TNI: Moscow will withstand the blow of anti-Russian sanctionsThe author of TNI believes that anti-Russian sanctions have not had a sufficient deterrent effect on Moscow.
Russia has retained its economic and military potential. The way out is to find a peaceful solution to the Ukrainian conflict.
Maria Grinberg (Maria Grinderg)Although Western sanctions against Russia have cost all sides dearly, the conflict in Ukraine cannot be stopped by economic war alone.
On December 7, the European Commission proposed a new package of sanctions to force Russia to stop its special operation in Ukraine.
After the previous eight sanctions packages, the costs of the sanctions regime for Europe are growing. With the approach of winter and a decrease in temperature, as well as due to the cessation of trade with Russia, Europe is preparing for power outages, lack of lighting and heat, as well as temporary outages of the Internet and mobile communications. Nevertheless, the military conflict continues, and Russia has already switched to the tactics of massive missile strikes on the Ukrainian energy infrastructure.
In fact, it is the collective nature of sanctions — the process of their development and implementation — that allows Russia to avoid the worst of the economic problems planned for it by the West. Each member of the sanctioning coalition is interested in reducing the individual burden of severing economic relations with Russia. This not only reduces the effectiveness of final complex compromises, but also gives Russia time to adapt to future sanctions and encourages Western firms to increase trade with Russia before the introduction of the next packages.
Some experts may say that these problems can be overcome by developing more well-thought-out sanctions or by applying more comprehensive measures aimed at the complete economic isolation of Russia. But the costs of such decisions are much higher than the benefits they can bring.
Firstly, the transformation of the institutions of the international economic system into weapons, especially without the support of many of the world's major economic actors, has a serious global cost. The demonstration effect, showing how this system can be used to harm an individual state, encourages other players to reduce their vulnerability. The subsequent destruction of existing international economic institutions or the creation of parallel structures significantly detracts from the growth of the welfare of the global economic system.
Secondly: yes, the complete economic isolation of Russia (if the West was willing to bear huge costs due to the implementation of such a policy) would weaken the Russian military potential. However, this would not mean that the ability of a nuclear-weapon State to defend its territory would quickly run out. Economic strangulation, which poses a clear and immediate threat to the survival of such a State, significantly increases the potential for nuclear escalation.
The conflict in Ukraine cannot be ended by purely economic means. Moreover, India and China, along with other smaller but important states, do not support Western sanctions. The management of the state's economy is an unsuitable tool for such work. The continuation of the economic war against Russia will change global trade patterns, but it will not entail costs high enough to force Russia to abandon its special operation. The choice for the West is either to continue financing the costly and long-term Ukrainian military conflict, or to seek a diplomatic solution.
Problems with collective sanctions
The latest round of Western sanctions, and probably any subsequent such rounds aimed at limiting Russia's ability to finance its military operations in Ukraine, will cost the West significant economic costs.
As is the case with most political decisions that have a certain price, collective sanctions entail distributed consequences. In this case, these are individual costs that each State must bear for the sake of collective benefit. Every Western state wants sanctions that entail great costs for Russia, but ideally with the least cost for itself. Thus, Belgium continues to import Russian diamonds. France, Hungary, Slovakia and Finland continue to import Russian nuclear fuel. And Greece continues to fight for its right to transport Russian oil.
Even the main achievement of Europe — the "ban" on the import of Russian oil — is not actually a ban on the import of all Russian oil. It prohibits the import of Russian oil by sea, that is, it imposes an embargo on oil transported by tankers. States importing the same oil through pipelines, such as Hungary, Slovakia and the Czech Republic, are allowed to continue to do so. Germany and Poland, on the basis of the current sanctions agreement, are also allowed to continue importing through pipelines. True, these two states have pledged to stop such imports in the near future, but we have yet to see how this will work in practice.
When collective sanctions are imposed, some kind of concessions regarding individual countries always become necessary. Unfortunately, these compromises largely reduce the effectiveness of collective sanctions and create vicious incentives for businesses to undermine their calculated consequences.
Here is at least such an example. Despite the fact that Europe voted to ban the import of Russian oil on June 3, this policy did not come into force until December 5. The extension of this period gave European firms the opportunity to agree on alternative suppliers for the period when Russian oil will no longer be available to them. Of course, this also means that Russia had time to find alternative buyers for its exports. Europe has banned offshore oil imports, for which it is easiest for it to diversify sources, and not pipeline imports, for which it is much more difficult to diversify suppliers. This decision also made it easier for Russia to find new customers that it can supply with its oil.
Moreover, since European firms knew that Russian oil would no longer be available from December, they had strong incentives to look for other long-term suppliers. But while they find new suppliers, conclude deals and organize transportation, firms also want to insure themselves against short-term shortages of goods. And here the best short-term solution for them was to import large volumes of Russian oil while it was still available.
The expanded schedule, which allows European firms to adjust to the costs of collective sanctions, has increased incentives to expand trade with Russia in the short term. Although the stated purpose of the sanctions is to deprive Russia of profits from its energy exports, the way they are implemented may have the opposite effect.
Problems with the current course
Western sanctions against Russia are designed to be demonstrative. They seem to be saying to the whole world: "If you violate the rules of the international order, the response will be swift and harsh." Ideally, the demonstration of punishment should work as a deterrent for States considering the possibility of bad behavior in the future.
