Reliance on sanctions is simply poor statecraft

In the wake of Russia’s devastating invasion of Ukraine, the United States and its allies, including Canada, opened an all-out economic front to the war. Western leaders have announced dizzying arrays of economic sanctions aimed at punishing Russian President Vladimir Putin’s deadly adventurism. But as the last six weeks of war illustrates, instead of hastening its end, mounting pressure on Russia’s economy has led to an escalation to the brutality in Ukraine. Despite the impressive transatlantic unity that assembled the sanctions regime in opposition to Putin, the developing campaign to bring Russia’s economy to its knees may ultimately prove to be poor statecraft by leaders in the West.

Unlike the conventional warfare Russia has been waging in Ukraine, economic ones can be mobilised with relative ease. In the dollar-denominated international monetary system, the United States is the sole financial superpower, with staggering advantages over the European Union and China. Within hours of the invasion, the U.S. and its allies had assembled measures to cut many Russian banks off from the global financial system and freeze hundreds of billions of dollars of Russia’s foreign reserves. This colossal capacity to quickly cripple an economy with the size and power of Russia’s has few historical precedents.

Since 9/11, the use of sanctions has become a “tool of first-resort” for U.S. leaders. In the years since, Washington has leveraged its status to target both U.S. and foreign entities, “as the threat of isolation from the U.S. financial market almost always outweighs the value of commerce with sanctioned states.” Despite their widespread application, both the local and global impacts of sanctions have been under-appreciated — but that could be about to change. As historian Nicholas Mulder, the author of a new study tracing the rise of economic sanctions, recently warned, “If the economic war between the West and Russia continues further into 2022 at this intensity, it is very possible that the world will slide into a sanctions-induced recession.”

In his book, The Economic Weapon, Mulder outlines both the origins of modern sanctions and the vicious cycle between economic and military conflicts. Once envisaged as a deterrent to war, Mulder explains how the innovation of sanctions in the interwar period helped propel “a sustained effort to make economic pressure against civilians both technically legal and politically legitimate.” In the 1930’s, against the backdrop of the Great Depression, “peacetime sanctions became more difficult to distinguish from the wartime blockade that inspired them,” helping to fuel a violent blend of autarky, fascism, and empire across Europe and Asia.

More contemporary sanctions regimes on the economies of Cuba, Iran, Iraq, Libya, North Korea, Venezuela and others have also impoverished ordinary citizens and enriched the lives of elites, with no notable policy success. Countries will withstand a great deal of economic hardship to achieve a sense of security. In Russia, Putin remains popular and the ruble has somewhat rebounded to pre-invasion rates. “From the available data,” Mulder concludes in his comprehensive study, “it is clear that the history of sanctions is largely a history of disappointment.”

That is not to imply that the response to Putin’s aggression should have no economic dimension. But this sobering account of modern economic conflicts helps to explain the reluctance of major Western allies to participate in the current sanctions program targeting Russia, namely democratic governments in India, South Africa, Brazil, and others. As a former Indian diplomat recently quipped, “Far from consolidating ‘the free world,’ the war has underscored its fundamental incoherence.” The same sentiment applies to much of the developing world. “We do not consider that (this war) concerns us,” Mexican President Andrés Manuel López Obrador said last month. “We are not going to take any sort of economic reprisal.”

This bloc of “neutral” countries, reminiscent of the Cold War’s Non-Aligned Movement, remains cautious of the economic onslaught deployed so quickly against Moscow. Just as they condemn Putin’s military aggression in Ukraine, many are wary of the coercive power of financial sanctions as they have been applied in the past. When innocent populations suffer from rampant inflation, food shortages, and isolation from the global economy, the impacts on societies can last generations. Applied punitively, economic sanctions help create the climate for alternatives to the liberal market-based international system to develop.

The ramifications of the war and the campaign of sanctions for the global economy are multifold. The conflict has already led to higher food and energy prices, and Russia is threatening to throttle its vital exports. Saudi Arabia and China may soon conduct oil trade in yuan, chipping away at the dollar’s dominance as the sinews of trade and finance flow east. A renewed geopolitical tussle over India is underway, pitting New Delhi between the West and its Eurasian neighbours.

Instead of deterring Putin’s war machine or revitalising a Western-led alliance into action, the sanctions implemented to punish Russia will deepen the fractures in the global order.