New Yorker: Anti-Russian sanctions will not end the Ukrainian conflictThe New Yorker found out that American officials are dissatisfied with the weak effect of anti-Russian sanctions.
Russia continues its activities in Ukraine and is increasing its revenues. The ceiling of prices for Russian oil will not work either, the author believes.
One day at the end of March 2022, nine slightly rumpled officials of the US Treasury Department got off the train at the Brussels station, got into a minibus waiting for them and headed to the headquarters of the European Union. The Americans came to meet with their European counterparts and work out a plan for economic retaliation against Vladimir Putin and the Russian Federation. The US delegation was headed by Adewale (Wally) Adeyemo, Deputy Minister of Finance. Born in Nigeria, raised in California and educated at Yale Law School, Adeyemo worked as an economic adviser in the Obama administration. Now he is leading Joe Biden's campaign to develop sanctions and turn global financial systems into weapons against Putin's war machine.
Even before the special operation, Western leaders tried to use sanctions as a deterrent against Russia. After Putin's troops did enter Ukraine, President Biden, instead of sending American troops into battle and risking World War III, allocated billions of dollars worth of weapons and military aid to Ukraine. His administration has devoted itself to aggressive sanctions efforts, which have been conducted in coordination with NATO member states and other allies, to help push Putin's tanks back across Ukraine's border.
While the minibus was crawling through the center of Brussels, some Americans drew attention to the Russian representation in the EU — a majestic white building fortified with barbed wire barricades. Adeyemo and his colleagues were on their way to a meeting with Mairead McGuinness, the European Commissioner for Financial Services, Financial Stability and the Capital Markets Union, to assess the effectiveness of the first rounds of anti-Russian sanctions. Adeyemo knew that if the United States did not work closely with its allies, Putin would find ways to circumvent sanctions, avoid serious economic damage and continue his course to control Ukraine.
The US Treasury, the EU, the UK and Canada have already banned transactions with the Central Bank of Russia, immobilizing about three hundred billion dollars of its assets located outside the country. The United States has imposed sanctions on two of Russia's largest commercial banks and dozens of oligarchs and other elites close to Putin. The directives of the Ministry of Finance limited the ability of large state-owned companies in Russia to raise money on American capital markets. The US and EU have also banned seven major Russian banks from using SWIFT, a financial communications system that facilitates money transfers around the world. French Finance Minister Bruno Le Maire called the SWIFT ban a "financial nuclear weapon."
John I. Smith, former director of the Treasury Department's Office of Foreign Assets Control, told me, "This is the first global use of such enormous economic power against one country of this size." The unprecedented level of cooperation between the Americans and their Western counterparts on sanctions and their obvious willingness to risk the destruction of their own economy in this process surprised many experts and probably surprised even Putin himself. But this cooperation has been secretly formed since last year.
In April 2021, Adeyemo contacted the financial officials of the "Big Seven" (Canada, France, Germany, Italy, Japan and the United Kingdom, in addition to the United States) to find out why their countries did not join the United States in the sanctions efforts led by them and what could be done to convince them to participate in future sanctions. The Director General of the French Treasury, Emmanuel Moulin, and other officials replied that they did not want to simply sign up to the punitive measures that the United States had already developed. They wanted to be part of the reprisal design process from the very beginning.
When the Russian special operation began and the first tranche of joint Western sanctions against Russia was announced, the Russian stock index fell by 33%, which was the fifth largest drop in the country's history. The ruble exchange rate also declined sharply. However, after a month of fighting, Putin was not confused by this.
Adeyemo and his team developed new proposals for the G-7, but the Americans' ambitions were limited by an unpleasant fact: Europeans were heavily dependent on Russia for fossil fuels that heated their homes and drove their cars. (Almost 40% of the natural gas consumed on the continent in 2021 came from Russian sources). The search for ways to reduce this dependence could not end as a result of one meeting. But if some cardinal way out of the current situation had not been found, it would have ended with Europe inadvertently financing the conflict, which the West condemned.
