Tag: crimea

On Sanctions and Negotiations

Rumors are flying in Washington that Donald Trump is seriously considering an executive order which would lift at least some of the current U.S. sanctions on Russia. As with everything else the new president has ordered this week, details are sparse. But if the executive order would indeed lift sanctions unilaterally, with no attempt at negotiation, Trump won’t be sending a message of strength, but one of weakness.

I’ve never been a proponent of the U.S. sanctions regime. In fact, I’ve written extensively about the flaws of the sanctions regime on Russia, and even argued that they should be lifted before they calcify into a permanent impediment to improving relations with Russia. In Foreign Affairs last year, I argued that the sanctions have largely been a failure: they have been costly to U.S. and European business interests, and have not altered Putin’s aggressive policies towards Ukraine.

Nor is there good reason to believe that the sanctions will induce policy change in future. The underlying logic behind sanctions is to cause enough economic pain to the target state that leaders are compelled to change their policies. But though the Russian economy is in a terrible state, most of that damage was caused by falling oil prices, not by sanctions. Vladimir Putin was even willing to hurt his own people further by initiating countersanctions against European agricultural products, a move which served to substantially increase food prices for ordinary Russian citizens.

These conclusions are unfortunately supported by a substantial body of academic literature, which overwhelmingly finds that sanctions are rarely successful on issues of ‘high salience,’ such as questions of war and peace. Sanctions may be a useful tool for signaling to other states that their behavior is unacceptable, but when linked to unrealistic goals, they place policy makers in a difficult situation. Lifting them may be seen as a sign of weakness, yet there is little to be gained from leaving them in place. The path of least resistance can therefore end in situations like the half-century Cuban Embargo.

All of this suggests that policymakers should be a lot more cautious about implementing sanctions in the first place, as it may place them in a difficult situation further down the road. Indeed, academic studies also suggest that sanctions are not so much an alternative to conflict as a first step on the road to war: they serve to raise the stakes, and make it harder for policymakers to back down.

The problem is particularly acute in this case. Though the impact of Russian disinformation on the outcome of the presidential election remains unclear, an investigation is ongoing into whether advisors to the Trump campaign had contacts with Moscow. Donald Trump’s willingness to seek a better relationship with Russia is a solid policy choice, but unilateral concessions of this sort will only serve to intensify the idea that he is somehow beholden to Moscow.

Ultimately, understanding the flaws of sanctions cannot explain how to resolve this dilemma. There is no good solution for today’s U.S.-Russian relations, just a series of poor choices. The best of these bad options is an open process of negotiation. Russian leaders may not be willing to abandon Crimea or make other high profile concessions in exchange for the lifting of sanctions. But the sanctions are causing some economic damage, enough that Russian leaders do want them lifted.

A process of negotiation which proposes to lift most of the sanctions in exchange for concessions in other policy areas – implementation of the Russian portions of the Minsk Agreement, Russian concessions on ending the Syrian civil war, or a variety of other issues – is a way for the Trump administration to end the sanctions regime without making a unilateral concession. For the man who wrote the Art of the Deal, this would surely be a better solution.

Crimea after Two Years as Part of Russia: Time to Drop Sanctions

Two years ago Russia detached Crimea from Ukraine. Since then the Western allies have imposed economic sanctions, but to little effect. No one believes Crimea, Russian until six decades ago, is going back to Ukraine.

Yet the European Union called on other countries to join its ineffective boycott. However, most nations have avoided the controversy. They aren’t going to declare economic war on a faraway nation which has done nothing against them.

Although Washington, with less commerce at stake, remains among the most fervent advocates of sanctions, Europe is divided over the issue. Opposition has emerged to routine renewal in July of restrictions on Russia’s banking, energy, and military industries. Particularly skeptical of continued economic war are Cyprus, Greece, Hungary, and Italy.

Sanctions supporters insist that Russia more fully comply with the Minsk peace process and end support for the separatist campaign in Ukraine’s east. “Today Russia faces a choice between the continuation of economically damaging sanctions and fully meeting its obligations under Minsk,” contended Secretary of State John Kerry.

The Failure of Sanctions on Russia

On Friday, European Union envoys agreed to extend sanctions on Russia, continuing the restrictions placed on Russian businesses and citizens following Russia’s 2014 invasion of Crimea and aggression in Eastern Ukraine. The sanctions prevent some of Russia’s largest companies from raising capital in the West, restrict the export of technology and technical services for unconventional oil and gas drilling, and freeze the assets and travel of Russian elites.

