The disaster of Economic Sanctions

Meeting in Paris on 27 March, the ‘coalition of the willing’ (ie Britain and France) promised to ‘accelerate’ and ‘toughen’ economic sanctions against Russia. Britain has pressed for confiscating £200bn worth of frozen Russian assets as collateral for loans to Ukraine.

Since 2014, but especially since 2022, Russia has been subject to an unprecedented and escalating bombardment of sanctions. Below are extracts from two articles I wrote in 2021 and 2024 which argued that economic sanctions were ineffective against the sanctioned party but damaging to the world economy.

Let me do a quick update, leaving readers to judge how valid my arguments were.

The purpose of economic sanctions, frequently stated, was to degrade Russia’s ability to wage war. The overwhelming evidence is that not only has this not happened, but economic sanctions have strengthened the Russian economy while degrading the international economy.

First, they have created the conditions for mobilising the Russian economy for war. Russia has been able to divert trade to non-sanctioning states like China and India. Less recognised is that sanctions have led to the establishment of a ‘war economy’ - state mobilization of national resources for military purposes. A good example of this is that the threat of asset seizures by USA and European countries has stopped the export of capital from Russia, lowering the interest rate the Russian state has to pay for its loans. There has been no public acknowledgment that degrading a target economy is a time-consuming process, while its short-term effects are to strengthen its capacity to wage war.

Second, sanctions have increased popular support for the Russian regime. Any hardships are blamed on the sanctioner. According to a study by the Bank of Finland (BOFIT) general and financial satisfaction has peaked among Russians between the 2022-2023 - registering its highest in a decade. Spending on non-food goods, and cultural activities rose in 2023, and more Russian’s reported they have savings that could sustain them for several months. The data shows that real incomes not only recovered to 2013 levels but surpassed pre-Crimea seizure levels by 5%. (See The Bell, 2025 Apr. 2)

Third, “sanctions, while intended to target specific nations, have significant and often overlooked costs for the broader, non-sanctioned world. These costs manifest in various ways, including disruptions to global trade and supply chains, increased costs for businesses and consumers, and potential reputational damage for those associated with sanctioned entities. Additionally, the "friendly fire" effect of sanctions can harm neutral countries due to disruptions in global value chains and the need to find alternative trade routes, which can be expensive”(Economic Observatory) The Indian economist R Ujit Patel has emphasised that escalating sanctions have been breaking up the global economy, and consolidating trading and financial blocs centered on the BRICS and the Asian Infrastructure Investment Bank, with the China replacing the United States as the world’s ‘safe haven’. (Ujit R.Patel)

The Case Against Economic Sanctions by Robert Skidelsky

Project Syndicate, Oct 19 2021

As a tool of state pressure, economic sanctions fall short of war but are closer to it than they are to diplomacy. Yet the legal, political, and moral justifications for such measures are rarely challenged.

The international sanctions regime has passed through several overlapping stages during the past century. At first, sanctions were intended to be a response to a state’s overtly aggressive intent or action, such as a military build-up or actual invasion of another state. The League of Nations thus imposed economic sanctions on Italy when Mussolini’s forces invaded Abyssinia in 1935.

In the next stage, humanitarian concerns came to be accepted as a ground for sanctions. For example, a government’s oppression of groups within a state might threaten to trigger “third-party” effects such as a refugee crisis. This was the legal basis for the UN’s economic sanctions against Rhodesia in the 1970s and South Africa in the 1980s.

After that, some regarded “regime change” itself as a legitimate purpose of sanctions. As then-UK Prime Minister Tony Blair argued in a 1999 speech in Chicago, “the spread of our values makes us safer.” The underlying belief here was that democracies do not start wars; only dictatorships do. Removing Iraqi President Saddam Hussein from power was thus the undeclared purpose of maintaining economic sanctions on Iraq after the 1991 Gulf War.

The most important recent development in the international sanctions regime has been the sanctioning of “specially designated” individuals and entities. Such carefully targeted measures, their advocates argue, confine punishment to the perpetrators of money laundering and other dubious practices, and thus avoid harming the rest of a country’s population. But they fall outside the UN’s remit, and are therefore imposed unilaterally by economically powerful countries or groups of countries. Unsurprisingly, the United States, the world’s dollar hegemon, has pioneered this form of sanctioning. But the European Union has followed America’s lead.

But is this sanctions creep just, expedient, and effective? As for justice, the recent increase in targeted sanctions is based on domestic, not international, law, and reflects the agreed norms of only one segment of the international community. Furthermore, such penalties are often imposed on individuals and entities with the scantiest of explanations, and without them being tried or convicted of any offense. To many, therefore, these sanctions simply look like an expression of power.

