Russia squeezed as sanctions bite Analysis by CEPA

The Center for European Policy Analysis has released an article contending that despite claims that sanctions have little impact on Russia's ability to engage in aggression against Ukraine, such assertions are incorrect. CaliberAz reprints the article.

Although the Kremlin has poured resources into the construction of a war economy and apparently increased economic output in 2023, the fact remains that the measures aimed against it are indeed working and have worked since the country became the world’s most sanctioned in 2022. 

It’s true that locking down a large country with extensive natural resources is a work in progress that improves over time. Now we have evidence of exactly that. Andrew Fink and I wrote about the issue early this year, focusing on the impact on Russian manufacturing, of a little-noticed US government document issued just before Christmas.

The sanctions-authorization decision made by Presidential Executive Order on December 22 gave the US Treasury’s Office of Foreign Assets Control (OFAC) significantly expanded enforcement powers against foreign financial institutions aiding Russia.

As a result, Russia’s main oil customers — India, China, Türkiye, and the UAE — have recently boosted their banks’ sanctions compliance on payments to Russia for energy shipments, the lifeblood of Russia’s war economy — thus depriving it of significant revenue.

This has happened largely because they realize that the American and European threats of secondary sanctions on Russia’s providers are serious. True, this has been happening for a while — Chinese banks have consistently shied away from loans to Russia for this very reason.

But the situation has worsened for Putin’s regime since the OFAC determination, the first such warning of secondary action against Russia’s financial collaborators. Even banks that still make payments to Russia are imposing long delays. The Kremlin says this has caused “certain problems,” a polite way of acknowledging its pain.

Why then do so many complain or happily assert that sanctions have failed?   

There are two fundamental reasons for this claim, beyond outright Russian sympathies or a readiness to accept disinformation as truth. These are a failure to grasp what sanctions can and cannot do, and second, the overall Western failure to articulate a winning strategy — or any strategy — for its policies regarding Ukraine. 

Obviously, Putin and his regime underlings have every reason to talk up the strength of Russia’s economy. In fact, Russia has been aided by a coalition of friends and opportunists like China, Armenia, Central Asia states, and Türkiye to circumvent measures imposed by the democratic world, along with wholesale resort to transactions in cryptocurrencies and the use of ghost ships. 

Yet its problems were clear from the outset and are becoming more acute. The economy is heavily over-dependent on energy exports, which are extremely vulnerable to economic attack (especially with further OFAC measures against its crude-carrying ghost fleet.) And its defence output is clearly facing problems given the Kremlin is constantly running to North Korea and Iran for missiles, drones, and even artillery shells, thereby incurring serious IOUs that must be paid to these rogue states in the future. 

Furthermore, China’s extensive bailout and support for the Russian war effort is now bringing US threats of significant further action. It also signals the Kremlin’s growing dependence on China, which contradicts the entire raison d’être of Russian security policy, namely the assertion of its sovereignty and supposed rights as a great power.

That said, there is much more to do. Far too many European governments remain unwilling to forsake their long-running energy dependence on Russian oil, gas, or liquefied natural gas (LNG.) Indeed, Russian LNG exports to Europe have surged since the war began.

There may have been a need to tolerate such violations in the immediate aftermath of Russia’s all-out war when Europeans faced the prospect of freezing in their own homes, but not anymore; the US along with African countries like Algeria, as well as Azerbaijan, and Qatar have all increased exports to Europe and more such deals are in the offing.

This makes it the perfect time to raise the pressure.

For sanctions to work as intended, they must be imposed not only as an instrument designed to cripple Russia’s sinews of war and to deter others from helping it, but also as one element of a comprehensive war-winning strategy. 

Sanctions cannot substitute for strategy, as has been the case until now, because they are not enough in themselves. Only when the measures are integrated into a multi-dimensional strategy that includes timely and regular provision of weapons, and economic and political support, along with a resolute counter-offensive against Russia’s information and subversion activities throughout the West, will sanctions fulfill their stated purpose.

For this reason, the Biden administration’s efforts to constrain Ukraine from targeting Russian economic installations — like oil refineries — lest Russia retaliate or escalate, betrays the cause of Ukrainian victory.

Louis St. Just, the French revolutionary, proclaimed that those who make revolution by half-steps are merely digging their own grave. Whatever the merits of his statement for revolutionaries, they certainly apply to war. And it is high time we understood that.