Are sanctions useful? Well, if the alternative is no sanctions …

Blog post by Dr Abel Polese

On some occasions, they have forced governments to the negotiating table, and, 13 sanction packages on Russia later, I have no doubts that sanctions might sometimes work. Yet, in this case,  have they actually reduced revenues, crippled military capacity, and imposed pain on the Russian economy (which are the supposed objectives)? And if not, why?

Sanctions have allegedly blocked Russia’s growth. Yet Russia’s GDP still grew by 3% last year, and elites have shown no desire to halt the war.

Maybe Russians are skilled at evading sanctions? At any rate, they are definitely supported by a demand for Russian goods and money that has remained constant globally and, in some sectors even within the EU. Given that no black market has ever been tamed from the supply side, this all sounds like when you want to punish your child by not giving them their weekly allowance but then your grandparents give them money under the table.

Filling a Cracked Bucket

Unfortunately, multinationals exist to make money, not to save the world.   Companies stay in Russia if the loss from their exit is higher than the expected loss because of reputational damage. Some faked an exit, others rebranded, a few just stayed. How many people are boycotting Pepsi or Avon for remaining on the Russian market?

EU-Russia trade has officially shrunk. Yet, U.S.-made technology is flying on Russian airlines, it seems. Russian missiles reportedly keep featuring EU/U.S.-made technology, and the Russian automobile industry is allegedly thriving with cars and spare parts imported from Germany.

There is little direct evidence. But if you believe that the claimed 5,500% increase in German car and car-part exports to Kyrgyzstan mirrors a sudden growth in the country you do not know the region or are extremely naive. Or both.

The world still wants Russia’s diamonds, nickel, and more, and companies with less than 49% Russian capital can still operate as non-Russian under EU rules. Other companies that break the embargo occasionally get sanctioned but even entire countries keep helping Russia by applying the so-called Italian strike: comply technically with international regulations without checking if this is working or not.

Food is perhaps an exception. It is no longer possible to export to Belarus and rebrand, as was done after the 2014 sanctions. Burrata will no longer taste like the original but food-technology imports are allowing Russia to imitate cheese at a fraction of the price of imports with surprisingly good results.

So in Moscow it’s business as usual. Everywhere else might be more affected but I am not sure this will change anything for Russia’s selfish elites.

(Non)-Russians in the Sun

Some countries shrunk the number of visas for Russians or sealed their borders. Yet, Forte dei Marmi in Italy remains a major Russian-speaking holiday destination, and the biggest growth for property purchases in Spain is among Russians.

The irony in this is that it’s easier for a Russian than for a Ukrainian to buy property in Spain. Russians need an intermediary bank to send cash to EU accounts but have no limitations in the amounts they can send abroad. Ukrainians do.

Obtaining a second passport “through local investment” ranges from $100,000 to $200,000 (family packages are available). This is out of reach for common people but Putin’s circles definitely have the money for that option and now visit the EU visa-free. For those on the Interpol list, well, just go to the Maldives or Seychelles, or do business in Dubai.

Yachts and properties have been seized and could be used to reconstruct Ukraine (although governments still feel uncomfortable to operationalize that). And yet, how much of Putin’s entourage’s wealth has actually been affected? We are talking of people who bought properties they just saw on their helicopter ride to London by signing blank checks to their concierges to go make an offer.

On the bright side, energy dependency has lessened, one way or another. Italy recently announced a share of only 5% Russian gas while Lithuania became completely independent back in 2022. Still, the amount of laundered oil imported into the EU on “shadow fleets” is measured in billions (1.1 billion euros in 2023 alone according to one investigation). The bloc’s dependence on Russian gas remains high and largely unsanctioned (the EU is the leading importer of pipeline gas and liquefied gas from Russia).

Russian oil is also not lying unused. It is just going elsewhere. China, India, and Turkey have deepened their cooperation with Russia. Saudi Arabia has invested $500 million in Russian energy companies.

Cognitive Dissonance?

There are too many conflicts of interests in this war for sanctions to start working properly. We seem to be prisoners of the system we’ve established. Capitalism came into being as a way to make money in a way that is not illegal – and obviously not to support ideological choices.

It’s utopian to ask companies to cut their profits for the sake of human values and equally hard to force them into compliance. Either you compensate companies whose profits come from trade with Russia or you force them to leave the market. Even in the Baltics, where Russia antagonism is high, some companies prioritize profit over ideology.

Out of caution, companies might have shown an initial degree of compliance but now alternative channels have been identified and are widely used. These crippled sanctions look like an unregulated diet. You skip a meal, feel you’ve cut back on the calories, and then indulge in chocolate cake. There is no coordination, cohesion, and possibly no vision.

Sanctions might work but must be sustained. That would require EU governments to have a unanimous position, and politicians to worry about real things more than their loss of popularity. It would also need the capacity (by slow and bureaucratic administrations) to clamp down on non-compliant companies, a thing that has happened only incidentally and after long and dangerous investigative work (i.e. Wikileaks, the Panama Papers).

So, unless something changes radically, this war reminds me too much of the cognitive dissonance of climate change. Most people will feel sorry and declare it’s wrong while expecting someone else to do something about it.

This blog originally appeared on the Transitions website as “Business as Usual” and is reproduced with permission.

Image: Oil refinery in Yaroslavl, Russia. Photo by Svtk44, CC BY-SA 4.0, via Wikimedia Commons