Sanctions and their efficacy

Do the sanctions imposed by the US and its European allies on Russia in the wake of its invasion of Ukraine make sense? To put the question in a broader context, what purpose do such sanctions serve?

From the standpoint of neo-liberalism, to which capitalist economies in the West are committed, economic sanctions do not make much sense. Such punitive measures curtail production and consumption, raise prices, generate uncertainty, and hurt both producers and consumers. They shrink the size of the global economic pie and prevent firms, particularly multinationals, from capitalising on their full potential or real economic gains. The outcome is thus less than optimal.

Politically, sanctions do have their logic. International relations, above all, are a power play. Economic sanctions by one state or an alliance are a means of exercising power over another. As an instrument of power, economic sanctions occupy a midway between military intervention and diplomacy. Unlike military intervention but like diplomacy, they represent the rejection of the use of force to resolve an international conflict; unlike diplomacy but like military intervention, they’re coercive.

Such coercive economic sanctions are a form of punishment and as such may serve any of the following four purposes: compliance, deterrence, expressive and retributive. The general idea is to make the sanctioned state comply with the will of the sanctioning state by making the cost of non-compliance prohibitive. Since – at least avowedly – sanctions seek a policy change on the part of the target, the actual imposition of punitive measures is usually preceded by the threat to do so. The announcement of the sanctions is an admission that the threats fell flat on the target. The latter might have reckoned that its adversaries were merely sabre-rattling, or it underestimated the likely adverse impact of the sanctions.

At times, sanctions on one state are a ploy to send out a message to a third country that should it also confront the sanctioning states, it would have to pay a similar price. Here sanctions seek to perform as deterrence. On some occasions, the underlying purpose of sanctions is neither a change in behaviour of the target nor a threat to a third country but to appease or mollify a powerful domestic constituency. For example, after being denied market access overseas or having had their foreign investment expropriated, businesses in one country may successfully petition their government to retaliate. This is the retributive function of punishment.

On other occasions, the sanctioning state is only interested in demonstrating that it upholds certain values. Human rights violations by one state may prompt another to impose some penalties on the former. Here sanctions perform essentially an expressive function – they mean no harm to the sanctioned state.

The international sanctions on Russia are designed to serve all four purposes. According to a statement issued by the US Department of Treasury on February 24, these sanctions “are specifically designed to impose immediate costs and disrupt and degrade future economic activity, isolate Russia from international finance and commerce, and degrade the Kremlin’s future ability to project power” and “threaten the peace and stability of Europe”. The sanctions may also seek to convey a discreet message to China that should it try to take Taiwan, it will have to face similar consequences.

Specifically, the sanctions have targeted Russian’s financial sector including the Russian central bank and major commercial banks. American, European and British nationals have been prohibited from doing any business with the sanctioned financial institutions. The Russian central bank’s assets in these countries have been frozen. Some Russian banks have been ejected out of the Brussels-based Society of Worldwide Interbank Financial Telecommunication (Swift) system, which is the most widely used channel by commercial banks for international transactions. Western powers have also prohibited Russian aircraft from using their airspace.

These sanctions are menacing and are similar, though less stringent, to those imposed on Iran before the 2015 nuclear deal. For example, the Russian central bank will not be able to use its foreign assets to stabilise the domestic currency, rouble, which already has taken a toll. Russian banks, which have been denied access to the Swift system, will be left with a very narrow window to carry out transactions with the rest of the world. As a result, Russia’s foreign trade will be hampered. The panic generated by the sanctions will cause a run on Russian banks and may leave them bankrupt.

Thus, at least in the short-run, the Russian economy will be up the creek. Not only this, Russia’s major trading partners which include some of the sanctioning states such as Germany will also feel the pinch. As Russia is the world’s largest gas and second-largest oil exporter, international fuel prices will balloon up. Already in the international market, crude oil has surpassed $110 per barrel.

But would the sanctions be instrumental in causing a shift in Russia’s stance on eastward expansion of the North Atlantic Treaty Organization (Nato) and deter it from ‘threatening’ peace and security in Europe – the issues on hand?

During the cold war, Nato was the alliance through which the US undertook to guarantee the security of its European allies against the communist threat represented by the USSR. Not only did Nato remain intact after the collapse of the USSR, it has expanded eastward to include the European allies of the former USSR, thus raising Moscow’s alarms that its security is being endangered.

Russia inherited from the USSR the status of being the world’s largest territorial power, one of the biggest stockpiles of nuclear weapons, the largest reserves of natural gas and coal, and the permanent member of the UN Security Council. After facing turbulence in initial years, the economy recovered, bounded ahead and at present is the 11th largest in the world. Russia has been keen to play a role in international politics corresponding with its size, military muscles and growing economic strength. On several international issues, particularly Syria, Moscow’s stance has been manifestly opposed to that of the West.

Being the successor to the USSR, Russia has retained deep interest as well as considerable influence in other federating units of the deceased superpower, including Ukraine. Shunning Moscow-led blocs, such as the Commonwealth of Independent States (CIS) and the Eurasian Economic Union, Ukraine made overtures to the West. Ukraine, which is the largest country wholly situated in Europe, has enormous strategic importance for the EU because more than 80 percent of the gas supplies from Russia to Western Europe are made through it. Ukraine is a member of the Organization for Security and Cooperation in Europe (OSCE) and has also been desirous of joining Nato in the face of stiff opposition from Moscow.

In 2014, tensions with Ukraine prompted Russia to annex the Ukrainian territory of Crimea, where the majority of the population speaks Russian, without resistance. Although Washington and EU capitals sanctioned Moscow, they implicitly recognised the annexation of Crimea.

Even though they may impose severe economic costs on the target, sanctions by and large fail to achieve their avowed political objective. For one thing, the underlying purpose may be only or largely expressive, which is achieved once the sanctions are announced. For another, the sanctioning states may have underestimated the capability or resolve of the target nation or the regime to stand up to the pressure. The sanctions on Iran or on Pakistan for its nuclear programme, or for that matter the previous sanctions on Russia, failed to hit the bull’s eye. The same may hold in the case of the current sanctions on Russia.

At any rate, the sanctions in question don’t, and can’t, address the casus belli – Moscow’s sense of insecurity over the eastward expansion of Nato. Only diplomacy can do this.

- The writer is an Islamabad-based columnist.

Twitter: @hussainhzaidi

Email: hussainhzaidi@gmail.com