The Russian Sanctions Regime and the Risk of Catastrophic Success

Editor’s note: Don’t miss our comprehensive guide to Russia’s war against Ukraine

 

In August 1941, excrement was piling up in Tokyo, literally. Most of the city lacked a sewer system, and human waste had to be regularly trucked away from homes. In late July, the United States had frozen Japanese assets and embargoed oil sales to Japan to oppose the Japanese war in China. There was no longer enough fuel for the motor vehicles that normally transported the sewage out of the city, and bicycle-drawn carts could not keep up with demand. Residents complained loudly. The American sanctions created more than just sewage problems, and Japanese leaders came to believe they would lose power if they did nothing. They also believed they would lose power if they abandoned the war in China. As a result, Tokyo expanded the war and attacked Pearl Harbor. Critically, the Japanese cabinet chose to attack the United States even after it received analysis which reached the “unequivocal conclusion” that war with the United States “was unwinnable.”

Since the Russian invasion of Ukraine, Western governments have turned to economic sanctions as their principal response. The United States and its Western allies and partners, as well as other major powers such as Japan, have imposed the most comprehensive package of financial and technological sanctions ever applied to a nuclear-armed great power. Thus far, they have frozen the assets of key Russian political and business leaders, seized physical property, interned a merchant ship, and most significantly, banned transactions with the most important Russian banks, including the Russian central bank. Even Switzerland has made an exception to its neutrality to join the financial sanctions. Beyond these state-sponsored sanctions, numerous private businesses have decided to reduce services and operations in Russia of their own accord. These firms include a who’s-who of finance, technology, entertainment, and car companies, like Visa, Mastercard, Apple, Microsoft, Disney, Netflix, Ford, and BMW.

 

 

As Daniel Drezner has identified, the specific strategic goals of these sanctions remain unclear. Reputational value exists in Western governments following through on the threats of sanctions simply to prove they would. That goal is already accomplished. No Western leader has announced conditions under which sanctions might end, an essential step if the sanctions serve a coercive strategy. It seems more likely the sanctions seek both to punish Russia for punishment’s sake and to weaken its economy to make the war more difficult — the traditional goals of economic warfare. If so, the sanctions are unlikely to end soon.

What if the sanctions work — that is, they make life in Russia intolerable or undermine Russia’s ability to continue the war? That could force Russia to the negotiating table. But it could also have the opposite effect. Western policymakers are right to be concerned about an escalation with Russia leading to a general European war, but they seem focused almost exclusively on avoiding escalatory military options and managing the close proximity of NATO and Russian forces. Sanctions too can lead to war, or at least to riskier Russian strategies that court war. A desperate Vladimir Putin could escalate the war in a gamble for resurrection.

Sanctions Thus Far

Though the war and the sanctions are still in their opening days, they have had an immediate effect. The ruble has lost almost 30 percent its value against the dollar and is worth less than a cent. In Russia, the Central Bank has more than doubled interest rates, the stock market has closed, the government has imposed capital controls, and civilians are queuing to withdraw savings from banks. Despite these immediate results, it could take weeks, months, or even years for sanctions to produce their full effects. Russia may have time to mitigate the worst consequences of the sanctions. When the West imposed sanctions on individuals and on the oil, defense, and financial sectors after the 2014 invasion of Crimea, Russia responded by “Russification” and diversification, pursuing import substitution, and shifting imports to Asian countries like China. While these adaptations were mostly successful, they took eight years to achieve fully. Today, Russia is already seeking ways to mitigate the new sanctions, but these sanctions are far more severe, and the success of Russian mitigation measures remains uncertain. The sanctions could bring Russia to its knees.

Economic Isolation Can Lead to Risky Strategies

Scholars who study the effects of economic isolation on states — whether through sanctions, wartime blockades, or other mechanisms — find that economic isolation rarely causes its targets to capitulate outright. Rather, economic pressure can lead states at war to adopt riskier strategies, often involving escalation. Call it economic inadvertent escalation.

Because economic pressure takes time to work, targets can anticipate their worsening situation before it reaches a crisis point. Once a future crisis seems inevitable, leaders face a closing window in which to try to avert the disaster they see coming. In such situations, they may decide they have little to lose if escalation provides even a small chance of improving their situation. Such calculations have not just affected the Japanese. Allied economic warfare drove Germany to adopt risky, war-expanding strategies in both World War I and World War II.

Such gambles are even more likely if a state’s leaders are unusually willing to accept risk. Putin’s decision to invade Ukraine, especially in light of the Russian military’s failure to perform as expected, and his increasingly shrill rhetoric suggest Putin may be at least as risk-accepting as were Japanese leaders 80 years ago. If so, the likelihood he would choose to double down is higher.

Paths to Escalation

Economic isolation can encourage leaders to escalate their wars in two ways. First, sanctions can directly undermine Russia’s military capability. Russia relies on the West for many high-tech imports required for advanced weapons systems, including components like microchips. Western sanctions explicitly target these items. If Russian losses mount, their production facilities may be unable to provide replacements because of import shortages. If the war drags on, shortages of precision-guided munitions may lead Russian forces to use more “dumb bombs” and engage in even more violence against civilians that characterized Russian strategies in Chechnya and Syria.  As the shelling of Kharkiv and other cities, shows, Russia does not lack the will to kill Ukrainian civilians. Eventually, Putin may face a choice: use his remaining military capability before attrition depletes it or abandon the fight.

