Weighing the sanctions success of Russia in the Ukraine conflict

The first round of sanctions came before Vladimir Putin announced a military operation in Ukraine in a televised address

Washington: As the Biden administration prepares its response to Russia’s attack on Ukraine, the Treasury Department is tasked with finding ways to stall parts of Russia’s economic development.

A key question for management is how to measure success.

With inflation already at record highs, a global pandemic making it difficult for businesses to reopen, and energy shortages across Europe, it can be difficult to work out the math to punish one of the world’s largest economies.

The first round of sanctions came before Putin announced a military operation in Ukraine in a televised address on Thursday, warning other countries that any attempt at interference would lead to “consequences they have never seen.” As he spoke, large explosions could be heard in Kiev, Kharkiv and other areas of Ukraine.

Hours earlier on Feb. 23, 2022, White House Press Secretary Jen Psaki went through a list of factors the government is monitoring and described recent trends of rising borrowing costs for the Russian government, falling foreign investment in the country, and increasing weakness in the ruble and shrinking fortunes for the “super-rich”.

She added that all of this was leaked through the new sanctions that the US and its allies began imposing on February 22, 2022, “before the bite even happens.”

“This is a vicious feedback loop that will only get worse” if Putin doesn’t back down, she said, adding that if elites had tried to use their bank cards for transactions on February 22, 2022, they “wouldn’t have done it”. Work.”

After Putin announced the start of military operations against Ukraine, President Joe Biden vowed that the US and its allies would announce “further consequences” on Thursday against Russia for its “unnecessary act of aggression against Ukraine.”

Experts with knowledge of how the US imposes sanctions say the biggest determinant of the success of such measures will not be the valuation of the Russian markets, the ruble or other assets.

“To be honest, there are no formalized systems, processes or procedures where the Treasury Department actually does this assessment. So that’s an interesting omission, but it’s a reality,” said Adam Smith, who served in the Obama administration as a senior advisor to the Treasury Department on foreign asset control. “The bigger question is whether they will change President Putin’s mind.”

The government, in its first tranche of sanctions on February 22, 2022, attempted to cut off the Russian government from Western funding, imposing sanctions on two banks and preventing them from trading debt in the US and European markets. On February 23, 2022, President Joe Biden authorized the imposition of sanctions on the company that built the Nord Stream 2 gas pipeline from Russia to Germany and on the company’s CEO.

Nicholas Mulder, a professor of modern European history at Cornell University, says sometimes there are concrete measures for successful sanctions. He pointed to the constraints on Iran’s growth, particularly from 2011 to 2015 when crude oil exports fell by more than half.

According to a report by the Congressional Research Service, then-Treasury Secretary Jack Lew said in April 2015 that Iran’s economy had shrunk by 20 percent as a result of sanctions.

But Mulder says that because Russia is a huge economy, the math for sanctions enforcement and success will be different, saying, “It’s getting difficult fast in terms of impact on global markets.”

That is why sanctions are often imposed on individuals, not on an entire economy.

Psaki predicted that the first round of sanctions “will have a significant impact on Russia’s inner-circle leaders,” essentially cutting off their ability to tap funds from state-owned banks that are blocked from conducting transactions with the United States and Europe make .

These banks, she said, were “some of the most glorified piggy banks for the Kremlin,” including one that held military finances. She added that “no financial institution is safe from further sanctions” if the Russian government continues its movements into Ukrainian territory.

William C. Wohlforth, faculty director at the Dartmouth Institute for Global Security, said the recent fines should be seen as a “warning shot against the bow of what could be done.”

“The only indicator that counts is whether it stops Putin from moving further in Ukraine. Sanctions against this or that oligarch will have no effect,” he said.

Mulder said success will also be difficult to measure because Asian economies now absorb a larger share of trade with Russia than they did in 2014, when sanctions were imposed when Russia annexed Crimea from Ukraine.

“There are opportunities to adjust trade,” Mulder said, as non-European countries continue to trade with Russia.

Smith emphasized that the market cost of sanctions should not be the only measure of success, but should also encompass what sanctions are intended to prevent.

Citing the 2014 sanctions imposed on various individuals and entities, Smith said Putin “took Crimea, but theoretically they could have gotten to Kiev without those 2014 sanctions.”

He said the Treasury and Administration juggle a lot of challenges, but “the task of measuring success is a bit of a silly task.”

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