The Power and Pitfalls of Economic Sanctions

Economic sanctions have been a tool used in geopolitics for centuries. Their successes, especially in the modern era, have proven to be a viable alternative to the use of hard power in times of international conflict. The sanctions allow nations to leverage their economic power as instead of resorting to military interventions. These features however are beginning to be overshadowed by its role in the increasingly interdependent political economy of today. In their long history, there has never been a more comprehensive set of sanctions than the ones imposed on Russia during their invasion of Ukraine in 2022. The use of these sanctions, and their varied results, raise a number of questions as to the responsible and effective use of economic sanctions as a form of military deterrent in our current international economy.

Visual Credit: FLY:D

To grasp the magnitude of these sanctions, consider the events of February 26th, 2022, when certain Russian financial institutions were internationally barred from SWIFT, a global payment system essential for the process and use of the U.S. dollar, which accounts for approximately 85% of all international transactions. Additionally, Russian banks’ foreign assets were frozen, totalling 580 billion in currency reserves, while the assets of oligarchs and billionaires, including a super-yacht, were seized. The scope of these sanctions, designed to isolate and damage the Russian economy, is unparalleled in terms of sheer scale. Similar tactics have been used (more as threats) on smaller economies such as Iran and Afghanistan, however, this is now being done to the 11th largest economy in the world. The initial effect of this ‘financial total war,’ a term coined by France’s Finance Minister Bruno Le Maire, was an obvious shock to the Russian economy. The Russian ruble depreciated nearly a third compared to the U.S. dollar, with Western corporations leaving Russia leading to a sharp increase in consumer prices, including food inflation peaking at 20% in 2022.

These events, however, do not take place in a vacuum. The nature of the global interdependent economy has allowed Russia to stabilize its international trade and domestic markets as of 2023. Although its fuel exports are down 85% to the EU, who before the war were dependent on Russian natural gas, Russian oil now flows to Asia at the same magnitude. As the 5th largest producer of wheat and Ukraine the 4th, these sanctions have raised global food prices, while food inflation in Russia decreased to a manageable 4.87%. Russia has retained the second-largest current account balance in the world behind China (net exports to net imports) in 2022. A reference to the Russian economy’s ability to shift its trade from the West to the over 100 countries that are not participating in sanctions which account for 40% of the global GDP. Russia has been able to leverage its vast reserves of natural resources and food to support itself through these sanctions while developing deeper trade relationships with non-western countries.

The outcome of these developments remains uncertain. The long-term effect of these sanctions will undoubtedly hurt the Russian economy, and consequently its ability to wage a successful war in Ukraine. However, following a year of economic sanctions, it is clear that the unipolar world of Western trade dominance, as seen in the 1990s, no longer exists. The aggressive sanctions imposed on smaller countries ecounter problems when applied to a major world economy like Russia. The EU, heavily reliant on Russian natural gas, may soon enter a recession. Global food prices continue to rise, especially in Western nations. The deepening of multilateral trade relations between Russia and its trading partners runs the risk of creating a bipolar international order. Such an event, if it occurs, increases the likelihood of conflict between major nations due to the formation of two rival trading networks who, due to their lack of economic relationships, are more likely to fight with one another. This historical backdrop is reminiscent of conflicts such as the Cold War.

Sanctions undoubtedly work as a way to dissuade countries from engaging in military conflict without resorting to military intervention. They offer a high degree of flexibility in responding to conflict within the international system and represent a peaceful way to conduct international politics. The use of sanctions against Russia during their invasion of Ukraine was entirely necessary and justified. The purpose of this article is to convey the cost of such drastic economic sanctions given the current geopolitical situation in our country, as part of the Western trade network. The sanctions levied on Russia in 2022 have been successful in many respects; however, it is important that we realistically evaluate the effects of policies with such far-reaching implications.

Jackson (he/him) is a third-year Economics/Political Studies student and the Finance Director of the Political Digest.