Consider This from NPR - Are Sanctions Slowing Down Russia's War Machine?

Episode Date: February 18, 2023

We're approaching a year since Russian leader Vladimir Putin invaded Ukraine, a conflict that has resulted in thousands of dead civilians and over eight million refugees.Along with sending billions of dollars in military aid to Ukrainian forces, the US has responded with a wide range of sanctions meant to cripple Putin's war machine, targeting Russian banks, finances, oil, and Russia's billionaire oligarchs. But as the war continues, critics are asking just how effective the sanctions have been.Host Michel Martin speaks with Edward Fishman of Columbia University's Center on Global Energy Policy. From 2013 to 2017 he was part of the US State Department, where he was involved in the effort to sanction Russia after its annexation of Crimea in 2014.Learn more about sponsor message choices: podcastchoices.com/adchoicesNPR Privacy Policy

If in fact he invades Ukraine, there will be severe consequences, severe consequences, economic consequences like none he's ever seen or ever have been seen. President Biden said these words a few weeks before Russian leader Vladimir Putin did order the invasion of Ukraine back in February 2022. Since then, the U.S. has sent billions of dollars in military aid to Ukraine, along with other full-throated support to Ukraine's resistance. And U.S. officials have tried to follow through on Biden's promise, imposing sweeping sanctions targeting everything from Russian banking assets to oil revenues to Russian oligarchs. We're going to seize their yachts,

their luxury homes, and all their ill-begotten gains. It was all part of an effort not just to signal the West's disapproval of Russia's aggression, but also to cut off the money spigot making the war possible. But from the beginning, some observers warned that sanctions would be a dull instrument and might not work at all. NPR's national political correspondent Mara Liason reported that Russia might be prepared to weather economic constraints imposed by the West. It's unclear how much any of these sanctions will hurt Russia, hurt Putin, that Russia might be prepared to weather economic constraints imposed by the West.

It's unclear how much any of these sanctions will hurt Russia, hurt Putin, hurt his inner circle, because Russia has been stockpiling assets, foreign currency and gold, so that they can weather sanctions, at least for a while. One big reason that Russia might have been prepared to wait out an economic assault, Vladimir Putin had seen that play before. The U.S. and its allies have tried to use economic warfare to try to shut down previous Russian incursions into Ukrainian territory. Consider this. The United States has sent billions in weapons to Ukraine, and along with its Western allies, has bet heavily on sanctions intended to cripple the Russian war machine. Many analysts say the sanctions might not be working as quickly as hoped,

but they are working. But are they really? And what does the history of sanctions against Russia tell us? That's coming up. From NPR, I'm Michelle Martin. It's Saturday, February 18th. This message comes from WISE, the app for doing things in other currencies.

Send, spend, or receive money internationally, and always get the real-time mid-market exchange rate with no hidden fees. Download the WISE app today or visit WISE.com. T's and C's apply. We are examining a whole series of steps, economic, diplomatic, that will isolate Russia and will have a negative impact on Russia's economy and its status in the world. Sound familiar? President Obama said this back in 2014 when Russian troops occupied Crimea, a peninsula of Ukraine. Soon after, Vladimir

Putin signed a treaty with Crimean officials declaring the region a part of Russia, a move widely condemned by the West as illegal. In 2014, the Russian invasion of Ukraine and annexation of Crimea really took the Obama administration by surprise. So we were really working from behind. Edward Fishman was with the U.S. State Department from 2013 to 2017, where he led the State Department's sanctions policy after the Russian invasion of Crimea. Those sanctions were relatively modest. They cut Russia's largest banks and companies off from debt financing in Western capital markets, but they didn't block their access entirely to the global financial system.

Fishman says that the first major sanctions came four months after Russia annexed Crimea. And while those sanctions have remained in force, the U.S. never really increased the pressure until Russia's invasion of Ukraine last year. And I think as a result, Putin had almost eight years to adapt his economy to try to build up sort of armor against another wave of sanctions.

Fishman says through the final two years of the Obama administration and through all four years of the Trump administration, pressuring Putin was not a priority. And that lack of follow through likely enabled Putin's latest aggression. And I think it also weakened the threats that President Biden and other European leaders put on the table in January of 2022. Because if we go back to before the second invasion started, you know, President Biden did, I think, what was a really excellent job at making clear that an invasion of Ukraine would lead to swift and severe consequences for the Russian economy. The goal was to deter Putin from invading Ukraine in the first place. But I think that the lesson Putin drew from 2014, 2015, and then certainly through the Trump administration, was that the West didn't actually have the will to try to torpedo Russia's economy.

