The economic war on Russia has only just begun.

Carlos Marcelles de la Casa

Patrick Henry, one of America's founding fathers, said, "United; we stand. Divided; we fall. Let us not separate into factions that must destroy the union on which our existence depends." In this regard, the international sanctions campaign that governments and private companies have waged against Russia following its invasion of Ukraine is a great achievement of multilateral diplomacy and CSR. Much of the world has voluntarily ended its business dealings with Russia, severing trade and financial ties with the country and freezing numerous Kremlin assets abroad. The speed, scope and scale of these punitive economic measures are without modern precedent. Patrick Henry would be proud of this union.

However, the effort to squeeze Moscow economically has only just begun, and will be harder to sustain over time, especially if the Kremlin's opponents focus on sectors that severely affect the global economy. Supply disruptions in matters such as energy, food or agricultural products will generate friction within the sanctions coalition - currently made up of Australia, Canada, Japan, South Korea, the United States and the European Union - especially if the burdens appear unbalanced or unfair. In contrast, Russia will try to exacerbate that friction with retaliatory measures, as it did already in mid-March 2022 when it shut down, allegedly due to bad weather, the Caspian pipeline, which runs from Kazakhstan to the Black Sea and through which 1.2% of the world's crude oil transits. However, the sanctions coalition is likely to prove more durable than Russia would like, especially after the massacre of civilians in Bucha and other towns near Kiev. But, at the same time, these stress points will make it difficult to deploy large measures regularly and create pressure for strict enforcement to ensure that passive behavior by China or India undermines the potency of the sanctions regime.

As the surprise stalling of the Russian invasion becomes more palpable, exemplified by the withdrawal of the Kiev Oblast and the collapse of Movska, those hoping to curb Moscow's ambitions should keep in mind that Russia can easily exploit such a scenario by amplifying tensions within the coalition in order to destroy it. Taken together, these factors portend a more difficult future for the sanctions campaign than its early successes suggest. Germany, due to its high energy dependence on Russia which, moreover, has been exacerbated by the recent politically motivated shutdown of its nuclear power plants, emerges as the weakest link in the sanctions chain. However, other countries such as Hungary have already announced that they are willing to pay in rubles for Russian gas, which shows once again the obvious energy dependence of a large part of Western Europe. On the other hand, the refusal of Poland and Bulgaria to carry out such transactions in rubles has already caused Putin to stop gas supplies to both countries. Therefore, the United States and its allies must make a long-term effort to develop a collective response to Russian sanctions evasion and retaliation, and present a unified front capable of maintaining an effective punitive regime.

Image 1: military aid to Ukraine in billions of euros.

Source: Statista, 2022.

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I. UNITED WE STAND: THE DELICATE BALANCE OF SANCTIONS

Vladimir Putin's opponents face a delicate balancing act: they must exert enough pressure to convince him to change course, but not so much that he retaliates severely. Thus each new sanctions decision must be carefully weighed, taking into account the Kremlin's likely response and possible external repercussions. For example, sanctioning all Russian oil and natural gas exports would be a severe blow to the Russian economy, but at the same time, it would aggravate the looming energy crisis, given the aforementioned European dependence on Russian energy flows.

Likewise, Putin also has aces up his sleeve regarding Russia's energy exports, and if, for example, he decided that turning off the tap to all his Western customers was worth it (even with the self-inflicted financial pain), then the crisis that those who imposed the sanctions were trying to avoid might fall on them regardless.

Instead of opting for quick and seemingly simple punishments, the sanctions coalition should focus on developing measures that make it difficult for Russia to operate internationally.

This tension is part of the reason why sanctions have so far prioritized specific targets, such as specific banks, companies, diplomats or oligarchs, or long-term Russian economic interests, such as investments in its oil and gas industry. In line with this, the Alexei Navalny Anti-Corruption Foundation has circulated the names of 6,000 names that "have enabled Putin to usurp power and initiate this special military operation." Focusing sanctions through this approach makes sense and should be the immediate priority, along with rigorous enforcement of already existing measures. Rather than opting for quick and seemingly simple punishments, the sanctions coalition should focus on developing measures that make it more difficult for Russia to operate internationally and that increase the costs to Russia more subtly and thus complicate its ability to retaliate.

6000 names that have allowed Putin to usurp power and initiate this "special military operation".

