The Biden Administration and our allies have relied on economic sanctions as the only weapon to confront Vladimir Putin’s ruthless attack on Ukraine. Media reporting has been focused on Putin’s oligarch buddies and their extravagant assets outside Russia. But are sanctions effective? For decades, various administrations have imposed multiple sanctions on Russia that have had no real deterrent effect.
In Congress, I chaired the House Foreign Affairs Subcommittee on International Trade and Economic Policy, a group that had jurisdiction on sanctions and export controls. In the late 1970s, we passed two laws that gave the President such authority.
First, the Export Administration Act (EAA). For national security reasons, such controls were used to restrict the export of technology that would contribute to the military capability of a foreign nation, notably Russia. A government panel would review so-called dual-use technology (commercial and military) that concerned the tech industry at the time. Our hearings on reauthorizing the EAA had the committee room filled with lobbyists and law firms trying to change policies or get exemptions.
Second, the International Emergency Economic Powers Act (IEEPA) authorized the President to declare an “unusual and extraordinary threat….to the national security, foreign policy, or economy of the U.S.” that exists outside the United States. It had wide-ranging authority, allowing him to issue a declaration to block transactions, freeze assets, and impose economic sanctions to deal with such threats.
Aside from Iran, Russia has been the main target, most recently in 2014, when Russia annexed the Ukraine peninsula of Crimea. More were added after U.S. allegations that Moscow interfered in the 2016 presidential election. Regardless of the situations or the reasons that prompted such actions, they were mostly symbolic. Sanctions are “not an end to themselves and should not be treated as such,” Steven Pifer, a former State Department official wrote in 2020.
So what’s going to make the difference this time? Putin had no clue that his draconian actions would prompt such a fierce reaction. But will it deter him? In my view, the latest round of sanctions will prove more effective for the reasons listed below:
- In the past, It was the United States taking unilateral action. This time, not only NATO members and our allies, but most nations around the world are taking similar actions. In the past, Putin’s response was his defiant facial smirk, disregarding America’s sanctions, as he would simply pivot to other nations to fill the gap.
- A big hit on Russia’s largest companies and major revenue producer, the energy sector. This has gone way beyond the sanctioning of Russian executives. Europe’s growing dependence on Russia’s abundant oil and gas supply was abruptly halted when Germany put a hold on the Nord Stream, a 1,200 km pipeline under the Baltic Sea, that would provide Germany with much needed gas. Also, British Petroleum, which had a 20 percent share in Rosneft (Russia’s largest oil producer), pulled out, as did Shell Oil Co.
- This time U.S. and European private companies are taking similar actions, including Boeing and Airbus, both suspending their major operations and no longer providing parts, maintenance, and technical services to Russia airlines. More evident on the streets of Moscow, the popular McDonalds, Starbucks, and multiple retail food outlets, plus noted credit card companies, are now closed.
- The financial sector, ultimately the stranglehold, often is immune, but not this time. In just a week, Russia is reeling from the impact of massive financial sanctions, including on individual Russian banks. Beyond government actions, some key financial firms are restricting their Russian services, such as VISA and MasterCard.
- Finally, revoking the Permanent Normal Trade Relations with Russia, thus allowing the U.S. and G-7 countries to increase tariffs and impose trade restrictions, will further isolate Russia from the global economy.
What is the real effectiveness of these economic, financial and trade sanctions on Russia? It will take time to answer this key question.
Russia will take the hit as never before, now in damage control mode with the ruble tumbling, banks shutting down, disruption of financial norms that will trickle down and impact ordinary Russian citizens. Also, there are significant consequences on America, Europe, and elsewhere, especially the higher energy prices and soaring inflation. Another key question: How long is this sustainable?