Evaluating Western Sanctions on Russia
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Atlantic Council Atlantic Council DINU PATRICIU EURASIA CENTER and GLOBAL BUSINESS & ECONOMICS PROGRAM EVALUATING WESTERN SANCTIONS ON RUSSIA Sergey Aleksashenko EVALUATING WESTERN SANCTIONS ON RUSSIA Sergey Aleksashenko ISBN: 978-1-61977-458-2 This publication is made possible with generous support from David D. Aufhauser. Cover photo credit: Reuters/Thomas Peter. An armed member of a local self-defense unit watches traffic at a checkpoint on the highway between Simferopol and Sevastopol in the Crimean peninsula, March 13, 2014. This report is written and published in accordance with the Atlantic Council Policy on Intellectual Independence. The author is solely responsible for its analysis and recommendations. The Atlantic Council and its donors do not determine, nor do they necessarily endorse or advocate for, any of this report’s conclusions. December 2016 TABLE OF CONTENTS Introduction ............................................................................................................................... 1 Why and How Was Russia Sanctioned? ..........................................................................2 Were There Other Options? ................................................................................................. 5 Are Sanctions Working? ........................................................................................................ 6 Have Sanctions Influenced Russia’s Foreign Policy? .................................................. 7 Have Sanctions Hurt the Russian Economy? .................................................................9 Political Costs ........................................................................................................................... 16 Policy Recommendations ..................................................................................................... 17 Conclusion ..................................................................................................................................18 About the Author .....................................................................................................................19 Appendix ..................................................................................................................................... 20 EVALUATING WESTERN SANCTIONS ON RUSSIA INTRODUCTION It has been more than two years since the European stop Russia from sending troops and weapons into Union (EU) and the United States (US) imposed the Donbas immediately following the annexation or economic sanctions on Russia for its aggression in violating the first Minsk-1 ceasefire agreement, signed Ukraine. For some of the measures, though not all, that in September 2014. is time enough to evaluate effectiveness. But before such an assessment can be made, the initial goals of It may be correct, as Nuland said, that sanctions have the sanctions should be clearly stated. This is not as deterred more “Russian efforts to grab Ukrainian straightforward as it might seem. territory.” But even the far reaching sectoral sanctions that were imposed after the Kremlin’s actions in United States Assistant Secretary of State, Victoria eastern Ukraine, which targeted key Russian industries, Nuland, told a Senate panel in June 2016 that businesses, and banks, failed to get Moscow to hold up sanctions were meant to “press Moscow to bring an its side of the Minsk-2 ceasefire agreement, reached in end to the violence in Ukraine and fully implement its February 2015. commitments under the Minsk [ceasefire] agreements.”1 By that standard, they have failed. The situation in As for imposing economic costs on Russia, sanctions eastern Ukraine today is one of low-intensity warfare against specific individuals persuaded some of the rather than a ceasefire. And what of the first wave targeted individuals in Putin’s inner circle to sell major of sanctions imposed in March 2014 as punishment assets or transfer them to relatives. As to the economic for Russia’s military takeover of Crimea? Were they impact of broad financial sanctions, instituted in July meant to pressure the Kremlin into relinquishing the 2014, this too has been limited. The lack of access to peninsula? To anyone familiar with Russian President capital markets as a result of the sectoral sanctions Vladimir Putin’s foreign policy strategy, this would combined with the drop in oil prices surely contributed have seemed far-fetched. to the collapse of the Russian ruble in December 2014. In addition, according to most estimates, sanctions Still, there are intermediate goals, not simply full may account for a decline of 0.5–1 percent of Russian compliance, that this report considers: to contain gross domestic product (GDP) in 2015. In the long Russia’s adventurism and to craft a cautionary tale in term, a ban on the transfer of certain technology and which Russia pays a high price for—and the West takes expertise to Russia, combined with the possibility of a principled stand against—the Kremlin’s violation further sanctions, could mean that the political risk of international law and its neighbor’s sovereignty. of doing business in the country, along with Russia’s By these measures, Nuland told the Senate Foreign technological isolation, will continue to grow, with Relations Committee, the medicine is working. “These obvious negative implications for its economy. sanctions, combined with low oil prices and Russia’s continued structural weaknesses, have imposed The sanctions’ greatest achievement is that they have significant costs. While Moscow has not yet changed been an important demonstration of transatlantic its approach to Ukraine, our readiness to toughen unity. The coordination of sanctions between twenty- sanctions even further has likely played a role in eight EU countries and the United States is a signal deterring further Russian efforts to grab Ukrainian foreign policy achievement, sending a clear message territory.”2 to Putin that the West will take a united stance against Russia’s invasion of a sovereign nation. Until Russia Even if the West had faced a different Russian pulls its forces out of the Donbas and no longer leader, the first wave of sanctions, imposed after the occupies Crimea, the sanctions should stay in place. annexation of Crimea, were never going to result in If the West wants to go beyond making a symbolic the withdrawal of Russian troops from the peninsula. statement, and to have any hope of changing Russia’s Initially limited to asset freezes and visa bans on behavior, it should contemplate wielding policy tools those with a role in the annexation, they also did not it has not yet used, including a ban on the purchase of Russian oil and gas and a freeze on the assets of state-controlled banks and companies. 1 Victoria Nuland, Testimony to the Senate Foreign Relations Committee Hearing: “Russian Violations of Borders, Treaties, and Human Rights,” June 7, 2016, http://www.foreign.senate. gov/imo/media/doc/060716_Nuland_Testimony.pdf. 2 Victoria Nuland, “Testimony to the Senate Foreign Relations Committee Hearing,” 3. ATLANTIC COUNCIL 1 EVALUATING WESTERN SANCTIONS ON RUSSIA WHY AND HOW WAS RUSSIA SANCTIONED? On February 22, 2014, then Ukrainian President and currently includes 128 people and 102 entities in Viktor Yanukovych fled Ukraine amidst mass popular the United States7 and 151 people and 37 companies protests. Taking advantage of the political upheaval, in the EU.8 Putin ordered the implementation of a plan for the annexation of Ukraine’s Crimean Peninsula which On March 5, 2014, the European Union announced began with the deployment of special forces.3 its first Ukraine-related sanctions, visa bans, and Working from its Black Sea Fleet base in Sevastopol, asset freezes on eighteen individuals accused of the Russian military gained control over the peninsula undermining democracy, misappropriating Ukrainian 9 within ninety-six hours.4 property, and violating human rights. The next day, US President Barack Obama followed suit, ordering visa On February 27, 2014, the parliament of Crimea was bans and asset freezes for those the administration occupied by so-called “little green men,” troops in determined to have “asserted governmental authority Russian uniforms without insignia. Under their guns, in the Crimean region without the authorization of parliament established a new pro-Russian government the government of Ukraine,”10 thereby threatening “its and instituted a so-called independence referendum in peace, security, stability, sovereignty, and territorial Crimea that later was reformulated into a referendum integrity.”11 On March 16-17, 2014, the United States to join the Russian Federation. On March 1, 2014, the and the EU announced their new sanctions on Federation Council, the upper chamber of Russia’s Russian politicians and individuals, as well as related parliament, approved the deployment of troops to companies.12 A similar decision was adopted by the EU Ukraine. On March 16, 2014, a so-called “referendum” Council.13 On March 20, Obama signed an executive in Crimea took place through which Russia justified order extending sanctions to companies in the financial the incorporation of the territory into the Russian services, energy, metals and mining, engineering, Federation. and defense and related industries, though the list of affected enterprises was released only in mid- Western leaders started to worry after the decision July.14 Then on April 28, the United States expanded of the Russian parliament to deploy military