Russia Undeterred: The Failure of Smart Sanctions
Skepticism towards the efficacy of sanctions is widespread. Three years into the conflict between Russia and Ukraine, it is hardly surprising that Western sanctions did not lead to the desired outcomes. The European Union stated that the sanctions target Russia’s leading political individuals with visa bans and asset freezes, while some of the country’s industries, primarily its major energy and defense companies, are subject to limited economic sanctions. The access to Western financing is now closed for major Russian banks. (For a detailed sanctions timeline, please see here) The measures supposedly are not aimed at Russia’s population and are constructed as “smart sanctions” meant to raise the costs for the elites while avoiding collective punishment. However, smart sanctions might not be that smart after all, and may even be counterproductive.
Russia’s authoritarian regime is in fact benefitting from Western sanctions. The political system restricts power to a few within the Kremlin, while keeping them isolated from ordinary citizens. The Russian political economy’s primary function is the redistribution of rents from oil and gas– both of which Russia has plenty – to supporters of the existing regime. 
Facing only weak internal opposition, the Kremlin moved swiftly to insulate key allies from the sanctions’ negative impact. There are several prominent examples: Bank Rossiya is arguably essential to Mr. Putin’s inner circle and was targeted by U.S. sanctions in late March 2014. The Kremlin did not hesitate: “State corporations, local governments and even the Black Sea Fleet in Crimea were suddenly shifting their accounts to the bank […].”
Until the end of 2014, the companies of Arkady Rotenberg and Gennadiy Timchenko, Putin’s closest allies, had a 12 percent increase in government contracts. Additionally, the “Rotenberg Law” – the namesake of Putin’s ally mentioned above – guaranteed compensation to Russians whose assets were frozen by foreign governments. These moves to cushion the regime show its uncontested nature, but also its siege mentality. Being on the sanctions list is the new common ground of Russian elites and even former rivals. As a result, Russia’s ruling class has become even more dependent on Mr. Putin. Without any other choice, the elites now seek to promote protectionism and isolationism as if it were their plan all along.
In 2014 and 2015, additional resources were distributed to key economic sectors with the largest share of employees: the energy and pharmaceutical industries, agricultural machinery, and the military-industrial complex. After Western sanctions, Russia also introduced its own countermeasures by banning Western foodstuffs. As import-substitution becomes increasingly popular, Russia grows increasingly isolated economically, while working to decrease its vulnerability to future sanctions. These measures reflect Russia’s prioritization of economic security, which is outlined in its 2015 National Security Strategy (NSS).
Securitization tendencies in policy also existed prior to 2014. The current political climate inside Russia, however, makes securitization essential for decision-makers in Moscow. The Russian food embargo has already benefitted the domestic agricultural sector. While the ban was potentially unpopular with the public, it was justified through the international crisis in the name of Russia’s security, since isolationist measures of this sort are meant to decrease future economic vulnerability to external threats. Nevertheless, words are not necessarily followed by deeds: even though the NSS clearly outlines the Western threat to Russia, by mid-2015 only 7 out of the scheduled 127 imports from Western states were replaced. However, this lack of political will is compensated by the Kremlin’s risk-acceptant, expansionist foreign policy. As opposed to the half-hearted efforts of the import substitution campaign, Moscow seems to be determined in its foreign policy goals as seen, for instance, in its intervention in Syria in late 2015.
After the annexation of Crimea in early 2014, there has in fact been considerable evidence supporting a strong and surprisingly long-lasting rally-around-the-flag effect. Not only did Putin’s approval ratings skyrocket to over 80 percent, but Russian citizens also appear to be increasingly willing to accept the sacrifice and gradual deterioration of their living standards in favor of the restoration of Moscow’s former glory.
The government’s interpretation of events and the lack of a “truly free and diverse media” has played a major role in this regard and continues to influence domestic opinion in Russia. In addition to providing an excuse for the economic hardship of the past years, the Kremlin’s sanctions narrative also focused on developing the idea of an existential external threat, posed by the West, to consolidate social cohesion as well as regime stability. This strategy appears to be successful: as recent polls reveal, up to 62 percent of Russian citizens believe that they should adapt to life under sanctions while there is widespread support for the government’s foreign policy. Standing up to the West gave Russian citizens a renewed sense of pride, while the effects of Western sanctions are being confused with those of the Russian-enacted food embargo, undermining the logics of smart sanctions.
Against this background, strengthening sanctions would likely be counterproductive, as it would help feed the siege mentality inside Russia and support the authoritarian regime. Also, Russia’s growing isolation will only make it more resistant to potential future punitive measures of this sort. Even though the current status quo justifies the skepticism towards sanctions, a relief would certainly damage the West’s credibility and make a bad situation even worse. Speculation about possible sanctions relief has surfaced after the unexpected victory of Donald Trump in the U.S. presidential election in 2016. Such a move would, however, reward predatory foreign policy instead of discouraging potential aggressors.
A better way to sanction Moscow’s breach of international law would not be through punitive measures but rather through an accelerated political campaign by the EU that would tacitly reduce Russia’s leverage on Europe, particularly in Eastern Europe. This includes the active pursuit of the suggested Energy Union of the EU, as well as energy diversification in general. For instance, by recognizing the highly political nature of the Nordstream 2 gas pipeline project and its threat to the EU’s energy security as long advocated by Poland and the Baltic states. Additionally, supporting Ukraine in its quest to become a post-Soviet democratic success story is likely to be the best antidote to the goals originally sought by Russia’s annexation of Crimea and the subsequent destabilization of Ukraine as a whole, through the on-going insurgency in its Eastern region.
The views expressed in this article are the authors’ own.
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