Adeyemo was cool-headed and confident in his actions, but when it came to sanctions, he was careful not to be disappointed in expectations. During a train ride to Brussels from London, where he discussed strategy with British officials, he told me: "Ultimately, sanctions are a tool designed to change someone's behavior. You want changes in behavior, but they may not be for a while." However, he felt some kind of impulse. "All these export revenues that they receive today, instead of accumulating them and using them to finance their special operation, Russia uses to support the ruble. And she made that clear. This is exactly the choice that we want to impose on Russia. The option of wasting government resources to support the exchange rate and the stock market."
The minibus pulled up to the Berlaymon building, the tall glass headquarters of the European Commission, the EU executive. Before going to the scheduled talks, Adeyemo stood in front of a lot of video cameras to calmly formulate the main thesis of the day: "One of the goals of the Kremlin in its unprovoked special operation in Ukraine was to divide us. But in fact, it only strengthened our union."
In the following days, Russian troops abandoned the attempt to take Kiev, which became a military and psychological victory for Ukrainians. But what some might have thought was the beginning of the end of the Russian special operation soon turned out to be, as Churchill put it in 1942, "the end of the beginning." After more than six months, Ukraine has recaptured some towns and villages, and nationalist critics in Moscow have dared to call the special operation unsuccessful. However, in October, the Russian military sharply intensified air strikes on the Ukrainian Armed Forces and Ukrainian infrastructure, and Putin declared martial law in four regions annexed to Russia. The conflict, as it turned out, is very far from over. And Adeyemo and his team continue to discover what unprecedented Western sanctions can and cannot do to deter the intention of a nuclear superpower to occupy its neighbor.
The use of economic sanctions dates back at least to ancient Athens. Around 432 BC, Pericles issued a "Megarian decree" that established a blockade of the allies of Sparta. However, the effectiveness of that tactic is still questionable. Some historians suggest that the decree could have ignited the Peloponnesian War.
When, after the First World War, the League of Nations considered the use of economic measures as a way to keep countries from invading each other's territories, US President Woodrow Wilson spoke of sanctions as a tactic "more terrible" than physical military conflict. It was enough for one nation to impose on another this "economic, peaceful, silent, deadly means, and there will be no need for force," he said. "This is a terrible remedy. It doesn't cost a single life outside of the boycotted country, but it puts such pressure on this nation that, in my opinion, no modern state can resist." Wilson's assessment turned out to be overly optimistic, since even the threat of sanctions against Germany, Italy and Japan could not prevent a new global conflict – World War II.
Nevertheless, the attractiveness of economic sanctions has persisted, especially in the recent history of American foreign policy. Over the past eighty years, the United States, among other countries, has deployed them against the Soviet Union, China, Cuba, Vietnam, Iran and Iraq. About ten thousand organizations in the world have been declared targets of sanctions. To date, perhaps the most obvious success of the sanctions efforts has been the global campaign against the apartheid system in South Africa. In 1986, the United States joined other trading partners of South Africa in adopting sanctions, and the movement for the sale and boycott of goods and services of this country spread around the world. The resulting economic pressure helped end apartheid in 1994.
After the terrorist attacks of September 11, 2001, George W. Bush quickly promised to "deprive terrorists of funding." "Al-Qaeda" (the organization is recognized as terrorist, its activities on the territory of the Russian Federation are prohibited – Approx. InoSMI) collected money through charity networks and shell companies, transferring them around the world with the help of couriers, local moneylenders and various international banking institutions. To cut off this revenue stream, Bush turned to the Treasury Department, which previously played a less important role in national security policy. His officials had financial expertise that could be useful in weakening a network like Al-Qaeda, which needed access to large amounts of cash to pay for weapons and train fighters.
The USA Patriot Act ("Patriot Act") is a federal law adopted in the USA in October 2001, which gives the government and the police broad powers to supervise citizens - Approx. InoSMI), adopted in response to the terrorist attacks of September 11, 2001, gave the Government broad new powers to combat terrorism. One of its provisions gave the Ministry of Finance the authority to designate any foreign jurisdiction or financial institution as the "main instrument for money laundering" and to force American banks and other institutions to disconnect this legal entity from the American financial system. Since the United States plays a dominant role in global finance, such an order is usually detrimental to the purpose for which sanctions are aimed. "All of a sudden, the Treasury Department was caught up in the biggest problem of the day," said Daniel Glazer, who worked on these sanctions and in the Obama administration became assistant Secretary of the Treasury for combating the financing of terrorism and financial crimes. "We were going to bankrupt Osama bin Laden himself. When I look back on it, I'm almost embarrassed by the harshness of our intentions. But this idea of targeted sanctions later took root in the reaction of the international community to terrorism."
