The primary aim of these sanctions is to force the Kremlin to make different political, tactical and strategic decisions. In principle, such decisions should be driven by Russia’s incapacity to wage war due to a lack of critical materiel or manpower; by the fact that sanctions may raise the costs of the invasion above the anticipated gains for Russia; and/or by the political threat to Russian leaders from continuing
the war.
Export restrictions, on their own, will not render Russia incapable of waging war. For instance, fully cutting off the supply of spare parts to a market economy like Russia’s, with its network of intermediaries in countries that do not observe sanctions, is unfeasible. Although sanctions that increase Russia’s import costs create a measure of deterrence against further Russian aggression, these are insufficient for establishing absolute deterrence. For example, debilitating Russia’s banks makes it more complicated for Russia’s defence industry to procure imports, but it does not prevent it from doing so altogether.
Targeting imports related to critical stages of production, especially where Russia depends on single suppliers in countries complying with sanctions, is a potentially more promising approach, but it has yet to be applied widely. Such measures could be enforced, for example, by paying producers of critical goods and services to trace their supply chains through ‘know your client’ procedures, and at the same time, fining them for any of their products found in Russia.
Put another way, an export-restriction strategy would prevent Russia from developing and producing certain modern weapons, and it would raise the cost to Russia of waging war, but Russia would still be able to continue to service its war needs for some time. The country has extensive stockpiles of Soviet-era weapons, as well as a large, if increasingly limited, defence industry. Moreover, this industry will continue to be reinforced by imports from China, Iran and North Korea. Even if completely deprived of Western-made parts and cutting-edge technologies, Russia could still produce plenty of deadly weapons such as artillery shells, rocket launchers, guided glide bombs, and unmanned aerial and ground vehicles.
Given the politically existential nature of the war for Putin, the Kremlin can be expected to mobilize as many financial resources and as much labour as it believes necessary for victory.
Given the politically existential nature of the war for Putin, the Kremlin can be expected to mobilize as many financial resources and as much labour as it believes necessary for victory. Prioritizing military strength is a deep-rooted tradition in Russia. Russia’s economy will incur a high cost if its leaders were to continue waging the war under mounting pressure. But Putin would not have started the war had he rationally weighed the costs and benefits for the country. Now, he seems to believe that his political survival depends on winning the war regardless of the costs. That is why the sanctions imposed thus far, though unprecedented against a major power, cannot on their own force Putin to withdraw Russian troops from Ukraine.
Some researchers emphasize the potential of measures aimed at Russia’s GDP and balance of payments, in particular citing the rationale that targeting Russia’s economy will lead to a decrease in the well-being of its population, in turn putting pressure on the leadership. But this idea is less potent when democratic methods for unseating unpopular leaders are in effect unavailable, as is the case in Russia. While Putin values his popularity, the president’s public image is manipulated in his favour by the Kremlin’s political technologists. Additionally, a significant part of the population still harbours the imperial belief that territorial gains enhance a country’s wealth. Despite the clear evidence that the annexation of Crimea in 2014 made Russians poorer, and despite the decline in real disposable incomes during the first year of the full-scale invasion, public support for the war and Putin’s popularity remained relatively unaffected. A scenario involving grassroots protests is now less likely, especially given the increasingly repressive measures put in place by the Kremlin to prevent a reoccurrence of large-scale protests like the Bolotnaya Square demonstrations of 2011–12. Only a degree of impoverishment well beyond the reach of the current sanctions regime could possibly prompt such a popular uprising.
A further limitation of broad-based economic sanctions is that the current approach is unlikely to hit the regime hard enough. Restrictions on Russia’s exports are likely to decrease its GDP by no more than 10–12 per cent. While very significant by Western standards, this would not be catastrophic for an emerging market country like Russia, in part because the amplitude of economic cycles is much greater than in developed economies. Russia weathered a decline of 7.8 per cent in 2009, and the regime has become far more repressive since then.
However irrational the fundamental motivations behind the full-scale invasion, Putin is rational when it comes to his regime’s survival. This reflects the winner-takes-all nature of Russia’s politics, premised on the understanding that another large policy mistake could result in his replacement or even the collapse of the regime. Paradoxically, this means that Putin and his immediate circle have strong motives for continuing the war, despite its possible detrimental impact on the economic well-being of Russian citizens. An unending war is in some respects politically necessary for the regime to justify the sacrifices made to date, in terms of both human casualties and economic hardship that Russian citizens have endured since the invasion.
Notwithstanding these factors, the regime’s economic vulnerabilities still provide an opportunity for influencing Putin’s decision-making. Rather than giving up on sanctions on the basis that the arguments articulated above make them ineffective, Ukraine’s allies need to exploit Putin’s interest in staying in power. Financial and energy-related measures are the best way to do this. But such measures need to be more tightly focused on areas of the Russian economy where disruption can do Putin the most damage. As the rest of this paper shows, the oil market is the place to start.
