The writer is a senior fellow at Harvard Kennedy School
Economic sanctions have become the hammer in the US diplomatic toolbox, used repeatedly on foreign policy nails. The idea is to punish egregious behaviour without going to war. But they have never been great at coercing behavioural changes and President Joe Biden’s threat to impose “economic consequences like none he’s ever seen” on Russia’s Vladimir Putin is not likely to be particularly effective.
An invasion of Ukraine would be met “with a range of high impact economic measures that we have refrained from using in the past,” according to secretary of state Antony Blinken. Those could include impeding Russia’s ability to convert roubles into western currencies, kicking Russia out of the Swift payments system, restricting its sovereign debt purchases and encouraging Germany to halt the Nord Stream 2 oil pipeline that will bring gas from Russia directly to Europe.
But Russia is already heavily sanctioned. After its annexation of Crimea in 2014 the US imposed travel bans, asset freezes, finance and trade restrictions and a ban on assistance to Russian oil and gas companies. Russian banks were blacklisted by the US, with Visa and Mastercard also blocking some from using their payment systems. We do not know what would have happened without these sanctions, but they do not seem to have resolved the Ukraine crisis, reduced human rights violations in Russia or deterred new cyber attacks. They have no doubt knocked a few points off Russian GDP growth, but the economy has nevertheless adapted.
According to the Treasury Department’s 2021 Sanctions Review, US sanctions use has increased 933 per cent between 2000 and 2021. During Barack Obama’s first term, the US designated an average of 500 entities for sanctions per year, a figure that nearly doubled under Donald Trump. Biden has imposed new sanctions against Myanmar, Nicaragua and Russia and this week will put eight Chinese companies on an investment blacklist for their involvement in repressing the Uyghur Muslim minority in Xinjiang.
You might hope this explosion of US sanctions means they’re really effective. One generous study published in 2014 determines they lead to concessions about half the time. Since then, that percentage has probably fallen. After the 9/11 attacks, the US weaponised its financial system, making it harder for financial institutions to engage in dollar transactions with sanctioned governments, companies or people. But the proliferation of digital currencies and alternative payment platforms has created new loopholes around economic sanctions, giving targets the opportunity to hold and transfer funds outside of the traditional, dollar-based system.
Economic sanctions have lost efficacy in a globalised world, too. China has emerged as a “black knight”, stepping in to offer trade diversion and other relief to sanctioned entities. The Venezuelan state-owned oil company, under US sanctions in a bid to topple the government, nevertheless sold oil to China via the Russian state-owned oil company, Rosneft. Iran is heavily sanctioned, yet China continues to buy its oil.
The ratchet effect also makes US economic sanctions less effective. It is much easier for leaders to impose sanctions than remove them, for fear of appearing weak. Only Congress can permanently revoke sanctions mandated by law rather than by executive order, such as those against Cuba and Russia. Rising political polarisation makes this a very heavy lift. If there is no credible path towards removing sanctions, the target doesn’t have much incentive to change or negotiate.
If economic sanctions are not a silver bullet, why does the US keep using them? Dan Drezner, a professor in international politics at Tufts University, offers one explanation. He argues they are both a reflection of American decline (adversaries are less afraid of the US and American leaders have fewer tools at their disposal) and a catalyst for it. Sanctions antagonise enemies, irritate allies, impose costs on innocent people and drive targets to find alternatives to the US financial system, undermining dollar supremacy.
The Ukraine issue is a difficult one. Biden and Putin failed to resolve their differences in a two-hour phone call last week. It’s not clear what inducements the US and its allies can offer Putin to back off. Yet the threat of more sanctions may not accomplish much. They would impose a cost, but, to paraphrase Richard Nephew, former principal deputy co-ordinator for sanctions policy at the state department, “One can’t blame the [hammer] if it fails to perform the work of a screwdriver.”