Author: Tasnia Mowla

West Sanctions Russia to Deter Aggression Against Ukraine

The United States and its allies imposed sanctions on Russia when the country annexed Crimea from Ukraine in 2014. The US believed annexation threatened to reverse post-Cold War borders in Europe and endangered security, the rule of law, and human rights in Europe and beyond. However, the sanctions were limited in scope, and President Vladimir Putin ordered a full-scale invasion of Ukraine eight years later on February 24, 2022. This time a much stronger package of financial, trade and travel sanctions was imposed to curtail Russia’s ability to wage war and deny it access to finance and technology to upgrade its military capabilities. The sanctions froze much of Russia’s foreign reserves held abroad and targeted  oligarchs, financial institutions, export-oriented companies, and state actors. The energy sector was not sanctioned. According to the International Energy Agency (IEA), oil and natural gas exports made up 45% of Russia’s federal budget.

Dependence and Disunity: the Challenge in Implementing Sanctions

Infographic on US and EU energy dependence on Russia

The United States is not a major consumer of Russian oil and gas, but decided not to implement energy sanctions because European allies depend on energy supplies from Russia. When asked whether the US was considering energy sanctions, Deputy National Security Advisor for International Economics Duleep Singh acknowledged at a White House press briefing, that “our measures were not designed to disrupt in any way the current flow of energy from Russia to the world.” At that time, rising domestic inflation and spiraling energy prices threatened the post-Covid economic recovery. The US Treasury prohibited financial transactions with Russian financial institutions, but included an exception for fossil fuel exports from Russia through “a general license to authorize certain energy-related transactions with the [Russian] Central Bank”.

European countries were divided on energy sanctions. The EU as a bloc is highly dependent on Russian energy and receives 25% of its oil imports and 45% of its gas imports from Russia. European nations have found it more difficult to achieve energy independence because supplies from Russia are integrated into their energy infrastructure. Many EU members receive energy via pipelines connected to Russia, which take years to build.

President Biden signed an Executive Order in March  2022, which broadened sanctions to the energy sector. He recognized that “we’re moving forward on this ban, understanding that many of our European Allies and partners may not be in a position to join us.” The US measures took immediate effect, prohibiting the import of Russian crude oil, petroleum and petroleum products, liquified natural gas and coal as well as any new US investment in the Russian energy sector. 

On March 2, the European Commission applied sanctions against Russian financial institutions, but omitted two of the largest banks—SBERbank and Alpha Bank. The decision was likely taken to allow energy import payments. The US, on the other hand, sanctioned both banks and their subsidiaries. On June 3, the Council of the European Union adopted its 6th package of sanctions which targeted Russian oil and additional Russian banks, including SBERbank. EU members agreed in the 6th package to prohibit “the purchase, import or transfer of crude oil and certain petroleum products from Russia to the EU.” However, the sanctions will not be applied immediately, they will be implemented gradually; within six months for crude oil and eight months for other refined petroleum products.

Hungary, the Czech Republic, and Slovakia raised concerns over the proposed energy embargo and urged the EU to extend the timeline or to allow other flexibilities. These countries negotiated an exception for the continued use of the Druzhba pipeline. Germany and Poland agreed to stop using oil from the Northern branch of the same pipeline. The EU noted that “as the majority of the Russian oil delivered to the EU is seaborne, these restrictions will cover nearly 90% of Russian oil imports to Europe by the end of the year.” So far, Russian gas has not been sanctioned.

Impact of Sanctions

The sanctions imposed after the invasion impacted the Russian economy immediately. The rouble plunged as overseas assets held by the Russian Central Bank were frozen. Key machinery and technology needed to maintain industrial production could not be imported. More than 1,000 foreign companies left the country, creating a vacuum of goods and services. Inflation grew, and prices for scarce items kept rising. The long-term forecast for the Russian economy was dire. However, the economy did not collapse, the rubble recovered after its initial dip, boosted by earnings from energy exports, because the majority of payments were done in rubles. Restrictions on Russian energy also impacted the economies of sanctioning countries. Reuters reported from Moscow on July 18 that President Putin claimed that “it was impossible to cut Russia off from the rest of the world, and that sanctions imposed by Western countries would not turn the clock back on Russia’s development.” 

Russia withstood sanctions because the energy sector, its biggest source of export revenue, was able to operate freely for months following the invasion. Oleg Ustenko, the Chief Economic Adviser of the President of Ukraine, in an article in the Financial Times, criticized the energy sanctions since Russia still “can sell oil, gas and coal directly to every country except the US.” He added that “the measures the West has taken so far cover less than 5% of Russia’s pre-war crude oil exports.” In spite of this criticism, the energy sanctions have stopped new foreign investments in Russia’s energy sector, disrupted the flow of critical technology from the West that supports the fossil fuel industry, and caused a slow but gradual drop in Russian energy export volume. However, higher energy prices mean Russia can earn more from its energy exports than before the invasion.

Increasing the Effectiveness of Sanctions

Several strategies have been proposed and/or implemented.

• The sixth EU package of sanctions prohibited EU operators from insuring and financing the transport of oil to third countries. This came into effect at the end of 2022. The United Kingdom and Norway joined the EU sanctions. The maritime insurance industry is concentrated in these two countries and Luxembourg—an EU member. If oil tankers are uninsured, Russia will be unable to ship oil by sea to major third party customers such as China, India and Turkey.
• The US Treasury Department is considering implementing a price cap on Russian oil to ensure that revenue from energy exports goes down while global supplies remain stable. This has not gained traction among the G7 and EU countries. 
• It would be possible to implement secondary sanctions on countries which purchase Russian energy. However, this strategy has also failed to gain traction.

