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Erika Szyszczak24 February 2023

Erika Szyszczak is a Fellow of the UK Trade Policy Observatory and Professor Emerita of Law at the University of Sussex.

24 February 2022: a date that shook the world as Russian aggression in Ukraine escalated.

The fragility of a strategic democratic state was challenged, alongside exposing the vulnerability of interdependent global supply chains. Thus, it was not surprising that the early response to Russian aggression was in the form of economic sanctions led by the US, the UK and the EU. [1]

One year on, it is timely to appraise the role of economic sanctions and assess their effectiveness.

Early commentators noted that there would be economic trade-offs and that the EU would be affected as much as Russia in the event of sanctions, especially on energy, with disruption to supply chains. What was not appreciated at that time was the resilience of the Russian economy, and its population, to an already lowered standard of living, an ongoing war footing and the underestimation of the role China would play in filling the export gaps for Russia and in supplying crucial equipment for high-tech industries.

The sanctions can be categorised broadly as:

  • sanctions against individuals, “Russian oligarchs”, who support President Putin.
  • sanctions against the Russian Central Bank and large Russian banks operating in the West.
  • sanctions against the sale/import of Russian energy, especially oil.
  • sanctions against high-tech US exports of military equipment (including exports from other countries using US technology).

Consumers used pressure to boycott Russian goods and to persuade firms to withdraw from Russia, especially in the retail sector. Other firms self-sanctioned by withdrawing operations, suspending or downsizing their activities in Russia.

One year on: Have Sanctions Worked?

As a response to ending Russian aggression, the sanctions have not worked. Yet. There is evidence that the Russian economy has retracted, but sanctions have not had the drastic economic impact initially predicted by the West.

The US and the EU had used sanctions to register objections to the Russian annexation of Crimea in 2014, but this did not deter Russia from escalating its ambitions to take control over further territory in Ukraine.  Indeed, it would seem Russia learnt from this experience in planning its future economic strategy. Robin Wight argued that historically sanctions are ineffective unless used in tandem with coercive measures. There is some evidence that sanctions have been weakened by deflection of trade. The Financial Times reports that sanctions have led to a deflection of trade directly with Russia but EU exports have increased to Turkey and to central Asian countries, especially Armenia and Kyrgyzstan, and in turn exports from these countries to Russia have increased significantly.

Sanctions against individuals and Russian-owned firms are controversial.

Individuals claim that freezing and seizing private assets is a disproportionate punitive response to the actions of a [foreign] government where they do not exercise political decision-making. Sanctions are used to weaken President Putin’s links with rich oligarchs and to weaken his economic and political standing. Sanctions may influence where individuals choose to invest in the future, and it is evident that individuals (and their firms) have diversified assets globally. Some even divested assets before the sanctions could take effect. Where the sanctions are having an effect on individual lifestyles challenges have been made at the national level and before the General Court of the EU,

But legal processes are complicated, and the European Courts have not been sympathetic in the past to challenges brought by individuals on EU sanctions lists.

Sanctions Against the Russian Central Bank

These work on the premise of freezing assets to prevent the Russian Central Bank from using foreign reserves to shore up the Rouble. Additionally, several Russian banks have been dropped from the Society for Worldwide Interbank Financial Telecommunication (SWIFT). The  US  Treasury Department has sanctioned two large Russian banks and prohibited the trading of securities issued in Russia. The assets of sanctioned Russian individuals, including President Vladimir Putin, have also been frozen.

But as Matthew Klein observed in February 2022, Russia had already begun the long game in response to sanctions imposed after the Russian annexation of Crimea. There was an accepted lowering of living standards by reducing reliance on imported goods by more than 25%. Russian businesses paid off overseas creditors, reducing foreign debt by one-third. Therefore, the Russian state has reserves of gold and foreign currency.  It is estimated there are over $640 billion of central bank reserves, with only 50% in currencies subject to sanctions.

Russia reacted to the financial sanctions by shoring up and artificially stabilising the Rouble with a 20% interest rate and conducting bilateral trade in Roubles, not foreign currency. Thus, for the time being, the Russian economy continues to function.

As the war with Ukraine is drawn out and extra spending is used on military equipment and imports of crucial materials and food will sanctions start to bite?

Sanctions Against the Sale of Russian Oil

This includes a US ban on the import of Russian crude oil, liquified natural gas, and coal, as well as restrictions on US investments in Russian energy companies. But energy is the Achilles heel of the EU response. The EU allowed itself to become dependent upon Russian energy supplies, taking 40% of its gas supply and one-third of the crude oil supply. Not all EU Member States were willing to impose sanctions that would affect energy supply – with Hungary being the chief opponent of sanctions. Eventually, the EU was able to agree to sanctions against the import of Russian oil and in December 2022 the G7 countries imposed a cap on the price of Russian crude oil to $60 per barrel.

Russia used its economic influence to close the Nord Stream 1 pipeline to Germany and stopped gas exports to Poland and Bulgaria. It has evaded the G7 price cap by requisitioning a fleet of over 100 old oil tankers to create a “shadow fleet” to export and sell oil above the G7 price cap.

Russia found China to be a willing importer of its surplus oil supplies, coal and liquified natural gas at discounted rates.

The effect of the sanctions has been to raise EU energy prices to more than fourteen times their level in 2019, having a big impact on consumers. However, as Simon Nixon notes the European economy has not been as adversely affected as was initially feared.

Sanctions against high-tech US exports of military equipment

This is the area where the effect of economic measures might be felt in the future conduct of the war. Russia is depleting its military equipment and running out of modern technology.  Early on, China filled the void created by the ban on the export of semiconductors, and today there is speculation that China has increased its production of high-tech military equipment with a view to supplying Russia.

Why Sanctions?

Economic sanctions were seen as a rapid, demonstrative response by Western governments to the wider threat posed by Russian territorial ambitions, and as a less confrontational response than arming Ukraine or triggering a NATO military response. The early claims from the US and the EU were that sanctions would be coercive, isolating Russia, destroying the economy and damaging the war machine.

The US was able to act quickly and decisively because sanctions are a staple of its economic foreign policy. Similarly in the UK there was an infrastructure to implement a wide range of sanctions. Whereas the EU was mired in differences between the Member States and has been slower to respond.  Some of these differences are political, but also the pragmatic realisation of the economic policy mistakes in the past, placing too much reliance on Russian energy supplies. Thus, in 2023, the EU is smarting from the impact of this strategy and Russia has been able to utilise allies in China, India and Turkey, to diversify its energy export markets.

Ukraine has been devastated by the war. Today there is less focus on sanctions as a deterrent and greater emphasis on how Ukraine can be armed to end the war. The war has highlighted concerns about supply chain resilience, which in turn, is leading to a reformulation of trade and investment strategies in areas which have nothing to do with this conflict, in an attempt to mitigate these vulnerabilities.


[1] The Peterson Institute for International Economics (PIIE) launched, and updated, a post charting the sanctions.

The EU also created a webpage setting out the measures taken.

Commentaries were written by UKTPO from Gasiorek  and Larbalestier

The Ukraine-Russia crisis and possible trade sanctions

and by Cygan, Disney and Szyszczak for the Economics Observatory.

The opinions expressed in this blog are those of the authors alone and do not necessarily represent the opinions of the University of Sussex, UK Trade Policy Observatory or Centre for Inclusive Trade Policy. 

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