And now, despite tough talk about the latest round of penalties, the U.S. is in a situation that feels like deja vu. Rachel Ziemba is an economic and political risk specialist at the Center for a New American Security. And she says that while targeting the oligarchs' expensive properties made for splashy media coverage, she says it didn't have much impact. There's a lot of evidence that the oligarchs don't have the degree of sway that the West and others hoped in influencing Putin to pull back. And when the U.S. seizes a

yacht or other luxury property from a Russian billionaire, someone has to foot the bill for holding onto it before it can be sold, a process that can take years of litigation. Stephanie Baker with Bloomberg spoke to NPR about that. It is U.S. taxpayers that are paying for it, at least until they do sell it and then can recoup the costs. I did a lot of reporting to try to establish what are the real costs of keeping these things in port. Now, in the case of one superyacht, the one that the U.S. government seized and sailed from Fiji to San Diego, I established that the annual cost of keeping that in port are about $10 million a year.

But even apart from all those technical details, Edward Fishman says that the bigger problem has always been rooted in political will. But now the U.S. has found the will to take down the Russian economy. In 2022, within a week of Putin declaring war on Ukraine, the United States and the G7 imposed full blocking sanctions on the largest banks in Russia, including the Central Bank of Russia. And so what that means is it fully cut them off from the dollar, the euro and other Western currencies. And that's why we saw things like hundreds of billions of dollars of Russia's foreign exchange reserves frozen. So in terms of the scope of the sanctions,

they were much broader than what we did in 2014. But are these economic sanctions fulfilling one key objective, crippling the Russian war machine on the battlefield? That's coming up. The sanctions are extraordinarily ambitious in their scope, but relatively modest in their objectives. And what I mean by that is the goal was really just to cause economic and technological attrition in Russia to weaken Putin's capacity to do harm. Edward Fishman now works at Columbia University's Center on Global Energy Policy.

He's been following the impact of the latest sanctions closely, so I asked him if Russia has been feeling the effects or not. A big part of it is that Russia took steps in the period between 2014 and 2022 to diversify away from the dollar. So its foreign exchange reserves, by and large, were not in dollars by the time the conflict started. I think even more importantly, it had moved its domestic payment system onto domestic rails. So even though companies like Visa and MasterCard pulled out of Russia, payments in Russia really never stopped working. So I think a lot of the

times when we think of the, you know, the shock and awe of American financial sanctions, it's really to stop payments from happening. And so that was, you know, one of the big things that Russia was insulated from that shock and awe. There is also, I think, you know, an error of commission that we did, which was we did not initially impose significant sanctions at all on Russia's oil exports. And so even though Russia's economy was cut off from external financing, Russia continued earning billions and billions of dollars every month for the first year of the war selling oil around the world. And in fact, Western sanctions enabled that. Western sanctions carved out oil transactions. That now is starting to change in the last few months. But unfortunately, it took almost a year before the West

really brought the hammer down on Russia's oil sector. And I think that also helped Russia stabilize its economy in the face of these sanctions from early 2022. The question of the sort of so-called non-aligned nations, I'm thinking about India, I'm thinking about a number of countries in Africa that have traditionally had, you know, cordial, if not warm relations with Russia dating back, you know, generations and, you know, Russia's support of their kind of anti-colonial efforts and so forth. Is that making a difference in any way? Definitely. I mean, if you look at why Russia has been able to sustain the volumes of oil exports that it has, despite losing the