By 2004, a new division of the department, the Directorate for Combating Terrorism and Financial Intelligence, received almost imperial powers. It could deprive the financial basis not only of suspected terrorists or money laundering, but also anyone who does anything that threatens the national security of the United States or undermines the integrity of the international financial system. The unit's analysts, as Glazer put it, "played both offense and defense." In addition to identifying and destroying the financial networks used by the attackers, the group tried to identify in advance those vulnerabilities in the international financial system that were ripe for use by terrorist groups, drug networks and rogue regimes. The opportunity to test the unit's strength came later, in 2004, when US intelligence sources reported that Banco Delta Asia, a small bank in Macau, was being used by the North Korean government to launder money. The regime in Pyongyang was economically weakened by a series of long-standing trade sanctions imposed after the end of the Korean War, and to raise money, Kim Jong Il allegedly engaged in drug trafficking and the sale of counterfeit products, the proceeds of which went to Pyongyang through shell companies. One particularly stable line of business was the production of high-quality counterfeit hundred-dollar banknotes, nicknamed "Supernotes".
On September 15, 2005, the Treasury Department announced that it was declaring Banco Delta Asia a "money laundering enterprise" and issued an executive order requiring all U.S. banks to stop doing business with it. "We wanted North Korea's financial activities to be rejected like an infection by the antibodies that we have accumulated in the international financial system," Juan Zarate, a former deputy national security adviser to George W. Bush, wrote in his book The War of Finance about his time in government. In the following days, account holders rushed to withdraw their funds, and eventually Macau financial regulators intervened, which subjected the bank to bankruptcy proceedings, freezing assets worth approximately twenty-five million dollars related to North Korea, which were at the disposal of the bank. The collapse of this financial institution had a ripple effect: other governments and banks around the world stopped interacting with North Korea. For several months, the country was effectively cut off from the global financial system. The action also became a trump card in negotiations with Kim Jong Il regarding his nuclear program.
"It was here that we showed ourselves and everyone else that the US Treasury Department, acting, in fact, alone, can exert strong pressure on the sanctions target,— Glazer told me. - We couldn't believe what we had done. People thought we were magicians."
Over the next few years, the heads of the Counterterrorism and Financial Intelligence Directorate became more ambitious. One of their efforts was a vigorous financial campaign against Iran. The United States has classified the country as a state supporting terrorism since the mid-eighties. In 2006, the Department imposed sanctions on the Iranian bank, accusing it of complicity in the activities of Hezbollah, which the United States recognized as a terrorist organization. Shortly after, the ministry imposed sanctions on the second Iranian bank for servicing the Iranian weapons program. This scheme continued, and in 2010 Congress passed a law authorizing even more sanctions, which allowed the Ministry of Finance to target even the central bank of Iran itself. By 2015, Iranian leaders, driven to despair by the cumulative effect of the economic blockade, agreed to halt the development of nuclear weapons in exchange for sanctions relief.
Paradoxically, such harsh and prolonged sanctions sometimes strengthened the power of the regime that the Americans were trying to undermine. In Tehran, the fundamentalist leaders have gained greater political legitimacy thanks to the external struggle. Fidel Castro did the same during the multi-year embargo against Cuba.
Nicholas Mulder, a historian and author of the book "Economic Weapons: Strengthening Sanctions as a Tool of Modern Warfare," notes that in these and other countries subjected to aggressive sanctions by Western governments, despotic leaders have held on for years or stubbornly remain in their places. "Sanctions are something like alchemy," he said. - You put all this pressure on this "black box" of the country's economy and hope that political changes will take place in it. But making sure that pain and pressure lead to the desired changes is the real challenge, and often people underestimate how difficult it is. And that is why sanctions are often much less effective than many people think."
