Sanctions under scrutiny – what are the real costs to Russia?
The international community's response to Russia's invasion of Ukraine has brought sanctions to the attention of far more people than ever before. That in turn has increased focus on whether sanctions actually work.
This is important for two reasons. The first and most obvious, is that if sanctions don’t work, there is no point imposing them, and governments should be adopting a different tack. The second is that sanctions are not "free" – there are costs for the countries imposing them, and those countries need to be satisfied that the costs are worth bearing.
Those costs include not only the administrative costs of debating and drafting legislation and running government bodies to implement, administer and enforce sanctions, but also the costs in lost revenue – sanctions work by stopping trade, and there is an impact on the economy of the country which imposes sanctions, either by forcing a shift to more expensive sources of goods and materials, or by cutting off a potential market.
So, if we take Russia as an example, are sanctions working?
It is now more than two-and-half years since Russia invaded Ukraine and it is clear that sanctions – despite being the most complex and far-reaching ever imposed – have not caused Russia to stop its invasion or to sue for peace.
However, it is too simplistic to argue that this means that sanctions are not working. Sanctions are not a silver bullet or magic wand, and expecting them to cause a complete reversal in Russia's behaviour was probably never realistic.
For sanctions to be viewed as effective, the key question should be whether they have contributed to a change in behaviour. There are two main difficulties in assessing this. The first is that we are not able to compare the current situation with the one which would have developed if no sanctions had been imposed. We do not know whether, in the absence of sanctions, Russia would have been able to bring more force to bear on the battlefield and would have secured its objectives by now.
The second challenge is the complexity of the economic data, which is often used as a proxy for assessing the effectiveness of sanctions, the argument being that sanctions weaken the economy of the target country, and it is this financial pain which causes a change in behaviour. While there are reports that Russia's economy has grown in the two-year period, there are arguments about whether the data is actually reliable, and also whether the growth reflects unsustainable war expenses, whilst obscuring deeper problems which result from a lack of access to western finance, technology and markets. It seems likely that the economic impact of sanctions will only be properly understood in several years' time.
Therefore, rather than asking whether sanctions are working, we should instead ask how we can make sanctions work better.
Sanctions are most effective when they are multilateral – if there is wide international consensus and numerous countries work together to exclude the sanctioned country from trade, then they are more likely to achieve their objectives. By contrast, sanctions risk being undermined if, in response to one bloc of countries stopping trade with the sanctioned country, another country or bloc of countries simply steps in and makes up the trade shortfall.
By way of example, EU statistics indicate that between the first quarter of 2021 and the first quarter of 2024, the value of EU imports from Russia fell by 85%. However, many of the Russian exports which would otherwise have gone to the EU may simply have been diverted to markets in countries which do not apply sanctions against Russia. We can therefore expect to see ongoing attempts to build international consensus, both within those who impose sanctions, for example different EU member states, and also between those who already impose comprehensive sanctions and those who do not.
Sanctions are also something of a game of cat and mouse. Because the trade which is being targeted is inevitably profitable, as otherwise there would be no point imposing the measures, there will always be attempts to evade or circumvent the sanctions. Sanctions are effective when the loopholes are identified and closed, and we expect to see those countries which have imposed sanctions against Russia continue to identify areas where measures can be reinforced or tightened.
Finally, while we have seen many commercial entities willingly choose to withdraw from Russian markets in the face of increasing sanctions, robust enforcement of sanctions is needed in order for them to be fully effective, as other commercial entities continue to weigh up the pros and cons of continuing to trade with Russia. The US has traditionally led the way with sanctions enforcement, but we expect to see more enforcement from the UK and from EU member states in the coming months.
One thing is clear, sanctions are here to stay, and so are the arguments about how to make them as effective as possible.
Daniel Martin is a Partner and sanctions expert at the international law firm HFW.
