Economic Sanctions Hurt People, not Governments

Image by Ehimetalor Akhere Unuabona on Unsplash

By Kathy Dimaya

In response to President Vladimir Putin’s invasion of Ukraine, sanctions on Russia have been a heated topic for several weeks. A closer look at the agenda, history, and context of these sanctions will demonstrate that regardless of the hopes and intentions of the US, UK, and EU governments, sanctions will not deter the Russian government and will only hurt its people.

A brief history

Imagined as a deterrent after World War I, sanctions in the modern sense were purposefully designed to threaten harm on civilians. As Nicholas Mulder, an expert on sanctions, discusses, the League of Nations intended to use sanctions as a pure threat that would not need to be implemented, as governments would have recently recalled the suffering of the Great War. But, in order to make the threat of sanctions credible, the threat needed to be total, severe, and thus, implicate not only the lives of military personnel but also of innocent people. A troubling reality given the purpose of sanctions as a method to preserve peace.

In recent years, Iran has experienced harsh sanctions from the West, yet, as noted in The Economist, sanctions imposed by the US “neither dislodged the mullahs who run [Iran] nor stopped its meddling in the region.” In Venezuela and Cuba, sanctions have also failed to change their regimes as intended. The reality is that when sanctions work, they should work quickly. If not, sanctions only worsen the conflict. In addition, “the more powerful sanctions are, the greater the risk of collateral damage, particularly when targeted regimes are indifferent to the suffering of citizens.” A vital detail to remember when assessing the Russian government’s response to sanctions in relation to its people.

Fortress Russia

To protect Russia against additional sanctions after the annexation of Crimea in 2014, Putin has created a “fortress” to build “financial and economic sandbags around the economy.” Russia focused on reducing the number of transactions conducted in US dollars and engaged in more trade in other currencies. The country also decreased its import of Western goods in favour of manufacturing those goods domestically and increased cooperation with China. Russia’s fortress is estimated to be worth about $640 billion.

Despite Russia’s efforts, according to Wall Street Journal, the strategy has “limited economic growth and investment,” and “Russia has grown slower than the world since 2014,” making Russians poorer overall. On top of that, due to freezes on assets and the withdrawal of government bonds, according to NPR, “when you zoom out, this $640 billion fortress that Russia has spent years amassing kind of just boils down to $30 billion of cash.” Fortress Russia may not be much of a fortress after all.

Economic collapse

As of 15 March, economic sanctions implemented by the US, UK, and EU include bans on luxury goods exports to Russia, weighty taxes on certain Russian imports, limits on Russian oil and gas imports, and asset freezes of Russia’s central bank and other major banks. The West has also targeted Russian oligarchs through travel bans and individual asset freezes in an attempt to weaken Putin’s inner circle.

One of the most serious sanctions has been the ban of seven Russian banks from SWIFT, a network that links 11,000 financial institutions in 200+ countries. Deutsche Bank and others fear the move will incentivise the use of alternative messaging networks and workaround methods. That said, only large companies and high net worth individuals would be able to implement such workarounds, and as is typical with sanctions, this measure will be of greatest consequence to average Russians, such as households who are no longer able to remit crucial funds to relatives in Russia.

Moreover, corporations such as Ikea, H&M, Coca-Cola, and Starbucks, have announced closing their establishments and pulling their products in Russia. The self-sanctioning of these companies has raised concern for job losses should these companies decide to close doors permanently. The self-sanctioning of businesses has extended to Russian oil as well. Even though Western governments left certain energy sanctions off the table to prevent a global meltdown, buyers have willingly stopped buying Russian oil. The move is in solidarity with a collective aversion to conducting business with Russia, but the country is inordinately reliant on oil exports – the Fortress Russia plan depended on its oil industry to keep the country afloat. A significant loss in oil revenue would decimate their economy.

Lastly, the Russian ruble has lost one-third of its value since sanctions were imposed. Russian people have responded by withdrawing cash to buy foreign currency and goods that will retain value better than the ruble. The Russian government began limiting the amount of money people could withdraw, exchange for foreign currency, and transfer out of the country to prevent bank runs, and the Russian central bank raised interest rates to 20% to encourage people to leave their savings intact.

Even if Fortress Russia worked as intended, the effects would be felt by the Russian people. Exclusion from global systems has isolated Russians from the rest of the world. The departure of multinational corporations will lead to an increase in unemployment, high interest rates will deter investment, and a decline in the purchase of Russian oil will lead to oil revenues falling. As a result, the Russian economy is estimated to shrink as much as 35% this quarter.

In the realm of global politics, the violation of another country’s sovereignty must be met with a decisive response. Sanctions have historically been the only alternative to war to punish such transgressions against international law. However, time and time again, sanctions have been unsuccessful in driving behavioural change from bad actors. Sanctions merely succeed in punishing regular citizens economically for the misbehaviour of their autocratic governments and wealthy elite.

The Protocol Committee condemns President Putin’s War on Ukraine in the strongest possible terms. Please remember support is available from student services and other organisations.

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