10 March 2017
Recently, talk of an end to sanctions has been linked with Donald Trump, but some crucial European advocates of continuing them are about to face elections. So who would actually benefit most from relaxing the sanctions regime?
Philip Hanson

Professor Philip Hanson OBE

Associate Fellow, Russia and Eurasia Programme


Measuring out caviar at Russian Sea JSC's plant in Noginsk. Sectoral sanctions have had a more widespread impact than simply on the banks and companies on which they were officially imposed.Photo: Andrey Rudakov/Bloomberg via Getty Images
Measuring caviar at Russian Sea JSC's plant in Noginsk. Sectoral sanctions had a more widespread impact than simply the organizations on which they were officially imposed. Photo: Getty Images


A complete suspension of all sanctions in the near future is highly unlikely but some easing is possible. Different issues are involved in the various groups of sanctions, and some are more amenable to relaxation than others.

The first round of EU and US measures - visa bans and asset freezes for particular individuals and, by extension, businesses in which they hold controlling stakes - is tied to Crimea, and so these measures are unlikely to be removed.

The case of the Crimea sanctions is paradoxical. On the one hand, Russia’s annexation of Crimea is a fait accompli and it is hard to see it being reversed. On the other hand, the principle at stake – that national borders should not be changed by force – is clear and important, and therefore giving up on the international response to the annexation would be hard to justify.

True, a self-proclaimed deal-maker might offer recognition of Crimea as a part of Russia, but it is not clear what they would get in exchange.

Could Donbas offer more room for negotiation?

A much more likely candidate for relaxation is the so-called “sectoral sanctions”. These block finance to designated companies and banks as well as the transfer of defence-related and certain energy-related technology, and are tied primarily to Moscow’s support for the insurgency in the Donbas.

The fighting in the Donbas is more serious than the occupation of Crimea. It involves death and destruction. However, the issues are fuzzier so there may be more room for negotiation.

One route to the easing of sectoral sanctions is, in principle, the full implementation of the Minsk II agreement. In practice, full implementation would require a miracle. Kyiv will not grant the special status to the people’s republics of Donetsk and Luhansk that Moscow and the insurgents would accept. Moscow will not surrender control of the Donbas border to Kyiv.

Signs of progress on Minsk II could at some point be enough for the two Western signatories, France and Germany, but the US is not a Minsk signatory, and Washington has been the driver of Western sanctions.

The American sanctions were set by executive orders of President Obama, and therefore could be withdrawn by the new president. The Trump administration is slightly less predictable than the oil price, with the vice president and the secretary of state, among others, pushing for continuity. Still, it does offer more chances of an easing of sanctions than its predecessor.

However, bipartisan moves in the Senate and the House of Representatives aim to give Congress the power to veto an easing of sanctions. If those moves succeed, an early suspension of sectoral sanctions becomes less likely.

What are the costs and benefits of maintaining sanctions or adding to them?

The pros and cons are both economic and political. The main economic costs to Russia come from the blocking of Western finance to Russian banks and non-bank companies. The main economic costs to Western countries are the loss of exports from European countries. (The US is marginal to Russian trade.)

Analysts agree that the fall in the oil price since summer 2014 has done much more damage to the Russian economy than has been inflicted by sectoral sanctions. At the same time, sanctions have had a more widespread impact than simply on the 433 named banks and companies on which they were officially imposed.

Western lenders and investors have treated the sanctions as creating a general Russia risk, and therefore tended to hold back on finance to Russian entities in general. Even though this effect has been somewhat eroded recently, the loss to Russian economic activity has been calculated at about half a percentage point of GDP per annum.

The main costs to European countries have been estimated in a recent State Department study. The loss of exports to Russia resulting from Western sanctions and Russian counter-sanctions (calculated as a percentage of GDP for EU states) has a median value of 0.13% of GDP and a highest value (for Lithuania) of 2.73%.

For no other country does the loss exceed 1% of GDP, and for the great bulk of the European population the cost is tiny. The reasons why the aggregate cost is barely detectable are that most EU nations do only a very small part of their trade with Russia, and most of the loss of that trade in 2014-16 can be attributed to the fall in the oil price, the associated fall in the rouble and the general loss of Russian purchasing power.

The political costs and benefits are harder to assess. Western sanctions have not restored Crimea to Ukraine, nor have they put an end to Russian support for the Donbas insurgents. They may have contributed to the scaling-down of Russian ambitions in Ukraine, but that is probably due more to Ukrainian resistance.

Meanwhile the existence of sanctions has helped the official narrative of Russia as a besieged fortress. That in turn may have minimized possible discontent over economic hardship. If so, it follows that an easing of sanctions should weaken support for the regime.

However, the worst of the hardship may be over as the economy returns to growth, albeit sluggish growth. Therefore the need, from the leaders’ point of view, to keep the population rallying round the flag becomes less pressing.

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