In the Russian case, sanctions have certainly worsened the crisis. In particular, they have succeeded in cutting off foreign financing to many Russian companies, making it more difficult for them to obtain loans to tide them through difficult periods. Indeed, part of the currency panic yesterday appears to have resulted from the Russian Central Bank’sinvolvement in a massive 625 billion ruble bond issuance by oil giant Rosneft, which has been unable to raise money in more conventional ways due to sanctions.
Yet without the precipitous drop in oil prices, it is doubtful what impact sanctions would have had on the Russian economy. Commentary which ascribes Russia’s economic collapse to Western sanctions is therefore misleading. But worse still, such arguments completely miss the point of sanctions. The goal of sanctions is not punishment, but rather the use of economic means to coerce a state to alter their behavior. In the case of Russia, a combination of targeted sanctions aimed at major companies and individuals close to the Kremlin were supposed to persuade Vladimir Putin’s government that Russian adventurism in Ukraine was unprofitable, encouraging them to back down. Instead, falling oil prices and sanctions are simply helping to undermine the economy for ordinary Russians, who see the price of imported goods rise and their savings disappear thanks to inflation.
Even an economic crisis this severe is unlikely to alter the Kremlin’s stance on Ukraine. In his speech to the Federal Assembly just last week, Vladimir Putin compared Crimea to Jerusalem, claiming the territory is sacred to Russians. On Monday, Russian Foreign Minister Sergei Lavrov further noted that Russia may position nuclear weapons in Crimea, “now Crimea has become part of a state which possesses such weapons.”
Putin’s approval rating is still extremely high, at over 80%, and his stance on Ukraine is one key reason for this popularity. Instead of backing down, presenting a failure on the Ukraine to the Russian population, it is far more likely that the Kremlin will simply try to ride out the economic storm, hoping that oil prices will rise. Russia’s leaders will blame the West for their economic woes, focusing attention on sanctions, rather than on the lack of diversification within the Russian economy and its overreliance on oil and gas revenues. In effect, sanctions allow Russian elites to shift blame for their own poor economic management to the West, solidifying, not undermining their rule.
Given this, it is baffling that the U.S. is now doubling down on sanctions, with last week’s congressional bill imposing further sanctions on Russian companies, particularly on Rosboronexport, Russia’s main arms exporter. The news that President Obama will, after much deliberation, sign the bill, may cause the ruble to slide still further.
Russia’s 48‐hour economic crisis has been dramatic, and the role of sanctions makes for a great narrative, even if much of the economic damage was actually done by falling oil prices. But before we pop the champagne corks to celebrate victory, we should remember that the goal of sanctions isn’t to wreck the Russian economy. It’s encouraging the Kremlin to back down so we can find a solution to the Ukrainian crisis. Unfortunately, that’s unlikely to happen any time soon.