Western countries' efforts in crippling Russia's war efforts
A look into NATO’s sanctions on Russia and their effectiveness
Source: Unsplash
In the last week of February, queues of people spilled out from ATMs and banks all across Russia. As tanks rolled across the Ukraine border, Russians prepared themselves for the international backlash. On 24 February, Putin ended the world’s weeks of agonising speculation by making the decision to invade Ukraine for the “denazification” of the state. In response, the European Union (EU), United Kingdom (UK) and the United States (US) and numerous other countries have promised swift and brutal retaliation. However, assistance for Ukraine has not come in the form of armed NATO troops. Instead, Western powers have decided on another weapon of choice: coordinated sanctions that have been promised to isolate the Russian economy and cripple its war effort. However, some fear that such measures alone will not be enough.
When Russia invaded Ukraine, Boris Johnson made a promise that same day. The UK Prime Minister declared that it was time to “squeeze Russia from the global economy, piece by piece.” The crumbling of the Russian economy will not simply serve to stop its attacks on Ukraine but send a signal to potential aggressors in the future of the consequences of such actions. Some even hope that the economic hardships the average Russian face as a result of Putin’s actions will sow the first seeds of dissent, leading to a change in leadership.
One of the most devastating blows rendered to back this statement was the joint effort by the EU, US and UK to freeze Russia’s central bank reserves. According to Citi economist, David Lubin, a key means for a country to protect themselves from sanctions is to amass a wealth of foreign currency to defend its own currency. This has been the route that Russia has taken, attempting to build a “fortress economy” following the sanctions imposed upon it after it invaded Crimea in 2014. It is estimated that the country held USD$630bn in foreign reserves in January this year. A week into the war, more than half of these assets had been paralysed.
On 2 March, Western countries continued to tighten the noose by cutting off seven Russian banks from the international SWIFT payment system. Created to allow the rapid transaction of capital across borders, SWIFT serves as the global financial artery for 11,000 financial institutions worldwide. Banning Russian banks from SWIFT is a significant step towards cutting it off from the global economy. The move will disrupt the country’s international financial transactions by forcing its banks to deal directly with businesses outside. This is predicted to cause delays and increase costs that will reduce considerable revenue.
Besides these measures, the UK has imposed individual sanction on 120 Russian individuals, subsidiaries and entities. Rostec, the largest Russian defence company which exports USD$10bn worth of arms yearly, is one of those affected. Russian airline, Aeroflot, has been banned from entering the country. Steps have also been taken to bar Russian businesses from reaping from UK markets.
Yet the war in Ukraine still rages.
Some have questioned the short-term effectiveness of the sanctions imposed. Brian O’Toole, who served the U.S Department of the Treasury until 2017, told NBC News that though the sanctions imposed on Russia are considerable, their full effort might only be felt in years. “It may give Putin the idea that the pain of the sanctions is less than he anticipates”, warned the former senior advisor to the director of the Office of Foreign Assets Control. “[This] gives him some incentive to keep pushing the envelope.”
Others have questioned if enough has been done. Some of the largest banks in Russia, such as Sberbank and Gazprombank, were allowed to remain in the SWIFT system. A recent report by Transparency International UK has found that 2,189 companies found within the UK and its Overseas Territories have been involved in £82 billion funds worth of Russian money laundering and corruption. The country has promised to expel this “dirty money” from its economy. However, its efforts in sanctioning Russian oligarchs within its borders have been accused of being too slow. Russia’s energy sector, which is the lifeblood of its economy, also remained untouched by sanctions until very recently.
While imposing sanctions on Russia’s energy sector seems like the next reasonable step, moving in this direction could cost Western powers dearly. Over the years, Russia’s influence in the regional energy market has been considerable. In 2021, Russian gas formed 45% of the EU’s gas imports while oil constituted 25% of the bloc’s oil purchases. Just before the conflict, plans for the Nord Stream 2 pipeline, designed to double undersea gas deliveries from Russia to Germany, were still underway. Though the project was scrapped after the invasion of Ukraine, EU countries have, until recently, shown reluctance to take action that might threaten their energy source. Sberbank and Gazprombank, for example, were allowed to remain in SWIFT due to their involvement in the region’s energy trade. Since the start of the conflict, Europe has continued paying Russia for fossil fuels, raking up a cost of 13.1bn euros as of the 16th of March 2022.
