Closing the Gaps in the Sanctions on Russia
Russia's imports have almost certainly recovered thanks in part to surging exports from Ukraine's supporters to Russia's relatively friendly neighbors. That must be corrected.
It has been almost a year since the Putin regime launched its barbarous war on the Ukrainian people. The costs have been catastrophic. Millions of Ukrainians have become displaced and hundreds of thousands have been killed. Ukrainian children have been abducted from their parents. Unable to achieve victory on the battlefield—and forced to withdraw from key regions—the Russians have resorted to terrorist attacks on civilians, bombing apartment buildings, playgrounds, schools, and the power grid while threatening the water supply.
The war has also been a disaster for Russia. Perhaps as many as 1 million of the country’s most talented and dynamic people have chosen to emigrate, likely never to return. Hundreds of thousands have died, and the death toll will likely rise as more under-equipped and poorly-trained conscripts are sent to the front. While the Putin regime has proven resilient—so far, anyway—this has come at enormous costs for the civilian economy. Those costs will only grow over time as increasingly scarce resources are diverted to war production.
The sooner the war ends—which, in practice, means: the sooner the invaders are defeated and forced to withdraw—the better.
So far, Ukraine’s allies have relied on a two-pronged strategy to alter the military balance in favor of the defenders. On the one hand, the allies are arming the Ukrainians with increasingly potent weapons and ammunition.1 At the same time, they have been attempting to maximize Russia’s equipment losses by providing intelligence/targeting support to the Ukrainians and by impairing Russian access to critical parts and components via sanctions and export controls.
I have been highlighting the potential of this latter approach—and tracking its implementation—for almost a year. At first, it worked remarkably well. Despite soaring prices for Russia’s exports, Russian imports of goods with potential military applications crashed more than 60% in March-May 2022 relative to September 2021-February 2022, while Russian manufacturing production fell sharply in both civilian and military industries.
Unfortunately, that initial success seems to have been short-lived. Since the summer, exports to Russia have been rising briskly, while exports to Russia’s relatively friendly neighbors have surged.
As it happens, I recently had the chance to participate in a small group discussion with some of the architects of the sanctions imposed on Russia. My point was simple: in addition to providing the Ukrainians with whatever they need, the allies must focus on denying Russians access to imports, particularly imports with potential military applications.2
If the existing rules are insufficiently strict to support this objective, they must be adjusted. That could involve threats of secondary sanctions, enhanced compliance requirements for exports to Russia’s neighbors, or other measures, such as threatening to deprive violators access to the EU Customs Union. (I will defer to the lawyers at OFAC on the specific mechanisms.)
The allies should also consider positive inducements to encourage sanctions compliance, as I argued back in March with Jordan Schneider and David Talbot. (Related.) The U.S. and Europe have much to offer Turkey—a country facing severe balance of payments pressures and currently reliant on financing support from Russia and Gulf allies—in exchange for aligning with the rest of NATO. Similarly, the allies surely have something to offer the Caucasian and Central Asian republics that would make it worth their while to stop serving as trans-shipment hubs for the Russians.
The good news is that the hosts of the discussion know that the sanctions need to be tightened and that enforcement needs to be enhanced. What follows is a more detailed analysis of the latest trade data, along with some enhancements to my estimates based on newly-released numbers from the Russian finance ministry.