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II. DIVIDED WE FALL: COHESION AS A PILLAR OF SANCTIONS

This careful and measured approach to sanctions will also help sustain the international partnership that stands up to Putin. Without a UN Security Council resolution making sanctions enforcement mandatory, the sanctions coalition depends on mutual goodwill, shared sacrifice, and common purpose. But this cohesion is highly vulnerable to the kind of hardship that increased sanctions will require. As early as March 2022, Josep Borrell, the top representative of European diplomacy, warned in March that European citizens would suffer the consequences of this economic war, for example, in their electricity bills.

It should be recalled that, before the war, Russia was a relatively normal trading partner with most of the world, making it difficult for many countries to disengage from Moscow overnight. Therefore, the sanctions coalition should help those countries that are particularly vulnerable to Russian retaliation or to the impacts of sanctions themselves. The United States has already taken some steps to ease the pain of other coalition members, for example, by seeking alternative energy supplies for Europe and potentially offering energy support as part of the planned new sanctions. It should be noted that Washington's action is not without a profit motive, as US gas is exported to the EU at a price 40% higher than Russian gas. Therefore, it would be cause for analysis to know to what extent the White House's interest is to move from a natural gas import model to an export model. We cannot know to what extent the United States seeks to maintain the cohesion of its European partners' sanctions or is profiting from an international conflict and its diplomatic ties with the EU.

However, despite this, there are limits to how much compensation can be offered to economies severely harmed by the sanctions campaign, and the diversity of Russia's trading partners and business interests. This means that there will be times when a sanctioning partner will feel unduly burdened. For this reason, a sense of shared sacrifice and burden sharing is essential, particularly within regional groups such as the EU, where decisions on sanctions are made consensually within the European Parliament.

A sense of shared sacrifice and burden sharing is essential.

This dynamic also explains why backfilling (the practice of entering markets abandoned by others in response to sanctions or other policy instruments) by China, India and other countries outside the Western sphere is treated as a pernicious threat to the sanctions campaign. Backfilling can be poisonous to a sanctions campaign because it can allow the target to meet its needs despite the sacrifices of the sanctioning countries. For example, during the most intense period of the sanctions campaign against Iran, from 2010 to 2013, U.S. partners were often willing to take sanctions measures themselves if they were confident that other partners would cooperate and that spoilers, such as China, would not rush to take their market share and profit. It is therefore not surprising that the United States has made it a priority to discourage Chinese backfilling in Russia.

Image 2: Vladimir Putin and Xi Jimping during the Winter Games in February 2022, in flat pre-invasion crisis in Ukraine.

Source: Dempsey, 2022.

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III. CONCLUSIONS: LET US NOT SEPARATE INTO FACTIONS THAT MUST DESTROY THE UNION ON WHICH OUR EXISTENCE DEPENDS.

It is true that the uncertainties surrounding the sanctions campaign do not diminish its achievements to date. However, the US and its partners should not forget that they are in uncharted territory, imposing serious costs on a country that still possesses important economic levers of its own, not to mention a huge - and probably outdated - nuclear arsenal. Putin has already made it clear that he regards the sanctions campaign as a form of economic warfare and that he will take the necessary measures to ensure Russia's survival. In this light, it is worth noting that Russia can wreak economic havoc on a global scale. Iran, North Korea or other countries currently under international sanctions cannot. This is the main difference that makes this a completely uncharted territory. Also, although unlikely, nuclear deterrence is a variable to be taken into account, especially after the announcement by Finland and Sweden to start the process of joining NATO.

Russia can wreak economic havoc on a global scale.

Therefore, the sanctions coalition must continue to be cautious and thoughtful in its development and implementation of sanctions. This campaign is likely to be drawn out over time, so the sanctioning powers would do well to assess the potential effects of all measures before implementing them. The coalition should also begin to discuss the appropriate rationale for sanctions relief and the best order for their removal. Also, they could communicate informally to Russia, so that the Kremlin leadership understands the opportunity costs of continuing the war in Ukraine. Sanctions coalition members should also share information on their efforts to counter backfilling and coordinate diplomatic approaches toward actors seeking to undermine the sanctions regime. In addition, the coalition should develop plans to replace goods previously sourced from Russia and Ukraine that have become unavailable due to the war or sanctions. There is no way to avoid the economic disruptions resulting from the conflict, but identifying ways to share the burden of these disruptions and reduce their costs will go a long way toward preserving the coalition. Therefore, we can only remember that "United; we stand. Divided; we fall. Let us not separate into factions that must destroy the union on which our existence depends."

Image 3: Spanish Navy logistic ship Ysabel on its way to Poland with military aid for Ukraine.

Source: InfoDefensa, 2022.

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