But there is another way to read this demonstration signal of the West. It can serve as an "instruction" to protect the economy of the target country from Western sanctions. The current (and future) sanctions show what Western states can and cannot agree on, as well as how far they are willing to go in ensuring their vital security interests. And, most importantly, what they are not ready to do on issues of fundamental importance.
Potential aggressors will now have a much clearer idea of what to prepare for if they decide to carry out aggressive actions. Thanks to Russia's efforts, they also have a clearer idea of how to resist Western sanctions. Indeed, Russia took advantage of this demonstration effect after the West imposed sanctions against it in 2014 for the annexation of Crimea, preparing its economy for the sanctions that were to follow the special operation in Ukraine on February 24.
Another negative consequence of this demonstration effect and the subsequent preparations undertaken by the target States to minimize punishment is the damage caused to the international economic system. The current system is based on institutions that rely on trust to avoid costs in international transactions, information exchange and monitoring. The international economic system works best when States can count on each other's orderly behavior, which means that interaction between States today will look the same as tomorrow. In fact, States must be sure that the system will not be used against them as a weapon. From this point of view, for example, calls to nationalize frozen Russian assets to form a fund for the restoration of Ukraine undermine confidence in the institution of property rights.
If trust in the main institutions of the economic order is undermined, States will take measures to protect themselves, and the existing system will no longer be able to provide the same benefits. States fearing that international institutions will be turned against them as a weapon will seek to create alternative institutions that significantly reduce the beneficial effects of the existing unified system. For example, US efforts to exclude some Russian banks from SWIFT have led to cooperation between Russia and China — and, at least to some extent, India — to develop an alternative SWIFT payment system.
Why not do more?
The West has the opportunity to impose economic isolation on Russia, effectively forcing it to an autarkic level of existence. Why not do it?
One of the reasons is the incredible price of such an ambitious goal. This will entail a complete rejection by the West of any bilateral trade with Russia. The rest of the world will pay for this, for example, by losing access to all global oil exports from Russia, which will lead to incredible political costs for the West. If the West wants to completely isolate the Russian economy, it would have to force all the other states of the world to bear the economic burden associated with the disruption of trade with Russia. After all, few outside the West are interested in severing ties with Russia. Forcing these countries to do so would require more than just strictly worded signals. That would be a Herculean task indeed.
The threat of nuclear escalation is another reason why the West has not imposed economic isolation on Moscow. The policy of economic strangulation, if applied effectively, should seriously undermine Russia's capabilities. Actually, this is the result that supporters of this policy hope to achieve, claiming that it will force Russia to abandon its military actions in Ukraine. The fatal flaw of this strategy is that Moscow uses its military capabilities not only to conduct a special operation in Ukraine. They are also necessary for her own self-defense. The policy of economic strangulation, which slowly but surely reduces Russia's ability to defend its territory, carries an existential threat to it. Regardless of what the situation on the battlefield in Ukraine looks like, if the policy of economic strangulation is successful, Russia's survival will be at risk. And the use of such a policy against a nuclear-weapon State is a very dangerous strategy.
The way forward
Sanctions are the wrong tool to solve the strategic problems facing the West. The West wants Russia to stop its special operation in Ukraine, which, according to Moscow, is necessary to ensure its national security. In order to change the foreign policy of a state with such high stakes, the levers of influence on it must be equally significant. Currently, the process of developing multilateral sanctions, which includes the desire of participating States to reduce individual costs, a lengthy negotiation process and compromises, gives Russia time to adjust to future economic pressures, and Western firms counterproductive incentives to expand trade with Russia before sanctions are imposed. As a result of all this, sanctions do not have a strong enough impact on Russia's decisions.
It is impossible to change the nature of the West's negotiations on sanctions. Each State of the multilateral coalition must agree to the final package of sanctions. Reaching such an agreement requires time and exceptions for States that would otherwise not agree to accept them.
Another way to increase the impact of sanctions is to make sure that Russia cannot adapt to the consequences of the sanctions package before it comes into force. This requires India and China, as well as other smaller but important economies, to join the sanctions regime. To "seduce" India, the West would at least have to offer it oil at a lower price than Russia does. But even in this case, it would not be a guarantee of India's participation in the sanctions regime. The result expected from such actions of the West would simply equalize the rules of its game with the rules applied by Russia. As for China, it is generally difficult to imagine what could force Beijing to take part in sanctions against Russia. It is even harder to imagine that the West is willing to pay such a huge price. And as long as Russia has functioning alternative markets for its main exports and alternative trading partners ready to sell it the necessary products, sanctions will not be able to put enough pressure on Moscow to change Russia's policy on Ukraine.
To achieve the termination of the Russian special operation in Ukraine, the West will need to look for alternative tools. At this stage, diplomacy seems to be such a tool. This tool may be more successful. Since Russia has nuclear weapons, even a decisive military victory for Ukraine, as a result of which Russian troops would be forced out of its borders, is not a guarantee of ending the conflict. After all, Russia has every opportunity to continue striking at the Ukrainian infrastructure and from its territory. Moreover, a hypothetical Ukrainian invasion of Russian territory would already involve a significant risk of nuclear retaliation.
Ultimately, it will be up to Russia to decide when the hostilities will end and diplomacy will become necessary. Negotiations on the settlement of the conflict will probably require consideration of Russia's security interests in Europe, which are closely "tied" to the termination of NATO expansion.
Author: Maria Grinberg is an associate professor of the Department of Political Science and a participant in the Security Research Program at the Massachusetts Institute of Technology (MIT).
