What are the benefits of sanctions? An expert clarifies

• The economic sanctions imposed on Russia as a result of its invasion of Ukraine are the most comprehensive and coordinated steps launched against a major state since World War II.
  
• Multinational corporations from a variety of industries are leaving the country, taking their goods, services, and jobs with them.
• Because to the decline of the Russian ruble, Russian citizens' purchasing power and livelihoods have been severely undermined.

For centuries, economic sanctions have been employed as a weapon of war. Economic penalties were commonly used by countries at war in 17th and 18th century Europe. They included trade restrictions, port closures against opponents, and restrictions on the trade of certain goods. In the face of terrorism, nuclear proliferation, armed conflicts, and other foreign policy problems, economic sanctions continue to play a significant role.

The fundamental goal of applying sanctions is to prevent bad behaviour by inflicting economic penalties on the targeted country and demanding rehabilitation, or a change in behaviour. The effectiveness and execution of sanctions, on the other hand, are critical to their success. Sanctions are most effective when they are planned and enforced multilaterally with allies, and sanctions regimes that are poorly designed and implemented frequently fail to achieve the desired results.

Following Russia's invasion of Ukraine in February 2014, the US announced a series of sanctions aimed at punishing and weakening the Russian economy through trade and financial restrictions. However, these measures have failed to dissuade additional action, and the situation is now intensifying. In light of these circumstances, we are currently witnessing the most severe and coordinated sanctions drive launched by the US and the European Union to deter additional Russian military advances.

All of these policies will have long-term negative effects for the Russian economy. We asked Jonathan Hackenbroich, Policy Fellow at the European Council on Foreign Relations, to give us some background on the use of sanctions in the past, as well as insights into how current sanctions policies are shaped by geopolitical movements in recent decades, and what various leaders and policymakers should keep in mind as they work to absorb the economic aftershocks of sanctions.

The legalisation of sanctions as a tool of economic warfare

How did economic sanctions become considered as a viable alternative to military action?

Jonathan: For a long time, economic sanctions have existed alongside military tools as an instrument of statecraft. However, the world has entered a new era of globalisation marked by the increased use of economic tools for geopolitical (or geo-economic) aims and systemic rivalry. We may see proxy battles and indirect military combat, but economic warfare will influence relations between the major countries first and foremost. This is mostly due to the fact that these countries will aim to avoid open confrontation in order to avoid the deployment of nuclear weapons, and they may more easily leverage asymmetric economic interdependence – such as access to US financial markets – to exert pressure on the other.

"We may see proxy wars and indirect military confrontation, but the relations between the different key powers will be shaped by economic warfare first and foremost."

This preference for economic tools to avoid nuclear war is currently being played out in most great powers' dealings with Russia over its aggressiveness in Ukraine. Tools used in economic warfare range from positive economic instruments like trade agreements to coercive ones like import quotas, official and informal sanctions (including so-called "popular boycotts") – from strategic competitiveness investments to regulations meant to modify company behaviour.

Were economic sanctions effective during the twentieth century? What were some of the erroneous sanctions assumptions?

Economic sanctions can only be one option in the global peacekeeping toolbox. While they have inflicted significant economic suffering in the past, they have been less successful in accomplishing their political objectives. The cost of changing Russia's behaviour (removal from Ukraine) vs the economic cost of imposing sanctions is a crucial driver of sanctions' success (that is disconnection from international financial markets).

When the Obama administration clarified the sanctions goal: it stated that the goal was not regime change (which Tehran would have always considered to be more costly than sanctions pain), but to persuade Iran to refrain from building a nuclear weapon, sanctions on Iran were successful in bringing the country back to the negotiating table – and indeed to agree to the Iran nuclear accord.

There have been times in the past when penalties or threats of sanctions were successful in modifying a target's behaviour: for example, when the League of Nations threatened sanctions against Yugoslavia under Article 16 in 1921 to prevent it from acquiring land from Albania, Yugoslavia did not do so. Other examples exist, particularly where the sanctions aims were not very aggressive. However, one notable example is the end of the Apartheid regime in South Africa, where sanctions played a key role in attaining victory.

