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Biden hopes sanctions will deter Putin. It may not be so easy.

Steep economic costs may not significantly change Russia’s behavior

- February 18, 2022

Economic sanctions are a major part of President Biden’s Russia-Ukraine strategy. The U.S. threat of “swift and severe costs” seeks to help deter Russia from invading Ukraine. If Russia does invade, the United States hopes the costs of sanctions would punish Russian President Vladimir Putin enough to help end the war.

The proposed sanctions — cutting Russia out of global financial markets, blocking its oil and gas exports, embargoing key technologies, targeting Putin and Russian elites — look formidable. But research suggests imposing successful sanctions is no easy task.

Does Russia have alternative trade partners?

If the United States’ threat of sanctions is going to deter Russia, they must be credible. This depends not only on U.S. resolve, but on Russia’s ability to counter the sanctions. Here are key points to consider.

A first question is whether Russia can find alternative trading partners. Western Europe has nine times more trade with Russia than the United States does. The region is the largest customer for Russian energy exports, purchasing close to 50 percent of Russian oil exports and 72 percent of Russian natural gas exports. That makes Western Europe the principal potential alternative trade partner for Russia, and the United States would no doubt push to weaponize this interdependence.

If Russia launches a mass invasion of Ukraine, Europe is likely to agree to the full Biden sanctions package. But if Putin’s tactics remain short of that — cyberwarfare, more semi-covert “little green men” in Ukraine — Western alliance solidarity may not hold. With natural gas prices soaring, European unemployment still high and European investors financially exposed, Moscow can mount its own reverse interdependence weaponization. U.S. promises to provide liquefied natural gas shipments and other energy supplies would only partially substitute for a Russian gas cutoff.

U.S. secondary sanctions — in effect, sanctioning Europe for not cooperating — could include blocking the Nord Stream 2 pipeline, imposing the foreign direct product rule on semiconductors and other U.S.-licensed technology, and restricting dollar-denominated transactions. While such measures might force Europe to go along, the intra-alliance tensions would weaken any deterrent signal and create uncertainty about sustaining sanctions over time.

Even if economic benefits from providing alternative trade are limited, shared geopolitical interests may be a motivation. The Putin-Xi Jinping Olympics “no limits” to friendship statement was clearly along these lines. Chinese President Xi signed on to criticism of NATO enlargement, Putin to criticism of the AUKUS security partnership. While China can’t fully substitute for Europe and other American allies, it can somewhat offset lost trade and squeezed finances.

Putin also can resort to domestic counterstrategies. Rhodesia, for instance, increased domestic manufacturing capacity from 602 products pre-sanctions to 3,837 within five years, which was a key factor in how the government resisted U.N. sanctions for almost 15 years.

Putin countered the original 2014 Ukraine-Crimea sanctions by expropriating property from more liberal elites and giving it to his inner circle. This time around, Putin has built up over $630 billion in hard currency reserves to draw on. While the Russian public is inclined against a Ukrainian war, major domestic protests seem unlikely.

Russia may be about to invade Ukraine. Russians don’t want it to.

Do economic impacts lead to policy compliance?

A recent U.S. Government Accountability Office report criticized assessments for too much focus on the economic impact of sanctions, and too little on “sanctions’ overall effectiveness in achieving broader U.S. policy goals or objectives.” While some success is inherent in imposing costs, much research shows that economic impacts don’t necessarily lead to policy compliance.

Sanctions against North Korea have imposed major costs, for instance, but its nuclear weapons programs have grown. Cuba has borne American sanctions for over half a century, yet the regime is still in place. Trump’s “maximum pressure” policy inflicted major damage on the Iranian economy, but Iran refused to comply, and indeed escalated on a number of fronts.

My research suggests that a number of factors affect whether economic costs significantly change behavior. For one, the scope of objectives matters. Numerous studies suggest limited objectives are more achievable than extensive ones. In this regard, accentuating the sanctions threat early in the crisis reflects the broader stratagem that deterrence — dissuading an adversary from taking contemplated actions — tends to be more achievable than compellence, reversing an action already undertaken.

If Russia does invade Ukraine, even hard-hitting sanctions are unlikely to compel withdrawal. Cases such as the failure of the 1935-1936 League of Nations sanctions to get Mussolini’s Italy to end its Ethiopia/Abyssinia invasion and the 1980 U.S.-led sanctions against the Soviet Union for invading Afghanistan are instructive in this regard.

Second, contrary to criticisms, U.S. sanctions efforts are not undercut by its reluctance to use direct force. One study found that while 15 of 24 sanctions successes involved military force, so did 17 of 39 ineffective cases. Proposed measures such as over $200 million in additional Ukrainian military aid and other “porcupine strategy” elements strengthening Ukrainian capacity to resist raise the prospective costs for Russia in a more discriminating way.

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And third, successful sanctions rest not only on coercion, but assurance. A number of studies show the sanctions stick combined with inducement carrots to work better than sanctions on their own. There, thus, should be no expectation of Russia just conceding and retreating without a diplomatic process with sufficient mutual compromise to establish some basis of reciprocity.

The core security issues that precipitated the current crisis, Ukrainian NATO membership in particular, remain to be addressed. While U.S. agreement to a “no-never” commitment on NATO appears neither strategically wise nor politically possible right now, reciprocity may well require recognizing Ukrainian (and Georgian) NATO membership as not just a Putin fixation, but what William J. Burns, former U.S. ambassador to Russia and now CIA director, previously acknowledged to be “a bright red line for any Russian leadership.” Without getting at the crucial underlying issues in ways that provide reciprocity, any leverage sanctions can provide will be wasted.

The effectiveness of sanctions on Russia thus depends not just on how formidable they appear, but also calculating in Russian countermoves and strategizing for converting what economic impact they might have into an integrated crisis resolution strategy.

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Bruce W. Jentleson, William Preston Few Professor of Public Policy at Duke University and Distinguished Fellow at the Woodrow Wilson International Center for Scholars, is the author of “Sanctions: What Everyone Needs to Know”(Oxford University Press, forthcoming 2022).