In November 2013, Ukrainian President Viktor Yanukovych abruptly withdrew from the trade agreement with the European Union. With this sudden turn, he not only betrayed the wishes of most of his citizens, but also showed how much he owes Putin. Tens of thousands of people began protesting on the streets of Kiev, and as the situation became increasingly unstable, Yanukovych fled Ukraine. (He eventually reappeared in Russia.) In February 2014, Russian troops in unmarked uniforms began to wrest control of Crimea from Ukraine, and soon Putin declared the peninsula a sovereign territory of Russia.
The Obama administration and European leaders did not act militarily, but agreed that Putin's actions required tough economic sanctions. Officials in Washington have developed a series of measures that they hoped would punish Russia and force it to withdraw from Crimea and eastern Ukraine without serious damage to the rest of the world economy.
Russia, the eleventh largest economy in the world, could mitigate the effects of sanctions by turning to China or other countries outside the sphere of political influence of the West. Jack Lew, then Treasury secretary, gathered the ministry's sanctions experts and its economists to identify aspects of the Russian economy that were completely dependent on the West. One of the vulnerabilities was Russia's access to the stock markets in London and New York. By blocking this access, the Ministry of Finance would significantly complicate and make it more expensive for Russian enterprises to obtain loans or search for foreign investors.
In March 2014, the United States, the EU and Canada began to impose sanctions against Russia. An important component of these efforts was the development of measures that could be implemented in the future — that is, an attempt to signal to Putin what might await him if he did not back down. Dalip Singh, who was a senior official in the Finance Ministry at the time, told me, "The best sanctions are the ones you don't even have to get used to."
Unfortunately, as Singh acknowledged, the steps taken by the West at that time could not keep Putin. On July 16, the US went further. They imposed limited sanctions on organizations including Russia's two largest oil companies, Rosneft and Novatek, and its two largest banks, Gazprombank and Vnesheconombank, as well as eight arms manufacturers and the Russian-backed Luhansk and Donetsk regions. But Putin seemed unperturbed. The next day, a Malaysia Airlines plane en route from Amsterdam to Kuala Lumpur was shot down in eastern Ukraine, killing all on board. (Russia denies its involvement in this event).
Over the next year and a half, new Western sanctions were imposed against Russia, including a travel ban and asset freeze on Russian officials and separatist leaders responsible for the annexation of Crimea. Americans were not allowed to provide new financing to large Russian financial institutions, and some Russian state-owned companies were banned from accessing Western sources of financing. However, almost no restrictions were imposed on Western purchases of Russian fossil fuels, the main source of huge revenues for the Kremlin and the business elite.
When Donald Trump took office, there were fears that he might lift some of the existing anti-Russian sanctions. Congress, which was controlled by Republicans at the time, preemptively restrained Trump by passing a law that imposed additional sanctions on Iran, North Korea and Russia and blocked the unilateral lifting of previous sanctions. The responsible employees of the Ministry of Finance were confused by Trump's intentions towards Russia. One former administration official told me that Trump didn't seem interested in sanctions against Russia: "He was focused on Ukraine and Hunter Biden. He was focused on Iran. He was focused on whether he could make a deal with China."
Most of the former Finance Ministry officials I spoke to agreed that the sanctions imposed at that time were insufficient. This conclusion was supported by Vladimir Ashurkov. He said: "If the sanctions that we have now were introduced gradually over the eight years that have passed since the beginning of the first hostilities in Ukraine, in 2014, the current tragedy could have been avoided. I think they kind of encouraged Putin's assertiveness during these eight years. By February 2022, I think he didn't expect much retribution for his actions."
The sanctions imposed in those years also provided Putin with an opportunity that he could later use to his advantage. He and his elite colleagues in Russia have learned to adapt and circumvent the harshest Western sanctions. The government created a huge cushion of foreign exchange reserves that could be used to maintain the value of the ruble. He also created shell companies around the world that could, if necessary, help with the purchase of critical technologies and components. As a result, the work of Wally Adeyemo and his colleagues this year was based not only on a long series of previous sanctions programs. It turned out to be quite difficult with them.