Their expediency also is doubtful. Ex parte sanctions predictably give rise to sanction wars unless they are confined to countries that cannot retaliate. In all cases, they lead to sanctions-busting and thus enhanced international surveillance and enforcement measures.

Following the West’s sanctioning of Russian officials for alleged rights abuses in Chechnya, the US, Canada, the EU, and the UK imposed asset freezes and travel bans on Chinese officials involved in the mistreatment of Uyghurs in Xinjiang. Russia and China have joined together in condemning the West for starting a new “cold war,” and China in particular has plenty of ammunition with which to retaliate. Do we really want the world to be divided into economic blocs of sanctioners and retaliators?

The question of economic sanctions’ effectiveness is probably the hardest to answer because there is no agreed measure of success. Many assume that they are a relatively costless way of bringing about morally beneficial regime change, or changes in a regime’s behavior. This may be true in some cases. But the overwhelming evidence suggests that economic sanctions have such effects only in conjunction with military intervention – meaning that they are usually an accompaniment to war rather than an alternative to it. So, we should be extremely wary about imposing sanctions for moral reasons.

There is, after all, another peaceful model for bringing about improved international and domestic behavior. Montesquieu, Adam Smith, Richard Cobden, and many others argued that the exchange of goods, people, and ideas has pacifying effects. Sanctions work directly against this. When proponents of these punitive measures claim that commerce is possible only between civilized people, they ignore the civilizing effect of commerce itself.

Think Twice before Sanctioning Russia Further by Robert Skidelsky

Project Syndicate, March 18, 2022

The current restrictions on Russia include a ban on trade in critical technologies, extensive asset freezes and travel bans, the denial of major Russian banks’ access to international capital markets, travel bans and asset freezes targeting individuals, and the exclusion of Russian aircraft from international airspace. With the sequestration of the Russian central bank’s foreign-exchange reserves and the promised eviction of Russia from the world financial and trading system, oil and gas will remain the country’s lifeline to the global economy.

All of this might seem a necessary moral response to Russia’s lawlessness. But when relatively light-touch sanctions give way to heavy economic bombardment, two key questions should be asked. First, at what point do sanctions become a pathway to war rather than an alternative to it? Second, what are such measures expected to achieve, and how effective are they likely to be? So far, these questions have scarcely been asked, much less answered.

Governments should consider the first question carefully before imposing sanctions on a great power, particularly one with nuclear weapons. If that power perceives a threat to its means of survival, there is a strong chance that it will fight to overcome the restrictions.

For example, when the US imposed an embargo on oil and gas exports to Japan in August 1941, following Japan’s seizure of oilfields in Indochina, the Japanese responded by attacking Pearl Harbor. And after OPEC subjected the US to an oil embargo in 1973 in retaliation for American military assistance to Israel during the Yom Kippur War, President Richard Nixon’s administration threatened to invade and occupy OPEC member states’ oil fields. The embargo ended.

The sanctions imposed so far on Russia do not yet threaten the survival of the Russian state. But President Vladimir Putin may regard a Western attempt to cut off the remainder of Russia’s international trade, especially in energy, as an existential threat.

As for the second question, the objective of economic sanctions is reasonably clear: to prevent or stop war by imposing unacceptable costs on the aggressor state. But while there is no doubt that the Western sanctions on Russia have greatly raised the costs to ordinary Russians of Putin’s war, no one expects that this will end the conflict.

The West instead hopes that the costs of the sanctions to Russia’s elite will achieve this result. Rather than lose their wealth, the argument goes, the elites may overthrow Putin or force him to end the war. This is the only rationale for the current sanctions that makes sense.

But the likelihood of Putin’s ouster, or even of a drastic change in Russian policy, is much lower than most people suppose. Essentially, it depends on Russia’s defeat in Ukraine, a prolongation of the conflict without any resolution, or a growing perception among Russia’s military that Putin has failed them. Far more likely is a ceasefire and at least the appearance of a Russian victory. In that case, economic sanctions will have done nothing either to stop the war or secure the peace.

Economic sanctions against Russia are supposed to be an alternative to war, but they can reasonably be expected to change the Kremlin’s behavior only by becoming tactical components of the conflict. The sad truth is that Western countries cannot help Ukraine except by threatening to go to war with Russia. But to admit this is to call into question the whole logic of their sanctions policy.

More generally, economic sanctions have become a greatly overused tool of preventive diplomacy. By cutting off parts of the world from international commerce, they promote the formation of antagonistic blocs, and destroy whatever promise globalization still holds.