How effective are sanctions against Russia?

Rachel Ziemba: The strategy from the US and a whole set of allies, the G-7 plus, has really been to try to stay unified to coordinate their sanctions, because coordinated sanctions have more impact. And to start with some significant, but not gigantic, targets so that there’s an opportunity to face up. Now, the challenge is that there are no good or easy options here, right? Russia is a major economy, particularly in providing oil and gas and key commodities like wheat, metals. So, to really harm Russia’s economy with the hope of providing policy change — the goal here is not punishment per se, that we want to avoid war, we’re using tools of economic warfare to try to avoid actual physical warfare — but the challenges, given the Russian government’s willingness to forgo growth to force savings to endure degrees of pain, it remains to be seen whether that will have that effectiveness of averting further war.

It’s easier for us to sit here eight years later and say they don’t seem to have worked very well. At the time, they were more painful. We have to also remember that this was a time when oil prices were falling, and so, Russia had the double-whammy of sanctions and some financing restrictions, not as big as the financing restrictions we’re putting in place now. Russia was able to weather that and if anything, there the economic policy framework is more resilient now. The administration has characterized the measures of the last 24 hours as very strong. I’d probably say they’re more moderate choices. The next phase, which could be triggered if there is further territorial expansion, that could include things like export control restrictions. So, basically limitations on Russian imports of microelectronics and chips that have US inputs. It also could target some larger banks. The challenge is that just as the US and allies have economic leverage on Russia, so too does Russia on the West. Russia is a big provider of oil and gas, and to really hurt Russia, we might end up hurting the global economy; not just US consumers, but those around the world. And so, that calibration and balancing act is a difficult one. And, of course, we don’t know to what extent whether Russia would be willing to break contracts and reduce exports of a whole range of critical commodities, not just oil and gas, but also wheat and fertilizer. And we know that food prices are going up around the world, in part because of the pandemic and because of climate change. This adds to a difficult balancing act.

Yeah, what we have seen so far is that the sort of targets that have been chosen in Russia are financing vehicles for the government. They’re financing vehicles for the military. The US did not choose to target banks that have a lot of lending to individuals or to small businesses or even medium-sized businesses to the extent that there is escalation and targeting new measures that will be harder to do. We saw even, in the last few days, when the US government targeted Donetsk and Luhansk, these breakaway regions, that the US government right away, when they impose the sanctions, did have what are called general licenses that allow remittances, transfers to individuals and also, theoretically, facilitate humanitarian trade. But those are harder to implement in practice when you have a jurisdiction that is facing very extensive, almost maximum pressure sanctions. But it is something that this administration is trying to do.