Second, sanctions may affect Putin’s domestic political calculus. Putin’s grip on control since 2003, increased tools to suppress protest, and swift crackdown on current protests help insulate him from general political discontent. But if sanctions produce severe losses, especially among the oligarchs or the security services, Putin may come to believe he needs to offer them greater potential rewards from the war to compensate them for their hardship. Escalating the war in the face of a worsening situation might provide this possibility. Such logic shaped the fatal 1917 German decision to resume unrestricted submarine warfare in the face of British economic warfare, even though German leaders knew their decision would bring the United States into the war against them.

Potential Russian Moves

Russia could potentially escalate in several different ways. First, Russia might shift its objectives to reduce the impact of sanctions. Because of the Soviet legacy, prior to 2014, Russia sourced vital military equipment including aircraft engines, transport aircraft, air-to-air missiles, electronics, and components of inter-continental ballistic missiles from Ukraine. The Russian military has painstakingly sought to mitigate the resulting engine and aircraft shortages resulting from its 2014 annexation of Crimea by purchasing some items from other sources, but Western sanctions will hamper remaining imports from the West. Seizing Ukrainian defense factories could become a priority. While perhaps less likely if the target were a NATO member, Russia could even expand the war beyond Ukraine if it thought doing so might provide control of areas that would help alleviate the economic pressure.

Second, Russia could also try to give the West a taste of its own medicine. Ukraine is a major food exporter and a plant in Odessa purifies 60 percent of the world’s supply of neon, which is used in microchip production. Russian forces could target these economic objectives.

Third, a desperate Russia might risk striking Western military aid before or after it crosses the Ukrainian border. As Aaron Stein notes, a potential for accidental clashes will grow as flows of military aid increase across the Ukrainian-Polish border. Russia has already threatened that it would target aid convoys carrying weapons and ammunition for Ukrainian forces once they enter Ukraine. The region’s congested airspace furthers the risk of inadvertent NATO-Russia engagements. If Russia faces a sanctions-driven closing window for military success, Putin might deliberately choose to take more risks to intercept convoys or even attempt to push back supporting NATO forces.

Finally, even nuclear escalation could be possible. Russia has already increased the alert status of its nuclear forces. Its 2020 nuclear doctrine specifically states Russia would consider first use of nuclear weapons in situations where “conventional aggression” threatens “the very existence of the state.” Putin has declared the sanctions “akin to a declaration of war.” No nuclear armed power has ever faced the possibility of regime collapse due to economic pressure. It is conceivable that the Russia regime might consider nuclear use if economic pressure were significant enough to threaten its existence.

How to Respond

What does this possibility mean for Western policymakers? First, it does not necessarily mean they should reduce the economic pressure they are applying, but sanctions aren’t free. There is likely no way to effectively pressure Russia without some increase in the risk of escalation. Policymakers need to weigh the escalation risks of severe sanctions as they make their choices.

Second, policymakers should anticipate how Russia might direct its military toward objectives that will help ameliorate the effects of sanctions or increase economic pain in the West. Within Ukraine, Kharkiv and Kyiv — two of the cities with the heaviest fighting — host major Antonov facilities: a transport aircraft factory and Antonov’s headquarters, and Artem, which produces air-to-air missiles like the AA-10, respectively. Other vital defense companies like Ivchenko-Progress, Motor Sich, and Yuzhmash are located in eastern cities like Zaporizhzhia and Dnipro.

Most importantly, it is vital that Western leaders combine sanctions with off-ramps for Moscow, especially if the conflict drags on. Both the Japanese in 1941 and the Germans in 1916–1917 attempted negotiating with their isolators before choosing escalation. On the other hand, in both cases, domestic political constraints, which the economic isolation tightened, contributed to diplomatic failure. Western leaders should consider the circumstances under which Putin might calculate that he would be better off acceding to Western demands than continuing to defy them, which may include face-saving outs. There may be no deal both Russia and the West will accept, but Western leaders must not be lulled into thinking that continued pressure will only weaken Moscow without Putin deciding to fight back. He has previously warned, “If you compress the spring all the way to its limit, it will snap back hard. You must always remember this.”

The war in Ukraine is still in its early days. Economic pressure acts slowly, and the West may not achieve the economic isolation it desires. Still, the sanctions may work, and Western leaders cannot simply assume Vladimir Putin will throw in the towel. If they do, they may find themselves waking up as the U.S. Pacific Fleet did one Sunday morning in December 1941.

 

 

Erik Sand is an assistant professor in the Strategic and Operational Research Department at the U.S. Naval War College.

Suzanne Freeman is a Ph.D. candidate in the MIT Political Science Department.

Their opinions are their own and do not represent the opinions of the U.S. Naval War College, the U.S. Navy, or the U.S. Government.

Image: Xinhua (Photo by Bai Xueqi)

Leave a Comment