America’s Economic War on Russia

I write this sentence almost nine months after the Russo-Ukrainian war began on February 24, 2022. In that time, most of the world’s attention has rightly been focused on the feats of the Ukrainian military against the larger Russian army. Few expected that the Ukrainian underdogs could hold out for as long as they have — indeed, in recent months, they have regained ground. Most of the praise is correctly directed to the brave soldiers fighting and dying to defend their country. This series of three articles, however, will focus on the efforts of the United States, Ukraine’s most important ally, to aid Ukraine’s war effort and punish Russia for its aggression. This first article describes and evaluates U.S. economic sanctions on Russia. The next piece will concentrate on American economic and military aid to Ukraine. And the third will cover the remaining miscellaneous forms of U.S. support for Ukraine, including the provision of intelligence to Ukraine and legal efforts to punish Putin for the war. In all of these forms of support, the U.S. has employed novel means of waging economic, financial, information, and litigation warfare to improve Ukraine’s chances of victory while avoiding the deployment of American troops overseas. 

Shortly after Russian missiles began to fall on Ukrainian cities, and as Russian tanks attempted to mimic Germany’s 1940 blitzkrieg by racing across the border to surround the Ukrainian armies and seize the capital, the U.S. and its European allies imposed on Russia the harshest sanctions regime seen in decades. The U.S., Europe, and their allies aimed, first, to trigger a liquidity crisis in Russia and thus obstruct Putin’s ability to finance the war. Second, they sought to undermine Russia’s economy. Third, they aimed to discourage other countries, such as China, from future belligerence.  

Although the fog of war still obscures the economic battleground much as it does the military battlefields, the successes and failures of our sanctions regime are becoming clear. In short, prohibitions on the exportation of Western advanced technology are obstructing Putin’s military efforts. However, Western sanctions are unlikely to mortally wound the Russian economy or to deter future aggression against Ukraine — at least in the short term. The Russian economy has survived our economic onslaught because of its major trade partners outside the West, Europeans’ inability to completely wean themselves off Russian energy, and the autocratic economic instruments that Putin has at his disposal. These limits broadly demonstrate that America’s unipolar moment, in which it could unilaterally exert overwhelming economic force across the world, is over. The primary long-run impact of the sanctions will be to isolate Russia from the West, causing it to run out of essential technology and to become more reliant on China 

Historically, sanctions have only been effective when they are multilateral, or imposed by many nations simultaneously. Thus, American success in unifying the West against Russian belligerency initially caused enormous optimism about our ability to flatten Putin’s economy and influence his behavior. The biggest sanctions success story in history was the multilateral effort to economically isolate South Africa in the 1980s which, in 1990, led South Africa’s President Frederik Willem de Klerk to release Nelson Mandela and lift the ban on the African National Congress, paving the road to the end of Apartheid. These sanctions forced South Africa’s leadership to change its behavior because, with the fall of the Berlin Wall in 1989 and the impending collapse of the Soviet Union, the U.S. and its Western European allies were able to exert enormous economic power. This early success led American policymakers to rely increasingly on sanctions as our weapon of first resort, especially after our imbroglios in Afghanistan and Iraq produced widespread aversion to entering foreign wars. And as we were the sole world superpower from 1991 until the 2010s, with worldwide support for many of our economic assaults, it seemed that sanctions would enable us to execute American foreign policy from the office of the Treasury Secretary.  

However, even in our unipolar moment, it quickly became clear that these high hopes were overly sanguine. Sanctions often don’t work: an academic study found that sanctions are only partially successful just 34% of the time. Further, sanctions are only ever effective when they are multilateral, a lesson demonstrated by the ineffectiveness of the largely unilateral sanctions we imposed on Russia after Putin’s annexation of Crimea in 2014. These 2014 sanctions were effectively unilateral because Europe’s economic ties with Russia and reliance on Russian energy precluded its ability, or at least its willingness, to impose significant sanctions. And even the U.S. sanctions package against Russia in 2014 was relatively meek — Edward Fishman, a sanctions expert, rated their intensity only a 2 out of 10. Based on the West’s weak reaction in 2014, Putin was not expecting a very strong or unified response to his invasion of Ukraine this year. This misconception was illustrated in his keeping, at the time of the invasion, two-thirds of the Central Bank of Russia’s assets denominated in dollars, euros, and yen, rendering them susceptible to western sanctions. 

