POSSIBLE DEVELOPMENTS OF SANCTIONS FOR RUSSIA

Author: Stefan Hedlund, Professor for Russian Studies in Sweden.

Pressing Harder

The first, the favored approach among hardline sanctions advocates, is to keep ratcheting the punishment until the targeted regime eventually breaks. In the case of Russia, plenty more could be done to increase the pain. It would be possible to exclude Russia from the SWIFT payment system, which would cripple its interaction with the global economy. In anticipation of this possibility, the Kremlin has attempted to join Chinese banks in building an alternative payment system, but that has not been overly successful. The same goes for the Sino-Russian ambition to displace the U.S. dollar as an international reserve currency, an aspiration that has been limited to currency swaps in the renminbi. Excluding Russia from SWIFT was known in the early debate about sanctions as the extreme option and would still have a significant impact. The same goes for sanctioning central bank reserves. In anticipation of this possibility, the Russian Central Bank has reduced its dollar holdings, but it still has ample reserves that could be targeted. A problem with this scenario is that experience speaks against success. Authoritarian regimes have proven ready to absorb frightening punishment when they feel that national, or more precisely, regime interest is at stake. In the case of Russia, the Kremlin has not been shy about referring to the legendary Russian endurance that has characterized the Russian population when faced with past hardship.

Escalating the pressure

One may even argue that sanctions have been counterproductive, and that they have strengthened the Putin regime. The most effective part has aimed at denying Russia access to international credit markets. This restriction has caused substantial deleveraging, as Russian debtors have been unable to roll over debt. Also, it has caused the cronies of the regime to become even more dependent on the goodwill of the Kremlin to make ends meet. Another problem with escalating the pressure until a regime break is that one cannot assume that a sanctioned regime will accept the punishment without retaliation. To date, Russia has limited its response to countersanctions against food imports. Although it caused some harm to major food exporters like Finland and Poland, its main effect was to provide business opportunities for the regime’s cronies via smuggling and exploiting niches for domestic import substitution. Looking forward, one cannot exclude that if the Kremlin decides it has been pushed too hard, it will respond more forcefully. It could, for example, escalate its military involvement in Ukraine by launching a limited campaign in the south to capture Mariupol and link up with Crimea. This scenario has surely been war-gamed by the Russian military, down to the finest detail, and there is little that NATO could do – beyond moral condemnations (and more sanctions).

A negotiated solution

Given that the imposition of sanctions was prompted by moral outrage, a negotiated way out would have significant ethical implications. One possibility could be a de facto (if not de jure) Western recognition of Russia’s annexation of Crimea, coupled with a removal of sanctions. This could lead to a withdrawal of Russian support for the rebel militias in Donbas – if Kiev accepts federalization and Russian influence over decision-making by the government in Ukraine. While such moves would facilitate the normalization of relations between Russia and the West and likely also boost trade and investment, they would be bound to trigger strong political reactions. The Ukrainians would cry foul, and media in the West would voice outrage about appeasement and rewarding Russian aggression. By far the most odious consequence of a climbdown is that it would allow the Kremlin to win twice. First, by getting away with its illegal annexation of Crimea and denying its involvement in Donbas. And second, by cashing in as the West drops its sanctions without having paid the price. The combination of these implications suggests that the likelihood of a climbdown must be regarded as slim. 

Business as usual

With both escalation and a climbdown ruled out, the third and most likely scenario is that of continuation of the current policy, implying that sanctions will indeed become a permanent fixture in international relations. Those who favor a gradual but determined expansion in the practice of responding to political problems by imposing sanctions will advocate for  measures that are increasingly refined in pinpointing intended targets. And they will find support in the fact that Western governments have become prisoners of their strong commitment to upholding (Western) values. The main problem with this scenario is that it will cause an ever-deeper gulf between Russia and the West, and in the process, see Chinese President Xi Jinping laughing all the way to Taipei. The increasing importance of sanctions is also accompanied by an expanding bureaucracy with a vested interest in maintaining the status quo. Beltway think tanks that thrive on advocacy are proliferating too. As a result, sanctions will, quite simply, become the new normal in international relations, displacing the old practice of realpolitik.