by Kasper Halevy (’24) | March 21, 2022
As the Russian military continues its relentless assault on Ukrainian civilians, the West has also been deploying myriad responses aimed at crippling the Russian economy. Russia’s access to SWIFT financial services (Society for Worldwide Interbank Financial Telecommunication) has been blocked. Assets are currently suspended worldwide, and the sales of various goods and services to them stopped. Consequently, the Russian ruble has lost forty percent of its value compared to the US dollar, and the Moscow Stock Exchange was plummeting so drastically that trading has been halted since February 25.
Yet the litany of financial sanctions and a reeling economy notwithstanding, Russian President Vladimir Putin remains undeterred. Ceasefire talks have failed, and Western nations and NATO are refraining from sending troops directly to Ukraine to avoid direct military conflict. Escalated indirect armed assistance, Putin threatened, would be akin to a declaration of war against other European countries and would trigger the use of nuclear weaponry. The West is quickly running out of compelling alternatives to stop further aggression. The only option left is to evaluate whether the alliance can suffocate the assailant into retreat by targeting Europe’s own lifeline: Russia’s massive energy market.
Because oil and natural gas account for 63 percent of all Russian exports and comprise the country’s main revenue driver, it appears a no-brainer to undermine it. However, European countries have strategically avoided energy sanctions because of the EU’s 40 percent reliance on Russian gas and 35 percent on its oil. By contrast, Russian oil only constitutes 3 percent of American imports. Despite relatively low dependence, President Biden’s ban on Russian energy imports resulted in US retail fuel prices skyrocketing, which contributed to the highest monthly inflation rates seen since 1982. The price pressure of an energy ban on a significantly more Kremlin-reliant Europe would be even more dramatic. Moreover, the list of alternative sources is short; coal would irreversibly exacerbate an already dire climate change crisis, and liquified natural gas exports are nearly at full capacity already. Although the EU recently announced a plan to cease the purchase of Russian fossil fuels by 2030, there is effectively no plausible way of immediately weaning European dependence on Russian energy.
Even without formal sanctions, Russian energy is still stomaching major losses through boycotts. JP Morgan estimates that approximately four million barrels of Russian crude oil are going unsold each day as traders, bankers, and corporations refuse to execute buy orders on the “toxic asset”; crude oil prices have surged to thirteen-year highs as a result of the considerable supply choke. Furthermore, multinational oil corporations such as BP and Shell have abandoned billion-dollar investment stakes in Russian companies and halted business as usual.
In anticipation of the economic consequences, the Kremlin had been stockpiling foreign reserves well before the premeditated invasion. While much of the reserves have been frozen by embargoes, Russia’s full access to some eighty billion dollars in foreign reserves in China and $132 billion in gold will shield it from any short-term sanction or mass shunning effects. Unless Putin’s fiercely stubborn hunger for power and disregard of his economy evaporates overnight, it is too late for the West to deter Russia’s attack on Ukraine.
If deterrence is de facto impossible, the underlying purpose of maintaining current and imposing future sanctions must be considered from different angles. Commercial restrictions have historically been consistently ineffective in promoting substantive change. Politically, the heavily sanctioned Cuba still operates under an authoritarian regime. Diplomatically, embargoes against Iran since 1995 to hinder its nuclear weapons program have yielded twenty years of unfruitful negotiation and an abandoned Iran nuclear deal. Militarily, North Korea’s fourth-largest army in the world and arsenal of nuclear weapons seem immune to fiscal constraints. An exponentially larger and more ambitious world power like Russia is even less likely to be persuaded to make macro adjustments on its territorial goals.
Although sanctions will certainly cripple the Russian economy in the long term, exorbitant prices and the lack of essential services will also disproportionately harm Russian citizens who are powerless against the affluent ruling elite expansionist ambitions. On the global scale, soaring food and energy prices in response to severing ties with Russia would further disrupt economies and devastate the average citizen’s finances. While it is inconceivable to leave Russia unchecked for its abominable actions in Ukraine and the unspeakable trauma they are inflicting all around, aggressively penalizing the Kremlin is not a sure-fire path to victory. Energy sanctions or continued dependence, military aid or passive observance, mega-yacht seizures or asset releases, the world will suffer. The question is no longer how to prevent a crisis, but rather, how we survive and recover from the inevitable.
Nice work and well written, Kasper . I agree with your perspective .