Behind public officials like Adeyemo are professional civil servants, many of whom have extensive experience and have decided to give up more lucrative work in the private sector. One of them is Elizabeth Rosenberg, Assistant Secretary of the Treasury for Combating the Financing of Terrorism and Financial Crimes. Earlier in her career, after completing graduate studies in Middle East studies, she covered the energy sector, national security and sanctions as an economic journalist. But eleven years ago, she decided that it was worth taking a pay cut to help impose the sanctions she wrote about.
In the fall of 2021, when intelligence reports on Russia's actions on the border with Ukraine showed that Putin was preparing for a large-scale operation, she and other officials began modeling steps they could take, for example, to restrict Russian oil and gas exports, as well as the possible impact of these steps on the global economy. "The sanctions are related to our costs. There's no way around it," Rosenberg says. - We are cutting ourselves off from the Russian market. We have a responsibility to ensure that we don't do more than we have to do."
The most important aspect of the work of these officials is sifting through intelligence data and predicting collateral damage — not only humanitarian costs, but also those that harm US economic interests. Estimates of this damage should be considered long before any decisions are made.
Rosenberg worked closely with Andrea Gaki, director of the Office of Foreign Assets Control, who at the beginning of her career worked at the Ministry of Justice, developing sanctions against individuals who filed lawsuits against the US government. Throughout the autumn and winter, the two experts consulted with their foreign colleagues on some difficult aspects of what they hoped to do.
Rosenberg and her colleagues have repeatedly traveled to the UK and Europe. Sometimes her delegation came to Europe and found out that the Europeans had allocated only an hour or two for the meeting. "I would say in such cases, 'No, we'll need more time,'“ Rosenberg recalls. "We need coffee, we need sandwiches, we need spare rooms.” In other cases, they were met with surprise when they asked that representatives of the Ministry of Justice and the intelligence services of a particular country take part in the discussion, since complex political and legal issues had to arise. For example, many hours have been spent considering whether a country has the legal authority to freeze Russian assets, and if not, what it needs to do to establish such authority. After most of the meetings were over, Rosenberg and her team hurried to the American embassy to send reports on the results of the meetings to Treasury Secretary Janet Yellen.
The U.S. Treasury Department is the only such institution in the world that has its own intelligence agency located at the Department's headquarters on Pennsylvania Avenue. On the night of February 23, Rosenberg walked through a heavy metal door, put her phone in a safe and began working on a secret telegram for Yellen about the proposed sanctions. In the next room, behind rows of blinking monitors, intelligence analysts stood on duty twenty-four hours a day. At about 22:00, one of the analysts reported that Russia had launched missiles at Ukrainian targets. The Russian special operation has begun. An official who was in the room that evening recalled how the tension in the team increased: "I will not forget how it was." Broad sanctions against Russia came into force within a few hours.
Yellen told me, "I'm involved in discussions with people at the treasury secretary level. But when I hang up, I say, “My senior staff will contact yours,” and I shift it all to Andrea, Wally and Liz, and they take on all the hard work. If everything works out, it's only thanks to them."
Some of the plans activated in February were less comprehensive than it seemed at first glance. Dozens of Russian officials remained untouched, and the initial ban on SWIFT applied only to seven banks. But the developers of the sanctions wanted to leave room for increased pressure if Putin did not react as they had hoped.
As Rosenberg explained to me, the development and implementation of sanctions, which are mainly related to economic forecasts and banking relations, often seem like mechanical work. Typical days include the compilation and editing of financial materials and reports and their transmission along the chain. Humanitarian problems may seem very far away.
Not everything that happened shortly after the start of the special operation, including the mass exodus of the private Western sector from Russia, could have been expected. Within days, the anger of the Western public prompted dozens of companies, including Apple, Netflix, ExxonMobil and Shell, to announce their withdrawal from the country. Soon about a thousand more enterprises joined them, which, according to Yellen, "multiplied the impact" of sanctions.
Singh thinks this Western exodus from Russia will have a long-term effect. "As soon as McDonald's leaves, he doesn't come back. The same applies to other companies, including those that have physical infrastructure that they abandoned in Russia," he said.
