Understanding international sanctions in the wake of Putin’s invasion of Ukraine

Written by Giuseppe Peressotti

Introduction

Following the invasion of the Ukrainian territory by the Russian troops at the end of February 2022, many debates and much discussion arose concerning the imposition of “international sanctions” by the West and, in general, by all the countries which strongly condemned Putin’s warmongering ambitions. The US, the UK and the EU (among others) led the efforts to punish this act of war by developing several ‘sanction packages’, targeting Russia and some of the most influential members of Putin’s ‘inner circle’ (Sevastopulo & Fleming, 2022). Oftentimes, talks about sanctions are simplified due to the multifarious nature of this topic, which might include a variety of different kinds of actions (financial limitations, strengthening of protectionist measures, cut of diplomatic ties, etc.). Because of this, people might be left wondering what kind of actions are actually being taken to counter offensives like the one we are seeing unfold at the hands of Putin, or why they would be deployed. In this article, we are thus going to summarise what ‘International Sanctions’ are, the reasons for which sovereign countries and supranational institutions might decide to use them, and the possible effects these sanctions might have both on Russia and Europe.  

Defining International Sanctions

The United Nations (UN) Security Council defines ‘Sanctions measures’ as “a broad range of enforcement options that do not involve the use of armed force” (UN Security Council, n.d.). While UN sanctions are strictly related to non-military impositions and enforcements adopted to pursue the Security Council’s own objectives –for example, the protection of international peace under Chapter VII of the UN Charter–, those imposed by single or regional entities are usually not dissimilar in form and scope, and generally differ only in the reason for which they are applied (Carisch, Rickard-Martin, & Meister, 2017). In other words, international sanctions constitute enforcement measures that do not involve direct military action, which are applied to uphold safety-related objectives.  They usually include asset freezes, travel bans, arms embargoes, import and export limitations, restrictions on services and the use of financial/banking instruments (EEAS, 2021). To make a day-to-day example, sanctions are different from municipal fines, where the sanctioned party can just make an upfront payment. Instead, they are de facto unilateral changes to existing contracts, which are either made more expensive for the targeted party or directly made null. 

Why Are Sanctions Imposed?

Considering the mostly non-military matrix of international sanctions, their imposition can be retconned to a need of finding an alternative to military actions. In some cases, engaging in war might be deemed too risky for a variety of reasons, such as breaking supply chains, sparking a domino effect which would catapult more and more countries into the war, or involving nuclear powers into the conflict. Furthermore, military actions might appear inefficient, or disproportionate compared to the event in question. Indeed, as pinpointed by Leyton-Brown (2017), many economic actions imposed by different administrations in the past were pursued for three main reasons: 

-Punition, “the desire of those states taking these measures to punish the target state or states for their behaviour”.

–Deterrence, “a desire to signal that similar behaviour –by the target state or by other states- would have recognised attendant costs, and thereby deter such behaviour”.

–Compellence, “seeking to change the target state’s behaviour by depriving that state of something it values, in essence forcing it to abandon the behaviour offensive to the initiating state or states”.

Van Bergeijk (1995) also identified six factors which would justify an increase in the use of sanctions in our current age. The end of the Cold War would be the first one, with a decrease in the legitimacy of the use of force, an unprecedented development of international cooperation and the action of ‘grand coalitions’ in pursuing a coordinated set of sanctions. Then, it should be considered how the increase in importance of trade policy makes economic sanctions more effective, as well as a  better tool of leverage in foreign policy. Thirdly, trade sanctions are oftentimes proposed in compliance with environmental policies, which lately have been gaining considerable attention from governments worldwide. The fourth factor would be the advancements in warfare technology, the development of chemical and biological weapons, and the proliferation of nuclear arsenal technology, which showcases how the flow of technological means becomes more critical as countries rely on global arms trade to develop their military actions. The last two factors are related to “learn-by-doing effects” and the “increasing interdependence of countries” respectively (Van Bergeijk, 1995). “Learn-by-doing effects” indicate how the bodies in charge of overseeing international sanctions are becoming permanent, and are thus garnering valuable experience and information from their previous work on sanctions. Instead, with “increasing interdependence”, Van Bergeijk underlines how, in a globalised and interconnected world, countries which are partaking in the global economy are simply more vulnerable to foreign pressure and measures of economic diplomacy. 

