A Guided Tour of the Russia Sanctions

This is a book review of Christine Abely’s The Russia Sanctions: The Economic Response to Russia’s Invasion of Ukraine (New York: Cambridge University Press, 2024)

 

When Russia invaded Ukraine in February 2022, the United States, the European Union, and other states including Japan, South Korea, and Canada responded with sanctions that commentators immediately branded as “historic.” Never before had a nation of Russia’s size been subject to so many sanctions, from so many countries, so quickly. Within a week, major banks found themselves shut out of the international financial system, hundreds of Western firms withdrew from Russia, and export controls began to throttle consumer products. Soon, roughly $300 billion worth of Russia’s central bank reserves had been frozen. The economic impacts looked to be severe. The ruble lost almost a third of its value overnight. Long lines formed at ATMs. Electronics retailers reported a “Christmas”-like atmosphere as Russians gobbled up products they expected to vanish shortly. Privately, some Biden administration officials doubted that the sanctions would work. But the display of economic might inspired effusive public commentary nevertheless. As the New York Times put it on March 5, “NATO has been revitalized, the United States has reclaimed a mantle of leadership that some feared had vanished in Iraq and Afghanistan, and the European Union has found a unity and purpose that eluded it for most of its existence.” Some commentators even feared that the sanctions might be too successful: rather than submit to Western pressure, Russia would respond to the West’s declaration of “economic war” by plunging the globe into World War III.

 

Nearly two years on, sanctions have achieved neither their supporters’ wildest dreams nor their greatest fears. Yet that does not make the sanctions insignificant or uninteresting. Indeed, they spotlight many of the central networks, conflicts, and trends that define our world today. Christine Abely’s new book, The Russia Sanctions, offers us a timely guide to the multitude of sanctions and responses that followed Russia’s invasion. After an introduction to the legal and historical underpinning of sanctions and a short account of the invasion’s first week, Abely, a professor at New England Law in Boston, guides us through a series of themed chapters that explore issues like financial sanctions, oil and gas, oligarchs, food insecurity, and sanctions enforcement. It’s a quick tour, coming in at just 121 pages, but one grounded in pertinent detail (evidenced by its 80 pages of endnotes). Abely’s research relies on a combination of news stories, law reports, and think tank publications. Consequently it has little to tell us about the internal debates of the sanctioners or the experiences of their targets. Abely also resists an overarching argument about the sanctions’ effectiveness or desirability. Yet by providing a valuable guide to their intricacies, Abely’s book helps us understand how the sanctions’ very complexity reflects both the nature of globalization and the gaps in the international rule of law. 

 

The reason we need a guidebook to the sanctions is because they are so multitudinous and complicated. They consist of hundreds of separate laws, regulations, designations, and directives imposed by dozens of national and multilateral agencies. On just one day, February 23, 2022, the US blocked the assets of the company that owned the Nord Stream 2 pipeline, the EU sanctioned Russian legislators and banned loans to its central bank, Australia prohibited financial transactions with members of Russia’s security council, and Japan banned all trade with the Donetsk and Luhansk regions of Ukraine. Sanctions took many forms: export restrictions on semiconductors; prohibitions on foreign investment in key Russian industries; the seizure of yachts, mansions, and assets of Russian oligarchs; a ban on servicing Russian aircraft; and the exclusion of Russian banks from SWIFT, the organization that facilitates most international financial transactions. Norway’s sovereign wealth fund sold off its Russian investments; oil companies pulled out of joint ventures; several American states forbid the sale of Russian vodka at state-owned liquor stores. Secondary sanctions threatened companies in Turkey, India, and China for facilitating sanctions evasion. Abely’s account of these many actions is clear and precise.

 

Why impose sanctions in such a complex way? In the past, many sanctions simply forbid all trade with a target country. But these “comprehensive” embargoes became controversial in the 1990s. By targeting the entire economy they often immiserated the poor and left leaders unscathed. Most infamously, United Nations sanctions on Iraq were blamed for the deaths of hundreds of thousands of children. Thus by the late-1990s both the US and the UN had turned to limited or “smart” sanctions that tried to punish the guilty while exempting the innocent. 

 

Meanwhile, Washington discovered new ways to sanction. While pursuing terrorist financing after 9/11, US officials leveraged Washington’s control over the global financial system. By threatening to blacklist banks that did business with terrorists or money launderers, those banks would have an incentive to enforce sanctions laws. After being hit with billion-dollar fines, global banks like HSBC and BNP Paribas decided that they could not ignore America’s unilateral sanctions even if their home countries lacked similar laws.

 

Simply put, the last thirty years have taught officials in Washington and beyond that targeted—and thus complex—sanctions are both politically necessary and technically achievable. Behind the dozens of separate sanctions laws stand a small group of men and women, hoping that by pulling the right strings they can make the global economy dance just so. Russia’s economy was too important to the world to shut out completely. Precise targets, careful exemptions, and flexible amendments, they hoped, could inflict maximum damage while still allowing for continued trade in the materials most needed by the West and the rest of the world, namely oil and gas, food, and metals. 

