Can sanctions really work?

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Some reports have suggested that the sanctions being imposed on Russia for its invasion of Ukraine are having a major impact on the Russian economy already, with interest rates rising, and banks running out of cash. It is comforting to believe that the sanctions taken to date are having a dramatic effect, but there is a danger of seeing what we want to see. The initial impact may be more a result of the suddenness than of any real underlying impact – and they certainly are nowhere near leading to any rethink by Putin. Some estimates – and it’s difficult to estimate accurately – suggest that the impact overall will be a hit of something like 4-6% to Russian GDP. That’s significant, but hardly crippling. As a comparison, the best estimates of the impact of Brexit on the UK are that it will reduce GDP by around 4%. That’s bad news – especially for those on lowest incomes, who will (as always) bear the brunt – but no-one is suggesting that it’s akin to the sort of economic collapse which would ‘force’ the UK to go begging to Brussels for readmission, to the Single Market if not to the Union itself. And a government which cares even less about the fate of ordinary people than the Johnson government, which is where Russia finds itself, is hardly going to lose much sleep over even the worst case 6% drop in GDP.

In any event, Russia has plenty of chance to mitigate the effects of at least some of the sanctions. The UK has kindly given the oligarchs sufficient advance notice for them to be liquidating their assets and moving them out of the UK, and those who keep their assets hidden behind nominee and shell companies in the UK’s myriad of tax havens have been given even more time to prepare by the snail’s pace progress of legislation to deal with those tax havens. Add to that those states in the world which are prepared to try and find ways around the sanctions, and the apparent determination of some European countries to continue buying – and paying for – supplies of Russian hydrocarbons, and the reports of the damage being done to the Russian economy look hopelessly over-optimistic.

Accepting the argument that military intervention leading to direct armed conflict with Russia is too dangerous to contemplate, we are left with nothing better than sanctions. But whilst sanctions could be strengthened considerably (moving rapidly towards a complete trade embargo) and action could be taken faster (preventing the movement of assets), sanctions have never proved to be an effective mechanism, and certainly not in a short time frame. More extreme sanctions, such as a complete trade embargo would hurt more. There would be a cost to ourselves as well as to ordinary Russians, of course – although nothing remotely comparable to the price currently being paid by the Ukrainian people. The biggest problem we face is international disunity as individual states try to protect their own peoples and interests. And the underlying cause of that comes down to the fact that we have a competitive world order rather than a collaborative one – it's driven, in effect, by an ideology which encourages selfishness. All of the problems likely to be faced by individual states as a result of more resolute international action against Russia could be resolved – or at least mitigated – by a willingness to share the pain equally rather than protect individual interests. Without that, we’re probably doomed to a long term war of resistance and attrition from which the biggest losers are the Ukrainian people and the only winners are the suppliers of armaments.