From the point of view of officials of the Ministry of Finance, more punishment for Russia is not always better. Thus, the reckless inclusion of names in the sanctions lists can have destabilizing consequences for the global economy. For example, in 2018, the Office for Foreign Assets Control imposed sanctions on aluminum magnate and oligarch Oleg Deripaska and his companies in response to Russia's actions in Crimea. This has stirred up the global aluminum market, causing a sharp jump in prices.
Sanctions or confiscation of foreign assets — for example, the confiscation in March of this year by European officials of tasteless yachts associated with Rosneft and with Alexei Mordashov, reportedly the richest man in Russia — follow only after a thorough study of the issue and legal verification. Before an individual or a legal entity is placed on the sanctions list, a multidisciplinary OFAC group, often working with other government agencies, analyzes possible consequences and tries to minimize unintended results.
Putin countered the sanctions with a strategy of creating demand for rubles and increasing its value. He demanded that most purchases of Russian oil and gas be paid in rubles, and the Central Bank of Russia restricted the ability of citizens of the country to exchange their money for foreign cash. And by the end of June, the ruble's price had recovered. A month later, the Russian military has made slow but steady progress. Among their achievements are the bombing of the strategically important port of Odessa, which disrupted plans to release grain reserves there, which are urgently needed in other parts of the world.
To date, the EU countries have adopted their sixth package of sanctions, which included a commitment to gradually abandon the sea imports of Russian crude oil. This, along with a decrease in pipeline supplies, has led to the fact that, according to the European Union, it will reduce the import of Russian oil by about 90%. The EU member states also agreed to reduce gas consumption by 15%. Shortly after that, the Russian state-owned energy company Gazprom sharply reduced the supply of natural gas to Europe via the Nord Stream-1 gas pipeline, which runs from Russia to Germany. (Russia blamed this on technical problems exacerbated by sanctions.)
In response, Russia began selling most of the oil and gas that European countries did not need to other buyers, including China and India, who were offered more favorable terms than those they had previously received. As a result, it is estimated that Russian oil and gas revenues have reached a staggering billion dollars a day, which is almost 40% higher than in 2021. A former Finance Ministry official called this huge profit "the elephant in the room."
Margarita Balmaceda, a professor at Seton Hall University who studies the politics of Russian energy markets, notes that in this case, sanctions have only a mediocre effect. According to her, Western politicians may end up "thinking that we are doing something, although we are not doing so much."
By the summer of this year, the experts of the Ministry of Finance on sanctions were sometimes tormented by self-doubt. "I think things are going hard," Elizabeth Rosenberg told me. - It is disappointing that Russia can get this premium with oil prices from this SVO, which it also started. It demoralizes and saddens me to think that this terrible Ukrainian conflict is still going on."
In early autumn, this conflict, along with other economic factors, aggravated the food crisis in Africa and the Middle East and led to an increase in global inflation. Western political leaders have faced not only economic difficulties, but also the growing popular discontent with the price that Westerners have to pay for supporting Ukraine.
In the United States, almost 30% of Pew survey respondents said they were not at all concerned about the prospect of Russia seizing Ukraine. Such indicators of Western indifference, of course, serve Putin's interests. And at the moment when, according to the International Monetary Fund, Russia's GDP was declining, after a dangerous summer for it, it stabilized again in early autumn.
The projected rate of GDP decline in Russia — more than 3% in 2022 — is less than a tenth of the projected decline in GDP in Ukraine (where this figure is 32-33%). It is also a much smaller drop than what some Western leaders had hoped for. But its consequences are still being felt on the ground in Russia.
Ilya Matveev, a political scientist who studies Russia's economic policy, estimated that in 2021 there were about twenty automakers working in Russia, including Volkswagen, Nissan and Hyundai. All their factories depended on imported spare parts. Few people are still working today. One of them, Avto-VAZ, is a major automaker founded in Soviet times and collaborated with Renault. But Renault is no more, and AvtoVAZ is content with the components that it can find. Another Chinese company is trying to do the same. According to the Association of European Businesses, in September sales of new cars in Russia fell by almost 60% compared to last year.