Unfortunately, as I show in a study published in the January/February edition of Foreign Affairs, sanctions on Russia have been largely unsuccessful. The Russian economy is certainly hurting, but most of this damage was done by the extraordinary drop in oil prices over the last year:

The ruble’s exchange rate has tracked global oil prices more closely than any new sanctions, and many of the actions taken by the Russian government, including the slashing of the state budget, are similar to those it took when oil prices fell during the 2008 financial crisis.

And economic damage itself isn’t necessarily the best measure for sanctions success. Ultimately, sanctions are a tool of economic coercion and statecraft. If they do not cause a policy change, they are failing:

After the initial round of sanctions, the Kremlin’s aggression only grew: Russia formally absorbed Crimea and upped its financial and military support for pro-Russian rebels in eastern Ukraine (including those who most likely shot down the Malaysia Airlines flight).

The performance of modern targeted sanctions –which promise that damage will be narrowly focused on elites rather than the population in general – is also questionable in the Russian case, where the Kremlin has effectively redirected the economic burden of sanctions onto the population:

By restricting access to international financing during a recession, the sanctions have compounded the fall in oil prices, requiring Moscow to slash spending on health care, infrastructure, and government salaries, which has created economic hardship for ordinary Russians. The crash of the ruble, meanwhile, has not only destroyed savings but also increased the monthly payments of those who hold mortgages denominated in foreign currencies.

Perhaps worst of all, the sanctions are costing US and European companies billions of dollars in compliance costs, lost business and broken contracts:

The brunt is being borne by Europe, where the European Commission has estimated that the sanctions cut growth by 0.3 percent of GDP in 2015. According to the Austrian Institute of Economic Research, continuing the sanctions on Russia could cost over 90 billion euros in export revenue and more than two million jobs over the next few years. The sanctions are proving especially painful for countries with strong trade ties to Russia. Germany, Russia’s largest European partner, stands to lose almost 400,000 jobs. 

Ultimately, as I argue in the article, the success of sanctions can be judged by a variety of standards. Yet by virtually all of them, they are failing. This is a blow for those – myself included – who seek restrained policy options to resolve the crisis in Ukraine. Yet given the costs to U.S. businesses, it’s probably time for policymakers to consider whether continuing sanctions on Russia is really the best option, or whether there are more effective diplomatic or economic policy tools we can use instead.

You can read the whole article, with more data and policy recommendations, over at Foreign Affairs

Beware of the Kremlin’s Propaganda

Since the beginning of the turmoil in Ukraine, some have attributed a large part of the blame for the crisis to the European Union and the United States, whose meddling allegedly brought down the President Viktor Yanukovych.

While, as a general rule, the foreign policy of the EU and the US deserve to be criticized on various grounds, it should not be forgotten that other actors are present on the world’s geopolitical scene as well – some of them quite malevolent. The idea that the eclectic, bottom-up movement that fueled the revolution in Kyiv was somehow orchestrated by the United States (and/or by the notoriously unimaginative bureaucrats in Brussels) is grotesque – as is the notion that Russia’s invasion of Crimea is a response to genuine secessionist desires of the citizens of South-Eastern Ukraine.

In short, one needs to be careful to avoid the trap of falling for the propaganda spread by Russia’s current regime, as Alexander McCobin and Eglė Markevičiūtė, both from Students for Liberty, argue here:

It’s much too simplistic to solely condemn the United States for any kind of geopolitical instability in the world. Non-interventionists who sympathize with Russia by condoning Crimea’s secession and blaming the West for the Ukrainian crisis fail to see the larger picture. Putin’s government is one of the least free in the world and is clearly the aggressor in Crimea, as it was even beforehand with its support of the Yanukovych regime that shot and tortured its own citizens on the streets of Kyiv.

[…]

Some libertarians’ Kremlin-style speculation about pro-western Maidan’s meddling in Crimea’s affairs is very similar to what Putin’s soft-power apparatus has been trying to sell in Eastern Europe and CIS countries for at least 15 years. Speaking of the Crimean secession being democratically legitimate is intellectually dishonest given that the referendum was essentially passed at gunpoint with no legitimate choice for the region to remain in Ukraine’s sovereign power.