In truth, the pressure of the sanctions are already being felt in the Russian economy. Disarmed of the ability to protect its currency, the ruble plummeted to a record low. On 28 February, it was worth less than 1 US cent. On 24 February, fear of the effects of the war sent Russian stocks plunging by 33%.
As Putin continues to show little sign of backing down, it is his people, mainly the aspiring middle class, that will bear the consequences of his actions. As prices begin to climb, many are scrambling to stock up in order to weather the coming economic strain. Russians working for foreign financial institutions worry about receiving their salary. At the same time, the use of Visa and Mastercard is becoming increasingly restricted. Cars and auto parts manufacturers, such as British Jaguar Land Rover and American Ford, have withdrawn their sales and operations from the country. The popular annual Eurovision song contest has rejected Russian delegations this year while Disney, WarnerBros and Paramount have ceased theatrical releases of film in the country. The social media world has not remained untouched either with Russian authorities shutting down the platform’s operations in the country on 14 March. As each day passes, Russians are increasingly isolated from the rest of the world.
Brian Grodsky, a Political Science professor at University of Maryland, explained that sanctions abide by a “punishment logic”. The pressure inflicted on the Russian population was done so in hopes of them rising up against their political leadership. He pointed out, however, that such effects have historically seen little success in authoritarian regimes.
Numerous Russians have dared to protest the state’s decision to go to war. In an unexpected “open letter” to Putin, 1,200 students, staff and faculty members of MGIMO University expressed their desire to end the conflict. Across 53 cities, crowds have gathered to participate in anti-war rallies. In response, the Kremlin has arrested thousands of protestors and stepped-up media censorship. Dmitry Medvedev, the deputy head of Russia's Security Council chaired by President Vladimir Putin, has also alluded to the re-installation of the death penalty in retaliation to Russia’s removal from Europe’s top rights group.
The number of Ukranians killed in the week following the invasion remains unclear. Schools, nurseries and hospitals have not been spared from the conflict. On 7 March, 364 civilian deaths had already been confirmed but the number is likely much higher.
President Volodymyr Zelenskyy has continued to plead with Western powers to step up their aid to his country. “This will become Europe’s problem [if no further action is taken by the U.S and NATO countries],” Zelenskyy insisted in an emotional Zoom call with U.S lawmakers. His claim is hardly inaccurate. Putin has already demonstrated that he is willing to take risks that might threaten all of Europe as his forces seized the nuclear plant of the Ukrainian city Zaporizhzhia on 4 March. Given that the nuclear power plant in Chernobyl, the site of the worst nuclear accident in history, has fallen into Russian hands as well, experts have predicted that Russia will continue to target Ukraine’s 13 other nuclear power plants. A single misstep in the aggressive shelling and attacks on these sites could result in catastrophe beyond Ukraine’s borders if facilities are damaged in any way.
The U.S and U.K have recently announced that they will be banning oil imports from Russia in hope of landing another heavy blow upon its economy. Expressing gratitude to the two countries, Zelenskyy urged other countries to follow suit. “[I am grateful] for this most powerful signal to the whole world”, he said, “Either Russia will respect international law and will not wage wars, or it will not have the money to start wars.”
European nations have been less enthusiastic about moving in this direction. Germany stressed on the need for a “sustainable” approach to pressurising Moscow without imposing higher costs on its own citizens. Biden has also acknowledged that unlike the U.S and U.K, who only constitute 8% and 2% of Russia’s oil exports compared to the EU’s 60%, not every country is in the position to follow the steps of the U.S and U.K. “We’re working closely with Europe and our partners to develop a long-term strategy to reduce their dependence on Russian energy,” the U.S President assured.
More conversations about further measures against Russia are still being held. While fear of escalating the conflict has caused decisions to be made carefully, a new sense of urgency is also gripping the situation. Zelenskyy has already survived more than a dozen assisnation attempts. The Russian army continues to rain attacks on civilian areas. As the conflict’s death toll creeps up, the need for an end to the violence grows even more dire.