Jack Beecher, Transatlantic Economy Analyst
Russia’s annexation of Crimea, military aid to pro-Russian separatists in Ukraine, direct military intervention, and the downing of Malaysian Airlines flight MH17 triggered a series of escalating sanctions from the United States and the European Union, among others. Yet it does not appear that Russia will be moving from Crimea anytime soon, and the Ukrainian government has effectively ceded autonomy to the eastern regions following a ceasefire. More than eight months into the Ukraine crisis, are Western sanctions achieving their objectives?
Western sanctions target Russian President Vladimir Putin’s inner circle and senior officials, and – when applicable – their companies, but not the broader economy or people at large. Even so, they are weakening the Russian economy as a whole. The IMF believes the Russian economy will grow by 0.2% this year, down from its previous estimate of 3%, while it recently downgraded its estimate for 2015 from 1% to 0.5%. The ruble continues to depreciate, raising prices on imports, the cost of living and overall inflation. The latter is at 8.4%.
The ostensible goal is to inflict economic pain on Putin’s inner circle and senior officials, leading them to put pressure on him to change course. “Now that their wealth has been diminished by Putin’s actions, they have a big incentive to act against Putin and he knows that,” said Bill Browder, a hedge fund manager and vocal campaigner against Russian corruption. Yet Moscow has not ceased its support for pro-Russian separatists in Ukraine, and, as was the case with Russian intervention in Georgia in 2008, Putin’s public approval rating increased from 65% in October 2013 to 86% in September 2014. The house arrest of Russian oligarch Vladimir Yevtushenkov and seizure some of his assets may be a sign of growing tension among the ruling elite, but it is not clear that they are willing to undertake any great personal risk to alter Putin’s behavior. Ukraine and the EU, moreover, decided to delay the implementation of their trade pact to assuage Moscow’s opposition to the agreement.
Given Putin’s lack of responsiveness to Western sanctions so far, what can be expected going forward? When it comes to the history of sanctions, the record is mixed. While the outcome was the right one in Rhodesia and South Africa, these were minority regimes facing great domestic pressure. Sanctions have arguably not undermined the Cuban regime, and some assert that they give the regime an excuse for the poverty generated by its economic system. The U.S. first sanctioned Iran in 1979, but Iran simply sold its oil to other countries. In contrast, multilateral sanctions imposed on Iran in response to its nuclear program since 2006 have imposed serious costs on the Iranian economy, and are largely credited for its more positive tone since the election of President Rouhani. In other words, the record shows that the effectiveness of sanctions depends on many variables, many of which are specific to the target country.
With regard to Russia in particular, some argue that targeting its leadership could have the opposite effect, making it more radical and less willing to compromise with Ukraine and the West. While it is not clear if this is happening, Putin’s aforementioned poll numbers indicate that a “rally around the flag” effect has, at the very least, taken hold at the public level. This may continue in the short-term, but as the punitive economic effects of the sanctions affect more of the Russian public, Putin’s approval rating is likely to fall as it did after his conflict with Georgia, leading him to provoke another conflict, change course, lose the next election, or resign. Assuming that the West successfully prevents the first pathway from materializing, and that the last two outcomes are least desirable for Putin, at least two open questions are: 1) How long will it take for the sanctions to alter Putin’s behavior? and 2) Will the West lose its resolve to maintain its sanctions in the interim period? Putin may not be able to withstand the consequences of his aggressive policies indefinitely, but there are also limits to the West’s cohesion and the how quickly its sanctions regime can achieve results.