian oil and a partial European Union ban on oil purchases. Rapid price increases and stepped-up purchases by India and China have so far more than made up for the restrictions on exports to the EU and United States.
First, foreign currency is useful only if you can use it to buy imports or to pay off domestic actors. Russia imports mostly manufacturing products, including crucial parts for the production of cars and tanks. And Russian imports are down by almost half overall. Even imports from China have declined dramatically.
Western sanctions have plenty of range; they make it difficult to import even from third countries. Once sanctions touch enough products and services such as finance, insurance, and shipping, they in effect function as secondary sanctions without the diplomatic costs of actual secondary sanctions.
And while it is a gradual process, European consumers of natural resources are substituting away from their reliance on Russian oil and gas. Policies that were unthinkable until quite recently are suddenly on the table. Germany is once more firing up its coal plants. The Netherlands is considering boosting gas output from its Groningen field, despite concerns about damage caused by earthquakes triggered by drilling in the recent past.
But these measures remain controversial and require time to implement, and for now Russia’s control over the European energy supply continues to be its main source of leverage. Energy’s central role in the broader bout of inflation that has hit much of the continent highlights this, and dramatic moves away from Russian energy will if anything become more problematic—if not preempted by Russian action—as winter approaches.
So, yes, the mechanisms are gradual and relatively slow-moving—a soldier does not get paid on time, a machine breaks down and cannot be repaired for lack of spare parts, complicated electronic systems begin to fail because Russia can no longer get patches for the underlying software. They rely on careful planning, require anticipating Russian responses, and demand that third-country reactions be taken into account. And while they complement the Ukrainian war effort, they can’t substitute for it. Ukraine’s freedom is being maintained on the battlefield by Ukrainians—increasingly armed by Western economic might.
Perhaps the most promising options for strengthening the current sanctions include further steps in the areas of energy and finance. In the energy sector, this might include the gradual instatement of an embargo on Russian oil and gas exports to Europe, if domestic opposition can be overcome. Import tariffs on oil and gas might play a similar role and have the advantage of generating tax revenue that can be used to alleviate cost-of-living concerns. More indirect approaches include the imposition of an escrow regime, outside immediate Russian control, to capture Russian earnings or intensified targeting of firms that help Russia export seaborne oil to non-European countries. On the finance front, sanctions could target the remaining major Russian banks, investments by Western firms in Russia, and transactions that take place in rubles.
If the sanctions aren’t working fast enough, speed them up.
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