To Putin’s surprise, the Western coalition responded to the invasion of Ukraine with remarkably robust and unified economic sanctions. This was due in part to the U.S. and its allies’ anticipation of the invasion months in advance, allowing them to prepare various sanctions packages to be used in response to different levels of Russian aggression. Based on the severity of our economic response to the invasion — Fishman rates the current Western sanctions at an 8 out of 10 — we must assume that Biden and his European allies put one of the largest economic bullets they had into the chamber. The Western coalition, united this time, immediately froze $315 billion — or about half — of Russia’s foreign reserves and cut off its major banks from SWIFT, the messaging system that banks and other financial institutions use to exchange information. These moves effectively stopped the Russian government and banks from trading foreign currency or transferring assets outside the country. The coalition also responded by ceasing the importation of Russian gold, metals, and wood. More importantly, the U.S. and Europe have significantly decreased their imports from Russia of natural gas and oil, imposing gradual reductions that will culminate in a 90% reduction in European oil imports from Russia by early next year. The hope was that this would have a major impact, because fossil fuel exports account for 40% of Russia’s total export revenues.  

The West has also frozen exports of products to Russia that could be put to military use against Ukraine. These sanctioned exports include industrial parts, timber and metal products, and, most importantly, advanced technology. The West has continued humanitarian exports to Russia of medicines, food supplies, and agricultural products, as it does not aim to punish the Russian people.  

Most recently, the U.S. and its allies sanctioned 1,236 Russian individuals close to Putin, banning their travel to the West and freezing their assets.  In all, the U.S. has issued 1,500 new sanctions on Russian individuals and businesses since February, 2022.  

The U.S. is not waging its economic war alone; its coalition includes 37 countries, seemingly an impressive number. However, that leaves about 100 countries, which account for about 40% of the world’s GDP, that continue to trade with Russia. Russia’s ability to shift its commerce to different trading partners has substantially negated the effects of the Western embargoes on Russian exports. Although America has stopped importing Russian oil and natural gas and Europe has agreed to restrict oil imports by 90% and gas imports by 15%, Russia has largely neutralized their efforts by selling more energy to countries like India and China, which have been more than happy to buy Russian oil and gas at discounted prices.  

In addition, the war and subsequent sanctions have produced high energy prices, which Saudi Arabia, the leader of OPEC+ and a nominal U.S. ally, exacerbated in early October by announcing a supply cut. The high energy prices have further alleviated Russia’s economic troubles. Russia is making about a billion dollars a day from sales of oil and gas — 40% more than it was making in 2021. The U.S. Treasury Department has been pushing coalition members to institute a global price cap on Russian oil to reduce its energy income. However, because of Russia’s continuing trade with big buyers like India and China and high prices, the Western attempt to smother the Russian economy and deter Putin by slashing Russian energy revenues has largely failed. One result of this is that the IMF is now predicting that Russian GDP will only fall by 3.4% in 2022 — much less than the 15% decline many predicted early in the war. 

Western sanctions on Russian elites, initially heralded as a means to pressure Putin and those close to him into backing down without punishing regular Russian people, have also proven ineffective. Although these targeted asset freezes and travel bans were used heavily by the U.S. in the wake of Russia’s 2014 invasion of Crimea, by all accounts they did not produce much oligarchic pressure on him then. Similar measures are not producing much pressure now. These sanctions have punished the oligarchs, forcing them to choose between leaving Russia with almost nothing or staying in Russia and having their external assets seized. However, experts explain that they have been ineffective in influencing Kremlin policy because oligarchs have less sway over Putin than expected. Ruining the oligarchs will not drive Putin out of Ukraine.  

Also generally ineffective have been the U.S. efforts to drive down the value of the Russian ruble. This was one of the primary objectives of the Western coalition’s immediate freezing of hundreds of billions of dollars of Russian foreign currency reserves that Putin had  amassed since 2015 to support the ruble’s value. Although the value of the ruble initially dropped by 35%, Putin was able to generate demand for the currency by requiring that oil and gas be paid for in rubles and by restricting Russians’ ability to exchange rubles for foreign currency. Although U.S. Treasury officials boast that Putin was forced to use funds to prop up the ruble that he could have otherwise spent on the war effort, the ruble quickly returned to its pre-war value. 

What have been most effective in our economic war are the sanctions on exports to Russia. The U.S. and its Western allies quickly imposed substantial export controls that prohibited the sale to Russia of advanced technology, transportation machinery, oil refining equipment, aviation technology, and a multitude of dual-use civilian products that could be put to military use. In addition to penalties for any Western companies who disobey these sanctions, the export controls include novel restrictions on the sale to Russia of any high-tech goods produced using “American machinery, software, or blueprints.” This clever addition has prevented non-Western firms from providing high-tech products to Russia on the pain of losing access to American technology. As a result of these export controls, the flow of advanced technology to Russia from both the West and non-Western countries that rely on American technology has dried up.  

Especially critical has been the export embargo on microchips. The West supplies the vast majority of the high-end microchips that Russia needs both for civilian industries and for weapons systems. Although Russia was able to stockpile these chips before the war, its supply is running out. It is unable to adequately substitute non-Western alternatives because (1) many high-end chips are only produced by the U.S. and U.S. allies, and (2) the threat of exclusion from American technology and the fear of fines for disobeying these sanctions has pushed many non-Western firms, including Chinese companies, to comply with the export restrictions. Russia’s greatly diminished access to microchips has shaken its civilian industries. For example, the country’s automobile industry has been seriously impacted with production falling by 75% compared to last year. Russia’s highly technical airline industry has also suffered, the lack of adequate spare parts forcing Aeroflot and other airlines to ground their planes. The government has also had to delay updates to telecom networks.  