The EU views sanctions as a tool to be used in tandem with other policy measures and dialogue, in an effort to safeguard the EU’s values, interests and security, on top of preserving peace, supporting democracy and the rule of law, backing human rights and preventing conflicts while strengthening international security (EC, Council of the European Union, 2020).

The 2022 Invasion of Ukraine: Sanctions On Russia

The conflict between Ukraine and Russia gained international attention starting from 2014, following the illegal annexation of Crimea by the Russian Federation and its involvement in the 2014 Donbas War. Since then, substantial international sanctions have been imposed on Moscow to deter Russia from following through with an increased use of armed forces. These included targeted restrictive measures against 21 officials (EC, Council of the European Union, 2014) but soon escalated with a series of additional sanctions which were carried over to the present day (EC, Council of the European Union, 2022c).

In light of the recent invasion of Ukraine, as of February 26th 2022, the European Union decided to extend the set of sanctions previously implemented, further strengthening their effectiveness and enlarging their scope (EC, Council of the European Union, 2022b). This included limited access to the EU primary and secondary capital markets for target Russian banks like Alfa-Bank or Bank Otkritie, and multinational companies, which have been prevented from raising capital with short- and long-term bonds in the European markets. Furthermore, other sanctions covered an import/export trade ban in arms, an export ban on military-use dual goods to Russia, an export ban in goods and technology in the aviation and space industry, restrictions in the provision of services for oil exploration and production. Restrictions on economic relations with the Crimea region, and with the areas of Donetsk and Luhansk, are still in place, with import bans on goods, restrictions on trade and investment related to key economic sectors, prohibition on supplying tourism services and an export ban on key goods and technologies. All in all, 654 people, mostly composed by key figures and members of the Russian State Duma, and 52 companies have been hit with an asset freeze and travel ban, following their actions which “undermined Ukraine’s territorial integrity, sovereignty and independence” (EC, Council of the European Union, 2022b). Provisions for the current sanctions imposed by the EU on Russia were prepared on February 23rd 2022, resulting from several meetings between EU officials, EU Foreign Ministers, the European Council and the European Commission (EC, Council of the European Union, 2022a). An additional package of sanctions was announced on February 25th, further expanding the asset freezes, targeting Putin himself and his foreign minister, Sergey V. Lavrov (Stevis-Gridneff, 2022). 

However, the EU has not been  the only actor  imposing sanctions on Russia. Similarly, the UK announced that key Russian banks would have their assets frozen, and that they would be excluded from the country’s financial system. Moreover, key Russian companies were banned from raising financial funds in the UK and exports of dual-use goods, high-tech items and oil refinery equipment were stopped. Ultimately, Russians were limited in how much money they could deposit in their British accounts. The US, Australia, Japan, South Korea and Singapore also contributed by imposing heavy sanctions on financial systems, Russian persons of interest and curbing the Russian capabilities to import key goods in sectors like arms, aircraft and energy (BBC News, 2022).

