Author
dr. Denis Mancevič
The latter especially applies to current discussions about the (in)effective Western sanctions against Russia, which escalate with each month of the ongoing war in Ukraine. Particularly towards strengthening the discourse that the sanctions are not effective, that they harm the EU more than Russia itself, and that it would be sensible to lift them. The official Kremlin also sends messages with the same tone to the world, striving behind the iron curtains of Red Square to have the West lift the sanctions as soon as possible (why, if the Kremlin allegedly isn't harmed by them?). In such discussions, there are usually quite a few gaps in content, as well as neglect of the broader context.
Claims that sanctions are not effective are mostly supported by two sets of arguments: the first argues that the sanctions have not (yet) stopped the war or that Russia can still finance the war. The second set argues that the Russian economy has not collapsed under the weight of sanctions or that it even "prospers". Such discourse is, of course, also a copy of Kremlin's rhetoric, which draws from individual economic indicators and is supposed to confirm the story of how the Russian economy is robust and resilient to all shocks.
Before we nod in agreement or firmly shake our heads, let's try to look a little deeper.
In the theory of international relations and economic diplomacy, it is generally believed that no economic sanctions in history have worked when their purpose was regime change. And when we look at the history of sanctions against Cuba or Iran, practice confirms this. Economic sanctions often work domestically in exactly the opposite way: they help consolidate power, as they create a common image of an "external enemy". The civilian population usually experiences the most negative consequences (both in terms of political repression and sheer deprivation, worsening healthcare and social care, etc.), while the political and economic elite often prosper. They can find bypasses and external partners that the grayness of economic sanctions allows for bypasses, extra margins, and profits. So, when we look at the sanctions against Russia, which are unprecedented historically in terms of their comprehensiveness, we first need to ask: what is their central purpose? What does the West aim to achieve with them?
If the answer is "ending the war in Ukraine as soon as possible", then any sanctions will be already a priori unsuccessful. Economic sanctions cannot end or temporarily interrupt military conflicts; for that, different (military, political, diplomatic) efforts are needed. Therefore, if anyone in the West thought this was the appropriate recipe for stopping Russia militarily, they are either truly naive, misled, or simply politically populist. Another possible answer is that the purpose of the sanctions is to reduce Russia's capabilities for conducting effective military attacks on Ukraine in the short term (primarily by reducing military and technological capabilities) and in the medium to long term to diminish Russia's capabilities to sustain military aggression; in other words, in the long run, to restrain Russian economic, financial, and military development. When viewed from this perspective, the answer is no longer so unequivocal. We will have to wait for the long-term effect (although in the long run, unfortunately, we are all dead), but at least in the short term, it is undisputed that sanctions have helped limit the military and technological capabilities of the Russian army in at least one aspect, both through access to the most powerful semiconductors and through dual-use equipment, which constantly needs to find gray bypasses for sanctions, complex banking transaction schemes, etc. The argument of the authors of the sanction mechanisms (including some prominent Russian economists living in the West) is quite simple: everything must be done to reduce Russia's capacity for producing and subsequently using modern military equipment in attacks on Ukraine. Both in technological and financial terms. Of course, sanctions also have reciprocal (negative) effects, with their consequences being strongly felt primarily in the EU.
Is it entirely appropriate to raise the ethical question of what is the value of human life compared to higher prices of energy and heating bills?
The second set of arguments for ineffective sanctions relies on selected economic indicators. Three are most often mentioned: GDP growth, low unemployment, and a large surplus in Russian trade. Let's go through them.
Regarding GDP, first this well-known humorous analogy about how GDP is not a universal objective indicator of the economic (un)success of a particular country. Imagine if the government organizes a competition in which it initially prints billions of domestic currencies, then buries it at thousands of unknown locations across the country and announces a tender to find this "lost treasure". Wow, there will be economic activities galore, the impact on GDP will be extremely positive: printing money machines will need to be ordered and manufactured, then someone will have to bury the money, followed by demand for excavators and shovels, and an infinite number of hours spent searching. The only question is who will pay for all this. But in authoritarian and autarkic (self-sufficient) regimes, this is of secondary importance; sometimes work doesn't need to be paid for (in addition to slaves, forced laborers can also be "convenient"), and the bill will ultimately be paid by someone else. The same applies to GDP in today's Russia: Russian economic growth in the years after 2014 (the annexation of Crimea) averaged slower than Western countries, then followed by a decline in GDP in 2022, the first year of military aggression against Ukraine. Therefore, talking about economic growth in Russia in 2023 and 2024 (forecasts of 2-3% growth) as evidence of economic stability is at least misplaced. When the Kremlin redirects thirty percent of the federal budget and almost 10 percent of GDP (!) for the military and defense, anything other than nominal GDP growth would be a real miracle (especially considering the effect of a low base). Let's rather ask what the structure and quality of this growth are? What is it based on, and how productive is it? Suddenly, this argument becomes much less appealing.
Low unemployment (less than %) is another indicator that seemingly straightforwardly supports the desired argument that everything is under control, people have enough work, the economy is functioning. Firstly, military investments generate quite a few new jobs, secondly, there is negative demography at work, which has been plaguing Russia (even more than many countries in Eastern and Central Europe) for decades, then there is the outflow of active (and also the most productive) workforce after February 2022 (estimated somewhere between half a million to a million people), and of course, last but not least, the mobilization and conscription into the army for the needs of the war in Ukraine (an additional million men). When you add to this the gradual bureaucratic closure of borders for millions of economic migrants from Central Asia who work (illegally) in Russia, you quickly get a labor shortage in the labor market. And that's already in "normal" economic conditions, let alone in a period of a wartime economy and overheated economy.
Then there is the third indicator, the trade surplus. The latter is not a peculiarity for raw material-export-oriented economies, which Russia undoubtedly is. Even Venezuela had a trade surplus in most years of the last decade, yet it is not exactly a model of a stable and flourishing economy. The logic is simple: the higher the prices of energy (especially crude oil), the larger the trade surplus generated by these countries, while they continue to remain heavily import-dependent (technology, food, luxury goods, medicines, etc.). Thus, Russia is no exception: it has recorded a trade surplus in every year since the collapse of the Soviet Union, including in the years of the financial collapse in 1997/98 (!). What has changed is that the combination of sanctions (embargo on energy imports) and war has caused an increase in energy prices in 2022 and partly in 2023, along with a simultaneous decrease in imports into Russia as a result of these same sanctions and the Kremlin's response in the form of policies of industrial self-sufficiency or autarky. Therefore, global economic activity (which directly also reflects on global oil markets) has a much greater impact on the Russian trade surplus than any government policy. And sanctions could change this only if they drastically halted the export of Russian crude oil to world markets.
But in that case, even the global financial markets would collapse; the shock would be too great. Realistically, no one in the international community wants that.
The column was originally published in the newspaper Večer on May 11, 2024.