More importantly for Western decision makers, though, technology shortages have directly hindered the Russian war effort. Expecting Ukraine to collapse after a sudden blitzkrieg but instead finding itself in a war of attrition, Russia has used far more missiles than expected. As a result, it is facing a serious shortage of the chips that are needed for its precision-guided munitions. Consequently, Ukraine, supplied by the West, has recently attained superiority in precision-guided rockets and drones. The Russian government is doing whatever it can to gain access to high-end chips and other technology: from buying the tech indirectly through countries like China to dismantling refrigerators to requisition their microchips for military use. Less substantiated sources have also reported production shortages in tank factories and difficulties in finding spare parts for everything from night vision goggles to satellites. Although the details are difficult to confirm, it is clear that export controls on Western technology are seriously obstructing Russia’s war effort. Indeed, as Russia’s stockpiles of technology run out, Putin’s ability to evade such controls and gain access to Western chips may decide the war. 

To sum up, our sanctions have had three main targets: Russia’s financial sector, individuals, and its business and trade. First, our sanctions on Putin’s financial sector have been severe and costly, but have been largely ineffective. Second, sanctions have punished Putin’s oligarchic cronies, but the pain inflicted upon the oligarchs has not influenced Kremlin policy. Third, our sanctions on Russian business and trade can be further divided into import restrictions and export restrictions. Our import restrictions (on Russian oil, most importantly) have been ineffective because of rising energy prices and increased Russian trade with China, India, and other countries. In contrast, our restrictions on exports to Russia have been effective. By denying the export of western technology to Russia, and especially of microchips produced only by the U.S. and its allies, the sanctions have limited Putin’s ability to wage war with missiles and other high-tech weapons and also complicated Russian supply chains.  

This does not mean that our sanctions will be decisive, for two reasons. First, Russia has had enough missiles (supplemented by Iranian drones) to recently step up its attacks on Ukrainian infrastructure, producing significant power outages. Second, any harm to Russia’s domestic economy will be unlikely to produce serious popular pressure on Putin, with his autocratic power and Praetorian Guard. The best we can hope for is to obstruct his ability to wage war as effectively as he would otherwise be able to. Although sanctions won’t win the war, they will make war for Russia more difficult. And the sanctions have succeeded in allowing us to hinder Russia’s war effort without sending troops. 

Matthew Klein, an economist researching the efficacy of our export controls, compared our sanctions to the strategic bombing of previous wars: “The democracies can replicate the effect of well-targeted bombing runs with the right set of sanctions precisely because the Russian military depends on imported equipment.” To extend this metaphor, it seems that we are learning the same lessons about economic warfare that we once learned about making war from the air. In the Second World War, the Allies engaged in indiscriminate aerial bombing of Axis cities, attempting to produce such pain among civilians that the populace would demand that their governments make peace. However, except for the unique case of the atomic bombs dropped on Japan at the end of the war, such carpet bombing was not effective at producing widespread civilian pressure on enemy governments. Indeed, indiscriminate bombings of cities was used by Axis governments as propaganda to cause additional hatred of the allies and further support for the Axis governments.  More effective were targeted bombings on military and industrial targets. 

Similarly, the U.S. coalition could have targeted Russian civilians by cutting off the export to Russia of all goods, including food and medicines.  Instead, the U.S. allowed for the trade of most civilian goods, while restricting only the export of technologies that could be put to military use. As in World War II, these smart sanctions are turning out to be more effective. Broader sanctions, like energy restrictions, are having little success while targeted sanctions, such as controls on war technology, are working. 

The importance of these lessons extends beyond the Russo-Ukrainian war. As tensions escalate with China over Taiwan, everyone is extrapolating from the efficacy of our sanctions on Russia to predict the effect that such sanctions would have against China, an even bigger economy. Indeed, the U.S. is already commencing focused sanctions against China, as evidenced by our recent decision to restrict the sale of advanced microchips and microchip technologies to China.  

A future military confrontation with China would be decided less by our economic sanctions than by our military capabilities and technologies. The same is true in Ukraine today. Our sanctions regime depends on the continued ability of Ukraine to beat Putin on the battlefield, for, were Russia to decisively defeat Ukraine militarily, it would not matter how many microchips Putin has for his missiles. The war will ultimately be won through Ukrainian military victories, and not by economic blows. In the next beat blog, we will look at the second prong in America’s support for Ukraine: our provision of advanced weapons technologies.

Ted Shepherd is a sophomore in Pierson College. He can be reached at