 

But complex systems have a tendency to perform in unexpected ways. Take wheat and fertilizer, for instance. Russia was the world’s largest wheat exporter, and among its largest exporters of chemical fertilizer. Knowing the importance of Russian products to the Global South (and to global food prices generally), the sanctioners wrote exemptions into their laws, allowing for free trade in agricultural goods. But as Abely shows, it is difficult to make these kinds of humanitarian exceptions work in practice. Corporations have a tendency toward “overcompliance” and “derisking.” Buying Russian wheat was not illegal, but banks and shippers still feared that dealing with the wrong partners might land them in hot water with sanctions officials. Shipments from Russia ebbed. Expecting disruptions, commodity traders sent grain prices skyrocketing. Although Russian wheat exports in the second half of 2022 actually exceeded shipments in 2021, many blamed the sanctions for bread shortages and food inflation around the world (83-4). (Ukrainian agricultural exports fell even further, due to Russia’s destruction of Ukrainian fields, silos, and ports).

 

The nature of the global economy also made enforcing sanctions difficult. Sanctions targeted Russian oligarchs on the theory that their close connections to Putin made them culpable for the war’s continuation. Sanctions immobilized some $95 billion worth of oligarch property, yet much more—perhaps $1 trillion—remained hidden in a warren of shell companies and tax havens (94, 96). Sanctioners responded by expanding legal and bureaucratic capacities, creating new groups with names like the “Freeze and Seize Task Force,” the “Russian Elites, Proxies, and Oligarchs (REPO) Task Force” and “Task Force KleptoCapture” (102, 106). New diplomatic initiatives like the US Office of Sanctions Coordination aimed to harmonize sanctions efforts among multiple countries (102). But they could not surmount a fundamental problem: the “global financial system lacked key safeguards to ensure the [necessary] financial transparency” (93).

 

The biggest challenge to the sanctioners, however, has been the unwillingness of other countries to participate in Russia’s economic isolation. Some of this reflects the kind of capitalist opportunism that sanctions always create: there’s lots of money to be made by smuggling microchips to Moscow and by purchasing petroleum on the cheap. The sanctioners urge states to ignore these material incentives in order to punish Russia in the name of upholding the rule of law. This argument has mostly fallen flat outside of the Global North. While 141 nations voted for a UN General Assembly resolution condemning Russia’s invasion (including nearly 2 out of 3 of Global South countries), only 52 joined the sanctioning coalition (123). Abely doesn’t say much about this disparity, but the hypocrisy of sanctioning Russia while overlooking the US invasion of Iraq certainly played a role. It would be easy to wonder whether the sanctions are really about upholding a global “rule of law” or simply enforcing a “rules-based order” in which the US and its allies decide which rules to follow.

 

Suspicion of the sanctioners’ motives also reflects the uncertain legality of unilateral sanctions. States clearly have the right to determine their trade partners and to regulate the economic activities of their own citizens. But what gives states the authority to apply their own domestic laws extraterritorially against nationals of other countries? Abely provides a clear guide to the legal arguments on both sides, allowing the reader to make up their own mind. But the EU’s inconsistencies on this matter invite skepticism. As late as 2021, Abely notes, EU foreign affairs official Josep Borrell reiterated that the bloc had “always been firm and vocal in condemning any extraterritorial application of sanctions” (45). Yet in 2022 EU sanctions laws provided for the punishment of non-EU nationals for sanctions evasion (50). 

 

Abely also highlights another fraught legal question: can the frozen assets of the Russian Central Bank be sold for the benefit of Ukraine? A rising chorus of voices in the US and Europe has been making this argument, even more loudly now that their legislatures are becoming stingier in providing Kyiv with military aid. But Abely points out that confiscating central bank assets not only challenges the principle of sovereign immunity, but the taking of foreign property without compensation during peacetime (and the US and EU remain technically at peace with Russia) constitutes unlawful expropriation. Thus, she contends, “[t]he potential seizure of Russian assets raised concerns with respect to maintaining the rule of law” (109). Since the Russia sanctions “were enacted in response to Russia’s invasion of Ukraine and violations of international law in doing so,” she continues, they “had to address the Russian aggression, but also had to respect domestic and international law as well” (110). Recent reports that the US and EU may be moving to confiscate these assets anyway calls into question how far this respect for the rule of law actually extends.

 

How then to evaluate the Russian sanctions so far? “Whether the sanctions were ‘effective’ was too broad a question to be answered with a clear yes or no,” Abely concludes, reasonably (111). They certainly had “significant economic effects” on the Russian economy, though “[a] clear picture of Russia’s economy…was difficult to determine” (113-14). Russian GDP growth has recovered after initially dropping, and smuggling has ensured the availability of key military components. Increases in debt and inflation, and the withdrawal of Western capital and expertise, may portend economic trouble down the road. Yet even if sanctions “work” in the sense of proving punitive economically, they may not “work” in the sense of changing the calculus of Vladimir Putin, “a ruler who would incur great losses and ignore any rational cost-benefit analysis in pursuit of his aims” (116)

 

Abely’s tone is even and balanced throughout, yet the book’s sympathy for Ukraine is clear. The blue and yellow of Ukraine’s flag adorn its cover and its conclusion features an appeal to the US Congress from Ukraine President Vladimir Zelensky: “You can strengthen sanctions to make Russia feel how ruinous its aggression truly is….[L]et the terrorist state be held responsible for its terror and aggression and compensate all losses done by this war” (121). As Abely notes, the provision of military aid has proven much more significant than sanctions in punishing Russia. Perhaps the main value of the sanctions, then, lies in the message that they send: “that Russia’s violation of Ukraine’s territorial integrity was contrary to the rule of law” (115). To make that message resonate more powerfully, sanctioners will need to not only develop economic measures that are sophisticated in their application, but also a fair, democratic, and transparent processes to determine when and how to apply them.

 

Image credit: The Russia Sanctions: The Economic Response to Russia’s Invasion of Ukraine [cover] (New York: Cambridge University Press), Fair Use.