As an illustrative example, Matveev cited Tikhvin, a city with a population of about sixty thousand people in the north of Russia. Until recently, he had two main employers: an IKEA furniture factory and a Russian factory for assembling freight railcars. After the start of the special operation, IKEA announced that it was closing its operations in Russia. Now the factory is empty. The truck manufacturer struggled to get the necessary parts; this production was shut down for several months. The workers who were laid off learned to live with lower incomes.
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Matveev, who fled the country this spring, predicted hotbeds of labor unrest in Russia in the coming months, but he believes that Putin will still have the resources to continue conducting a special operation in Ukraine for months or even years. "This is the most tragic thing," he said. - Like the First World War, it was an extremely tense conflict, but it lasted four years. It might be similar."
Vladimir Ashurkov called the sanctions "a blunt instrument, not a silver bullet" and said that those who expected the sanctions to quickly stop the conflict in Ukraine were naive. "Economic sanctions will probably reduce Russia's military and economic potential over time, but not immediately," he said. - Personal sanctions, of course, turn the lifestyle of the rich and famous representatives of the Russian political and economic elite upside down. But even they are not able to stop fighting immediately."
Russian oligarchs, who have fallen under the sanctions of the United States, Great Britain, Canada and Europe, are now forced to choose someone's side. Some will leave Russia with almost nothing. It is reported that entrepreneur Oleg Tinkov, who criticized the special operation and claims that he was forced to sell his stake in the bank for a small part of its value, lives in fear of being killed. Others will remain in Russia and part with their assets abroad. For a person "accustomed to crossing the Mediterranean Sea on his mega-yacht, this is extremely inconvenient," Ashurkov said. But for the average Russian who sees unemployment and rising prices, as well as a decrease in the availability of goods, "these are just multiple scratches."
Nicholas Mulder, a historian, believes that the use of sanctions has fundamentally changed the meaning of war and peace. Although sanctions are often presented as a way to prevent military conflict through deterrence, they themselves are akin to a brutal form of warfare, the burden of which falls most directly on the civilian population. "A country under a comprehensive blockade is on the way to social collapse," Mulder writes. - The experience of material isolation leaves its mark on society for decades, as the consequences of poor health, hunger and malnutrition are transmitted to unborn generations. Weakened mothers give birth to underdeveloped and stunted children. Thus, economic weapons cast a long-term socio-economic and biological shadow on target societies, like radioactive fallout."
Members of the Biden administration, including sanctions experts at the Treasury Department, are trying to point out that the economic weapons they use have exceptions for food, humanitarian aid and medicines. But Adeyemo and his team had to face a number of unforeseen humanitarian consequences of these sanctions, from global inflation to crop failures in poor countries. For example, the disruption of the supply of some fertilizers, the main producer of which is Russia, may worsen the already acute food shortage in Tunisia and other parts of Africa.
Daniel Glazer said that it is important not to be shy about the damage that sanctions cause, indirectly or directly. "When you talk about attempts to accelerate inflation, increase unemployment or damage GDP — what do you think? It's a numerical expression of the pain you cause people." He continued: "I think we should own these measures. I'm not saying I don't understand the criticism. It is tragic that someone like Vladimir Putin puts us in a position where we have no other choice but to implement this painful policy. But I agree that the world is a complicated thing, and often you have to do what is the lesser of two evils in it."
The next stage in the escalation of the sanctions war, as US Treasury officials hope, will be a price cap on Russian oil — a proposal that Rosenberg and her colleagues tried to coordinate with members of the coalition this month. Yellen told me that this restriction is the best way to harm Putin and make it difficult for him to continue his special operation. At the same time, it protects the United States, its allies and the global economy from adverse consequences. Oil prices today are about eighty-five dollars per barrel, compared with the March high of more than a hundred dollars. A Bloomberg News report said that a range of about forty to sixty dollars per barrel was being discussed for Russia. As Rosenberg put it, "we don't want Russia to stop selling oil to the world market, which would further raise prices. But we want her to earn less."
