When Western policymakers want to influence an outcome and military intervention is deemed too risky, economic sanctions are a favorite non-lethal tool in their bag of tricks. The war in Ukraine is the latest example of their use.
Attacking a country’s economy through sanctions can be a way of hitting your enemy where it hurts—in the pocketbook. And it’s a lot easier than going to war. The question is whether sanctions cause as many problems as they solve.
Economic sanctions are not a novel concept in international diplomacy. The aim of weakening the enemy through the material deprivation of its population long predates modern times. In fact, it dates back to the ancient Greeks, when Athens imposed a trade embargo on its neighbor Megara in 432 B.C. that helped trigger the Peloponnesian War.
Economic sanctions come in different forms depending on the desired outcome. Besides economic and trade sanctions, these measures include targeted actions such as arms embargoes, freezing assets, commodity restrictions and travel bans on key individuals and organizations.
These sanctions can be imposed by a single country or multilaterally, by like-minded nations, or international bodies such as the United Nations and the European Union. Sanctions can be wide-ranging, banning all transactions with a specific country, while targeted or smart sanctions aim to minimize collateral damage to the general population and instead focus on specific individuals or entities believed to be responsible for offending behavior.
The economic sanctions placed on Russia following its invasion of Ukraine are the widest ranging ever placed on a major economic power. Will they work? Restrictions on Iran, Venezuela, and North Korea, for example, impoverished their populations but haven’t led to political change.
To take just one example, the war in Ukraine has put pressure on European energy markets where supply and demand were already being disrupted. Consider will the European Union’s (EU) proposed oil sanctions on Russia weaken Putin’s ability to finance the war? Fossil fuel exports provide the revenue for Russia’s military buildup and brutal aggression against Ukraine.
The 27 members of the EU buy a quarter of their oil and more than 40 percent of their gas from Russia, paying $450 million per day for oil and $400 million per day for gas. There is no consensus yet among EU members on stopping Russian gas imports.
The EU recently stopped Russian coal imports, and after dithering over a decision to sanction Russian oil imports, the EU Commission has committed to weaning itself off Russian oil. The President of the Commission announced that oil imports from Russia will be banned after six months and refined petroleum products by the end of the year, ratcheting up its efforts to cut off a key source of funding for the Kremlin.
This was the EU’s sixth package of sanctions against Moscow, and its biggest and costliest step yet toward supporting Ukraine and ending its dependence on Russian fossil fuels.
Now the EU is struggling to replace that oil. It is also making a big bet that Russia will not retaliate by turning off natural gas supplies, as they have already done with Bulgaria and Poland for refusing to pay in rubles. Just as Europe hopes to find new oil suppliers, so Russia is working hard to line up alternative buyers such as India to minimize the impact on their bottom line and to continue to take advantage of higher oil prices to compensate for lower volume.
China is a likely market. Last year a third of Russian oil exports went to China. While Russia relies on oil and gas exports for 45 percent of its revenue, according to the International Energy Agency, it may well be that the EU’s oil ban won’t cause large and lasting damage unless China joins the Russian oil boycott, and that is highly unlikely.
But it’s very likely that the proposed ban will hurt the European economy and Europeans are going to have to deal with higher energy prices.