European market, which was its biggest market before the war, it's because India now is buying more than a million barrels a day of Russian crude oil. So India, China, Turkey, those countries have provided a lifeline to Putin in this war. Whether that lifeline proves decisive, I think, is still yet to be determined. We haven't seen large-scale sanctions evasion through India and China and Turkey. I think, by and large, these countries are just taking advantage of gaps in the sanctions. The thing I'll be watching out for in the coming year is if we do start seeing these sort of relationships with countries like India actually undermining the purpose of the sanctions, how aggressive is the Biden administration going to be

in terms of wielding the threat of secondary sanctions, potentially sanctioning Indian or Chinese or Turkish companies that continue to do business with Russia? You know, that was the tool we used against Iran that really devastated the Iranian economy. And my own view is that the Biden administration has to be ready to use this tool if these non-aligned countries are undermining the efficacy of sanctions. What about the effect on, you know, the average Russian citizen? Yeah, sure. I think there are kind of two ways to look at this. One is from the prospect of employment. So the combination of financial sanctions and export controls on critical technologies like semiconductors have It saw production declines of two-thirds in 2022. Auto production in Russia is now at its lowest point since the Soviet times. And so what that

means is even though official unemployment rate in Russia is pretty low, I mean, you can't really trust the official statistics anymore, there are millions of Russians who are on extended unpaid leave and furloughs. And so when you factor in these types of hidden unemployment, it's probably the case that more than 10% of Russians are out of work. Even for Russians who have been able to maintain their jobs, on the consumption side, the outlook for the Russian economy has been quite bleak as well. You've seen significant drops in product quality. I think, again, using the auto sector as an example, because of the difficulty in obtaining foreign components, the Russian government has had to alleviate some standards to allow vehicles to be manufactured without airbags and anti-lock brakes, for instance.

And they have to pay higher prices for them because inflation has gone up and pushed up the prices of everyday products. So unfortunately, the average Russian is feeling these sanctions and probably quite a bit more than, you know, the people in the Kremlin, make it harder for them to kind of wage their war machine, express disapproval, right? Express the disapproval of the international community to this action. And the third is to pressure Putin, I guess, by pressuring the civilian population, right? Hopefully to kind of create enough unhappiness that people would perhaps think about regime change or at least opposing the regime. On any of those metrics, have the sanctions succeeded? Yeah, I mean, I do think sanctions are degrading Russian capacity, right? I think one of the ironies of Putin's invasion is that Putin thought that invading Ukraine, he was rebuilding the Russian empire and reestablishing Russia as a great power. But because of these sanctions, which have effectively eviscerated the prospect

of Russian economic growth for the foreseeable future, sanctions will mark the end of Putin's great power aspirations. You know, that's cold comfort for Ukrainians who are under bombardment. I don't think that the sanctions are having a decisive impact on the battlefield in the here and now. But in terms of Russian power, I mean, there's no prospect for Putin to have this type of expansive foreign policy if his government is going to be under these types of sanctions. I think one just interesting data point to point out here is the International Energy Agency, you know, which does some of the most important forecasts of oil and gas around the world, suggests that by 2030, Russia will forego more than a trillion dollars in oil

and gas revenues that it would have earned otherwise. And that's just, I honestly can't emphasize enough how important that is, because without oil revenues, Putin's economy, Putin's military-industrial complex just doesn't work. It doesn't make sense. And that's sort of the trajectory Russia's on now from here until 2030. So I take your point that his sort of dream of this kind of restoration of the glorious Russian empire, that dream is over, at least for this generation. But the bombardment and the day-to-day hell that Ukrainians are living through goes on. Is there any possibility that we're not talking about the kind of the West and Ukraine's kind of military capabilities right now, we're taking that off

the table, but that sanctions will have an effect on the hell that Ukrainians are living through? So sanctions are making a difference in that they're basically constraining Russia's military capabilities at the same time as Ukraine's are being bolstered. But I would caution that I do not believe sanctions will have a decisive impact on the battlefield. I think when you sort of weigh the factors, the military assistance to Ukraine is by far the most important factor and significantly more important than sanctions in terms of ending the war and helping the Ukrainians win the war. But I think when you zoom out and actually look at the trajectory of Russian power from a five to 10 year perspective, that's really when sanctions are going to have the biggest bite.

You know, something I like to say, Michelle, is that sanctions are always more of a marathon than a sprint. And that can be frustrating for those of us who are watching this conflict and hoping that it will end and that Ukrainians can live in peace and enjoy their own country. But, you know, it's just sort of the reality that we face right now. That was Edward Fishman. He's a senior research scholar at Columbia University's Center on Global Energy Policy. He worked at the State Department from 2013 to 2017, where he was the lead advisor on sanctions and economic statecraft on the Secretary's policy planning staff. It's Consider This from NPR. I'm Michelle Martin.