Sanctions Starting To Be Felt Everywhere

The United States is bringing a new round of sanctions targeting Russian financial institutions and Kremlin officials and their family members — even Putin’s daughters. As is always the case with blunt instruments like sanctions, the full effects are difficult to gauge. They may not alter Putin’s military strategy in Ukraine, but the more costly the Ukraine war is for him, the more likely the threat of sanctions deters similar actions in the future. Either way, leaders will have to be especially thoughtful in the ways they target and measure any actions they take.

The EU and G7 are implementing new sanctions on Russian state-owned enterprises (SOEs) and investment in Russia. The White House says these additional measures will “degrade key instruments of Russian state power.” SOEs and government agencies are key players in the market, the economy, and in society for an authoritarian government. When you start stripping away their ability to leverage that power over the people, you inherently handicap the regime. The effects will take time to be realized, though. We are seeing that the more power Putin loses, the more he tries to use fear to rule. History shows this is typical of authoritarian regimes.

One huge loophole in the sanctions is Russia’s oil and gas industries remaining largely untouched. The United States and a few others have announced they will not buy Russian energy products. Many in the West do not want to be seen buying from Russia, due to the attached stigma or the cost of dealing with the banking sanctions involved in paying for that oil. But still, Russia is selling between half a billion and a billion dollars of oil a day to western countries including Germany, Italy, and Austria. Those funds can buy bonds that fund the ongoing war, which is estimated to cost Russia between $1 billion to $20 billion a day.

The EU is in a further bind because its members cannot really do without Russian natural gas. They get 40% of their supply from Russia. Europe says it wants to wean itself off Russian natural gas as soon as possible, but that the transition will take time. President Biden announced that the United States plans to send some of its natural gas to Europe to lessen EU reliance on Russia, but the projected US shipment of 15 billion cubic meters is just a fraction of the 140 billion cubic meters Europe imports yearly from Russia.

But there is still further room to go on the sanctions. Not all of Russia’s banks have been cut off from SWIFT messaging system, and half of the top 20 oligarchs (people who hold Putin’s money for him) reportedly remain largely untouched.

Meanwhile, the economic pain is starting to emerge around the world. U.S. gasoline prices are rising, though they were rising before the Ukraine invasion. The Federal Reserve even pared back its interest rate hike plans “in light of greater near-term uncertainty associated with Russia’s invasion of Ukraine,” according to newly released minutes from the March meeting. The forecast for German economic growth has been cut in half, and the outlook has even been downgraded for China. Beijing is getting its energy at a discount from Russia, and that could help soften China’s economic downturn at least in the short run. But over time, there are risks for China in getting closer to Putin, because these sanctions appear far from over.