One of the most debated moves related to the international sanctions on Russia would be its exclusion  from the SWIFT payment network. Indeed, making a joint effort to implement restrictive measures, the US, the EU and the UK were set on excluding selected Russian banks from the system (Deutsche Welle, 2022), with Biden and his allies ready to curb the Russian Central Bank’s ability to deploy its international reserves as well (The White House, 2022). The ‘Society for Worldwide Interbank Financial Telecommunication’ (SWIFT), is an interbank messaging system which allows banks to communicate worldwide, effectively allowing the movement of financial operations across borders. Being one of the most widely used of such systems, cutting ties with Moscow means that Russia’s ability to operate globally would be substantially damaged (Macias, 2022), being then forced to resort to  alternatives such as their internal payment network (SPFS) or the Chinese Cross-Border Interbank Payment System (CIPS) (Shagina, 2021). In 2014 Alexei Kudrin, former finance minister of Russia, predicted that excluding the Federation from SWIFT could diminish its GDP by around 5% (Shagina, 2021), a statement which, even if overestimated, would underline how impactful such move would be for the Russian economy. Although long-term effects are still uncertain depending on how Russia will answer to the implemented sanctions, short-term economic instability can be witnessed by looking at the value of the Russian Rouble, which dropped by around 14% in a single trading session despite the best efforts of the Russian Central Bank to hike rates (Ranganathan, & Strohecker, 2022).

Effects On The EU And Possible Drawbacks

Despite the shared international efforts to put a halt to  the Russian invasion, much uncertainty still lingers over the foreseeable future. Not only the precise effectiveness of the adopted measures is hardly quantifiable, but the sanction-imposing countries are also vulnerable to the double-edged sword nature of sanctions themselves. Indeed, besides the risk of counter-sanctions from the Russian government, it has to be considered how many European countries are still highly dependent on Russia when it comes to gas and oil supplies. Considering Russia’s exclusion from SWIFT, heavy repercussions could be experienced by  bondholders, EU banks and energy importers (Aljazeera, 2022). Russia, which holds considerable leveraging power against the EU, has been steadily supplying around 40% of EU gas consumption (McWilliams et al., 2022a), meaning that finding reliable alternatives to importing Russian gas would be a slow and most likely challenging process. In the short-term, having the European gas-imports halted would be damaging but still bearable, save for some emergency measures to be taken by national EU countries. However, a prolonged interruption of  Russian gas flows would seriously dampen EU’s energy markets as next winter hits. Although alternative gas suppliers could be identified in other countries and areas, including the UK, North Africa and Norway, in practice this option would yield several problems. First thing first, at the moment the EU demonstrates limited upstream and liquefaction capacity for LNG (Liquefied Natural Gas), meaning that the available infrastructure would not be enough to support additional imports. Red-tape around long-term LNG contracts is also a problem, making feasible solutions hard to reach in a timely manner. Spiking energy-related prices would hit consumers and producers alike, and ultimately lesser LNG availability for developing countries would end up spreading this economic problem elsewhere (McWilliams et al., 2022a). The solutions to this crisis can be achieved by tackling each one of these problems, which may still be possible on the ground that policy-makers will act fast and with decision. This statement can be summarised by one of McWilliams et al. concluding remarks (2022b), which reads “on the ground, dozens of regulations will have to be revised, usual procedures and operations revisited, a lot of money quickly spent and hard decisions taken”.

Conclusion

As analysed above, countries often deploy sanctions whenever direct military intervention is deemed unnecessary, risky, and exaggerated, using deterrence as a way to push the imposing country’s agenda. However, targeting the economy of a country is bound to impact the living situations of its citizens, damaging the civilian population caught in the economic cross-fire despite the lack of violent confrontation. 

In the wake of Putin’s invasion of Ukrainian territory, the EU and most of the other main international players decided to band together and denounce this unsolicited act of war. Several sanction packages are being deployed, in the hope that total economic and diplomatic isolation would either force the Russian government to reverse its attack on Ukraine, or starve out the military machine that is currently reaping victims among young soldiers and innocent civilians. These sanctions are not without economic risk for the members of the Union, but surviving without Russian gas does not appear an impossible feat given a swift and tight barrage of EU-wide policy decisions.

We can conclude by remarking how the agenda pushed by the EU and the international community would be to seek peace, deterring Russia from further continuing this war and any other country from following Putin’s path of warmongering ambition.

References

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