Sanctions' impact on global governance

What has shaped the new economic sanctions dynamics in recent years?

In the 2000s, the United States' war on terror altered sanctions strategy. The United States utilised its clout in the global financial system to persuade banks all across the world to stop assisting terrorist financing, cancel accounts, and freeze assets that Al Quaeda could no longer use for its operations.

After the punishing sanctions on Iraq in the 1990s, which largely had the impact of causing suffering to the Iraqi people but failed to fundamentally change the Iraqi regime's calculations, targeted sanctions became far more crucial to sanctions policy. Even if he reinstated comprehensive sanctions, Donald Trump's unilateral measures of maximum pressure failed to change Iran's or Venezuela's actions.

The most recent Russia sanctions include a mix of targeted measures against oligarchs, large financial restrictions, and longer-term trade sanctions imposed by a broad coalition of many significant countries in the international economic system.

What are the potential ramifications of the present global consensus on economic sanctions on Russia? Is it possible that this will lead to "expansionary autarky"?

A growing portion of global trade will be based on power rather than laws. This is the most significant pattern. A country like Russia will have to deal with the challenges that come with being disconnected from substantial elements of the international financial system and disconnecting quickly and widely.

Of course, China is keeping a careful eye on the West's sanctions strategy, and one takeaway is that the United States' influence and control over the world economy's critical chokepoints remains unrivalled. However, applying the same strategy to China would be extremely difficult. Europe's reliance on energy has exposed the continent's vulnerability. The main question may be how far-reaching the lessons learned by Europe will be.

Getting through a global economic reorganisation

What role do developing economies play in such geo-economic reorganisation? What can they do to mitigate the economic consequences of the sanctions?

Even at a time when we are largely discussing Europe's dependence on Russian energy, developing economies are much more concerned about shortages of vital items. We will witness, and are already seeing, unreasonably high food prices and shortages in developing countries, which will have the greatest impact on their populations.

Those that will cope well have the finest economic diplomacy networks and the ability to locally substitute more imports. However, for some, it will be quite difficult. More broadly, developing countries may have to deal with the (out-)flow of capital to safe havens in developed economies, and it's possible that they'll have a harder time attracting parts of global supply chains and production, as the world's economic hubs prioritise supply chain security over efficiency.

However, the whole picture is more complicated than that. As the global trade order grows increasingly politicised, some of them – particularly those geographically or economically adjacent to select industrialised economies – may benefit from near-shoring operations. And if (usually partial, but occasionally more extensive) decoupling progresses, especially if competing in the world's main markets becomes more challenging, different actors in the so-called developed world may turn to sections of the developing world much more. Many African countries have already hedged their risks by abstaining in the UN General Assembly vote on Ukraine.

Enlarge the image by clicking on it.

What kind of steps would policymakers and private companies need to adopt in the longer term if the global economy begins to repair itself after being struck by sanctions' economic damage?

Much is still out in the air, and it all depends on how the current sanctions and war play out. Many corporations will need considerably more geopolitical understanding and will have to factor geopolitical risk into their investment and trade decisions to a far larger extent.

This is a particular difficulty for small and medium-sized businesses, but even larger organisations may require more political expertise. Permanent geo-economic engagement between policymakers and private enterprises will also be required. The EU, for example, has established a public-private Industrial Forum to guarantee that the EU receives the information it requires from businesses in order to effectively implement the digital and green transitions. However, it lacks such a format for the world's third major transition, which is the geopolitical one.

In a world where geopolitics and trade are much more linked, state and business policy will become more intertwined. Both sides will have to come up with new ways to deal with a trading world that will be more divided into power and norms, and more polarised between democracies and autocracies, as well as many countries that will try to bridge the gap between the two.