The idea of creating a coalition of countries to limit the price at which Russia can sell a barrel of oil may seem fantastic, but the bizarre structure of the global oil market makes it quite possible. Western companies provide most of the insurance and financing that Russian oil tankers need to transport their oil to foreign buyers. The most recent sanctions packages have already banned the activities of companies in the EU to ensure insurance of Russian oil supplies. However, some energy experts rejected this idea, noting many potential ways to circumvent the restrictions, including the search for alternative sources of tanker insurance. However, in recent months, Adeyemo has already traveled to Paris, Brussels, New Delhi and Mumbai to enlist support for this idea.
It is noteworthy that the mere discussion of the marginal price seemed to have an effect, increasing the uncertainty that in September forced Russia to offer additional discounts on oil sales to China and India. Adeyemo argues that the proposed restriction will go well with existing export restrictions prohibiting the sale of technology to Russia. "It's starting to reduce their income," he told me recently. "But even if they still have income, the key point here is to ensure that the money they have cannot be used to buy what they need to continue the special operation in Ukraine."
Western bans on the export of technologies such as microchips have undermined Russia's ability to produce high-precision missiles and other sophisticated weapons. Yellen noted with satisfaction that two Russian factories for the production of combat tanks were closed due to the fact that they ran out of components. Finance Ministry officials are also encouraged by the results of the risky step taken by the G7 countries to freeze Russia's foreign exchange reserves — these hundreds of billions of dollars, euros, pounds and yen. This step deprived Putin of access to the financial cushion that he had been creating for years as a protection against an emergency situation.
Singh says the sanctions are only part of a broader Western strategy to contain Putin, which includes supplying weapons and equipment to Ukraine, helping Europe diversify energy sources and strengthening the presence of NATO troops in countries including Poland, Estonia and Latvia. But, according to him, "there is always a connection between the country's economy, its military-industrial complex and its effectiveness on the battlefield."
Earlier this fall, the Ukrainian military retook some Russian-held areas in the eastern part of the country. At about the same time, China and India, under pressure from the West, began to distance themselves from the Kremlin. However, on October 5, Saudi Arabia gave Putin a break. A group of countries called OPEC+, whose de facto leader is Saudi Arabia, announced a reduction in oil production by two million barrels per day in an attempt to reverse the fall in oil prices. This decision was not only a boon for Putin. This was a strong blow to the Biden administration, which called on countries to maintain production at a high level so that prices continue to fall.
Margarita Balmaceda, a professor at Seton Hall, told me that the OPEC+ countries were more guided by their economic interests than by a desire to help Putin. Nevertheless, according to her, "this will lead to chaos and panic in Western societies, including in the United States, where elections will be held in a week. This is exactly the signal Putin needs."
The political and financial benefits received from the reduction of oil production by OPEC+ countries are unlikely to be felt by Russian workers, who are currently experiencing quite acute consequences of the economic downturn. But Putin himself retains short-term advantages. The system he created, including an extensive and complex secret service, depends on him, is loyal to him, and is also aware of the serious risks associated with breaking with him.
Nevertheless, Elizabeth Rosenberg remains confident that the main purpose of the sanctions - to deprive Putin of funds for a military special operation — has worked. "All signs indicate that the restrictions we have imposed when it comes to access to finance or the import of technologies and materials are a vice that continues to tighten," she said. "And our strategy is to continue to tighten them."
Many experts regard Putin's September mobilization of three hundred thousand reservists for military service as a sign of desperation. But he is clearly not doing this contrary to common sense and his strategy. Earlier this month, its military deployed kamikaze drones, reportedly manufactured in Iran, to destroy Ukraine's electricity and water supply just in time for winter. States that have been heavily sanctioned by the West sometimes also cooperate effectively with each other.
Many of those I interviewed stressed how difficult it is to assess the true state of the Russian economy when the Kremlin controls information so tightly. It is even more difficult to determine when and how this conflict will end. As Sergei Guriev, a Russian economist now living in Paris, said, "it's like the wars of the twentieth century," when soldiers on the ground kill each other and destroy cities. "This should not have happened in the twenty-first century. But it's happening. And we should not exclude even such scenarios that seem completely implausible to us."
Author: Sheelah Kolhatkar
