Have Sanctions on Russia Changed Putin’s Calculus?

Economy, Business, Investment, Trade, Sanctions, United States, U.S.-Russian Relations
Portion of U.S. Treasury Department Building Facade, North Side, with Sculpture of Alexander Hamilton

Since Russia’s 2014 invasion of Ukraine, Western powers have hit Moscow with economic sanctions, hoping to put a stop to President Vladimir Putin’s aggression. Have they worked?

(Council on Foreign Relations – Andrew Chatzky – May 2, 2019 – cfr.org/article/have-sanctions-russia-changed-putins-calculus – Andrew Chatzky covers economics, energy, and geopolitics, and helps edit the Daily News Brief.)

The United States and the European Union have steadily ratcheted up sanctions on Russia since its 2014 invasion of Ukraine. The West’s goals include punishing Moscow, pushing it to withdraw from Crimea, deterring it from further aggression, and signaling that national borders must be respected. But a half decade on, what is there to show for all the sanctions?

What is the state of Russia’s economy?

From 2014 to 2015, Russia’s economy slumped through its longest recession in almost twenty years, as oil prices plummeted and the value of the country’s currency, the ruble, crashed.

Since then, the economy has been on an upward trajectory. Growth, though slow, has returned, and the unemployment rate is close to a historic low. Skeptics point out that the fruits of the rebound have mostly accrued to the rich, and real wages continue to fall. While the Moscow stock market booms, a third of the country cannot afford to buy a second pair of shoes, according to the country’s official statistics agency.

How much of this can be attributed to sanctions?

Oil Well file photoAnalysts say it is hard to separate the effects of sanctions from other factors. Russia’s initial slump was the result of a steep collapse in the price of oil. Between 2014 and early 2016, crude oil prices fell from $115 to $35 per barrel. Oil and gas production account for 30 percent of Russia’s gross domestic product (GDP) and half of its government budget. As oil prices have rebounded—partly due to Russian coordination with the Organization of the Petroleum Exporting Countries (OPEC)—so has the Russian economy.

Russian GDP Growth Tends to Follow Oil Prices

Other developments have played a role too, including the U.S. Federal Reserve slowing its monetary tightening. Lower interest rates help emerging economies with high levels of debt denominated in U.S. dollars, such as Russia.

File Photo of IMF Acronym on Wall Below Row of Circular Lights, adapted from image at state.gov by Steven C. Welsh :: www.stevencwelsh.com :: www.stevencwelsh.infoSanctions appear to have had a modest effect, with the International Monetary Fund estimating that they have shaved off between 1.0 and 1.5 percent of Russia’s economic output. A 2019 report [PDF] by the Congressional Research Service (CRS) says this was partly intentional. Policymakers wanted to target individuals responsible for Russia’s bad behavior, without hurting ordinary Russian citizens or U.S. and EU businesses. This has prompted complaints that sanctions have lacked economic bite. The CRS analysts, however, point out that many of the measures prioritized long-term impact over short-term pain. Sanctions advocates emphasize that the uncertainty that results from sanctions could continue to drag on GDP in the coming years.

Have sanctions changed Russia’s behavior?

Map of Ukraine, Including Crimea, and Neighbors, Including RussiaThere doesn’t appear to have been much immediate effect, disappointing policymakers who hoped sanctions would deter Russian interventionism. Russia is still active in Ukraine and, according to Western intelligence agencies, Moscow has meddled in U.S. and European elections. Additionally, suspected Russian agents used a banned nerve agent in the attempted assassination of ex-spy Sergei Skripal on UK soil in 2018.

Some experts disagree, arguing that sanctions have dissuaded Russia from even more aggressive action in Ukraine. Others believe deteriorating economic conditions have cut into public support for Russian President Vladimir Putin and weakened his position.

On the other hand, some suggest sanctions may have actually backfired by boosting elite support for Putin. Still others argue that without clearly stated objectives for Russia to meet for sanctions relief, Russia will view the sanctions regime as indefinite, giving it no incentive to change. In any event, the debate over the effectiveness of sanctions is an old one.

What’s next?

File Photo of U.S. Capitol in Bright SunlightThat debate continues in Washington. In 2017, President Donald J. Trump’s ambivalence toward Moscow prompted bipartisan majorities in Congress to pass new sanctions and prevent the president from unwinding existing sanctions without congressional approval. In January 2019, Congress tried to again assert itself with legislation that would have stopped the White House from removing sanctions on Russia’s largest aluminum producer. That measure ultimately failed.

Still, the Trump administration has expanded some sanctions, including another minor tranche imposed in March in coordination with Canada and the EU. The White House is also considering additional sanctions related to election tampering and the Skripal poisoning, though the administration has pushed back on other Senate proposals.

Experts have long warned that Putin’s goal is to weaken cooperation between Western countries, and he has sought to coax friendly leaders in Austria, Hungary, and Italy to break ranks and push for sanctions relief. Meanwhile, separate sanctions on Iran and Venezuela are further bolstering the price of oil, raising the prospect that Putin’s struggling economy could get another boost.

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