Since the start of the Russia / Ukraine war on 24th February 2022, leaders and politicians around the world have focused on the use of sanctions as a means of bringing an end to the ongoing fighting. With each day, new packages of sanctions are being announced by countries around the world. These have been targeted at Russia’s organisations, financial institutions, leaders and politicians, the wealthy elite (including the so-called “oligarchs”), and state-owned entities. Prime Minister Boris Johnson has described the sanctions imposed by the UK on Russia as the “largest and most severe Russia has ever seen”.
There is little doubt that in the space of just one month, the sanctions imposed on Russia have been wide-ranging and economically devastating. The Russian Rouble has reportedly collapsed in value, there are widespread shortages in shops across Russia, and interest rates have shot up from under 10% to 20%. It is also fair to say that sanctions are hurting Russia’s trading partners, sharply increasing the price of oil, gas, and vital commodities, including nickel, palladium, neon, wheat, and corn. The question on the lips of many is, do sanctions really work in the long run and can their negative impact be mitigated with enough financial clout?
Sanctions are a long-term strategy
In the hype of the 24-hour news cycle, it is easy to fall into the trap of thinking that sanctions against those waging war have an immediate effect. While it is true that some impacts are immediate, many may take time to emerge. According to Clifford Sosnow, partner and co-chair of Fasken Martineau’s international trade and investment group, sanctions such as those imposed on Russian interests will not pose an immediate headache for Putin rather, they are a “systematic and systemic prohibition that works slowly, and they won’t directly affect Russia military plans”.
One of the main reasons that these sanctions will hit, albeit slowly over time, is that they cannot be as easily overcome as the sanctions imposed when Russia invaded Crimea in 2014. Measures such as blocking access to foreign exchange reserves will eventually hit hard as Central Bank reserves are exhausted. In turn, this will eventually stop Russian businesses from doing business and may lead to substantial civil unrest in the coming months.
It is also important to bear in mind that by adopting a long-term strategy of incremental sanctions, Western countries are ensuring they have more room for manoeuvrer should it be needed. One notable absence from the sanctions so far is energy. While it is true that Germany has announced it will not proceed with Nord Stream 2, a full and proper use of energy sanctions could be economically devastating for Russia. According to Ross Denton, Senior Consultant and Head of International Trade at Ashurst, “This isn’t the end of it…The West has left a reasonable amount of headroom to go after various things. If energy was to be to properly thrown into the mix, two-thirds of Russian revenue would be cut. There’s no where else for that gas to go because there are no pipelines pointing East”.
The challenge of sanctioning the wealthy
Sanctions will have some impact in the long run, but not everyone will be impacted proportionately. Those with the most financial resources, especially the Russian oligarchs, are able to mount legal challenges to evade being affected by sanctions. This has a knock-on effect of tying up and frustrating the British legal system. Furthermore, oligarchs understand how to use their money and influence to hide their interests and actively avoid scrutiny of their affairs. As a case in point, two British journalists were recently threatened with legal action by prestigious law firms in a bid to shut down media scrutiny of the activities of their oligarch clients.
One of these journalists, Tom Burgis, a Financial Times reporter, told the Foreign Affairs Committee about letters he has received from British law firms on behalf of their wealthy Russian clients;
“In my experience, they are often written in a tone of righteous indignation where the journalist is said to have behaved appallingly”. He went on to explain, “What you are threatened with – and I have spent a long time trying to work out why journalists recoil [from covering some of these issues] – and it’s because you risk humiliation in the public square. It works on that basis, as well as the massive threat of costs”.
Another journalist who spoke to the Foreign Affair Committee was Catherine Belton, who was on the receiving end of a libel claim from Roman Abramovich in 2021 in relation to her bestselling book, “Putin’s People”. The claim was settled in December 2021.
No one expects Mr Putin to take the sanctions levied by the West lightly. He has already responded with threats to respond in kind (and much worse) and will be challenging them under the WTO dispute resolution system. We know that EU sanctions have been annulled in the past, including sanctions on Viktor Yanukovych (the former Ukrainian president) and Hosni Mubarak (the former Egyptian president). With the self-evidence nature of the many abhorrent breaches of international law in Ukraine, however, it is difficult to see how sanctions will not stand up to strict legal scrutiny.
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