Despite their limitations, the current sanctions will have long-term impacts on the Russian economy. The West is counting on the sanctions to gradually bring Russia to the negotiating table, while the Russian government is counting on waning public support in the West.

The Shadow of War Returns to Europe

The post-Cold War security environment in Europe was characterized by the diminishing influence of Russia, which saw its former Warsaw Pact allies gradually integrated into the North Atlantic Treaty Organization (NATO) and the European Union (EU). Russia under President Vladimir Putin considered this expansion detrimental to its security interests. Russia attempted to stop Georgia and the Baltic Republics from establishing closer security ties with NATO, even going to war with Georgia briefly in 2008. Ukraine’s Maidan Revolution (2014) overthrew a pro-Russia regime and the country aspired to democratize and draw closer to the European Union. In response, Russia forcibly annexed Crimea in 2014 and aided separatists in Ukraine’s Donbas region—which borders Russia—in seceding. 

The United States and its allies considered this a threat to democracy and pluralism in Europe. The allies implemented sanctions against Russia in 2014 with the intention of forcing Russia to negotiate a withdrawal. However, Russia’s economic and military capabilities were not significantly affected by the sanctions. Critical sectors like energy were not sanctioned because European countries like Germany depended on Russian oil and natural gas. Putin demanded a guarantee that Ukraine would never join NATO or the EU and, when an agreement was not reached, Russia invaded Ukraine on February 24, 2022. The full-scale Russian invasion threatens to reverse post-Cold War borders in Europe, destabilize the trans-Atlantic security order, and affect countries far removed from the theater of war.

Western Allies Respond

The Russian invasion of Ukraine was met with strong reactions from the United States and its allies. In his statement on February 26, President Joe Biden declared, “Putin chose this war. And now he and his country will bear the consequences.” The United States coordinated with the G7, the world’s leading industrial nations, to launch a new round of sanctions on Russia to curtail its ability to finance the war, and held an emergency NATO summit to map out the next steps.

The United States has also been urging allies to increase their defense spending, a long-standing US policy objective. In response to the invasion, Germany announced a shift in its defense policy, including re-armament. During his February 27, 2022 speech to parliament, German Chancellor Olaf Scholz pledged an additional €100 billion for the armed forces and committed Germany to spending 2% of its GDP on defense, in line with NATO expectations. Other European countries have taken similar steps to strengthen their military capabilities. Polish Defense Minister Mariusz Blaszczak announced that Poland will allocate 3% of its GDP to defense from 2023. The Netherlands has committed an additional €5 billion to defense over the next few years. This is a 40% increase from its 2022 defense budget and meets NATO’s 2% GDP target in 2024 and 2025.

The invasion has reignited talks of an EU common defense policy. On February 28, 2022 the Council of Europe, the highest decision-making body for EU member states, approved a historic €500 million package for Ukraine. This includes €450 million in military supplies and an additional €50 million for fuel and protective equipment. This is the first time the EU has pledged lethal equipment to a non-EU member through the European Peace Facility (EPF). The High Representative for Foreign Affairs and Security Policy (HRVP) Josep Borrell explained that the EU “wants peace in Europe, but we have to be prepared to defend this peace.” 

EU heads of state and government pledged on March 10, 2022 to take more defense responsibility which several US Presidents had urged. EU leaders also endorsed the Strategic Compass soon after, a plan of action to increase the EU’s ability to respond to crises with rapid deployment capacity, increased defense investment, and better preparedness for hybrid threats. The European Council subsequently met in May and June to reiterate its commitment to increase military and financial support for Ukraine and to advance Ukraine’s EU membership request. EU members also approved the latest round of EU sanctions on Russia which included crude oil and refined petroleum products as well as Russian-origin gold.

Despite the EU’s commitment to supporting Ukraine, fulfilling some promises may be challenging. For example, the EU pledged to provide fighter jets, but the Ukrainian air force is trained to fly Russian-made  MiG-29s and Su-24s. Only Poland, Bulgaria and Slovakia have that type of jet, and those states have been hesitant to send their aircraft to Ukraine due to supply shortages and fear of escalation However, when Poland finally proposed to do so, provided the US accelerates its delivery of F-16s to Warsaw, the United States decided against this move by concluding that the proposal was not tenable. On March 8, in a statement by the Pentagon, Press Secretary John F. Kirby expressed concerns over dispatching American aircrafts into contested airspaces.

Deepening Transatlantic Ties

The United States provided leadership to create a coordinated response to the invasion. This included imposing stricter and broader sanctions on Russia than in 2014, providing military aid to Ukraine, and increasing defense coordination. US Foreign Secretary Anthoney Blinken stated, “The strategy that we’ve put in place, massive support for Ukraine, massive pressure against Russia, solidarity with more than 30 countries engaged in these efforts, is having real results.”

The sanctions imposed on Russia are changing Europe’s economic dependencies, particularly in the energy sector. To restructure these dependencies, Europe is establishing new partners and alternative technologies. The United States is trying to fill in the gap and has seen demand for liquefied natural gas (LNG) rise by over 50% in Europe compared to the same period the year before. A protracted war in Ukraine could bolster the significance of the new US-EU Trade and Technology Council (TTC) formed in June 2021 and eventually lead to closer transatlantic cooperation on energy, trade, technology and innovation. This emerging collaborative spirit helps in overcoming the tensions generated by Eurosceptic security and trade positions held by the Trump administration. This shift makes it easier to take coordinated steps for addressing the long-term economic impact of the war.

Reviving NATO

Finland and Sweden are traditionally non-aligned countries, but Russia’s invasion of Ukraine forced the two Nordic nations to reassess their security interests and apply for NATO membership on May 18, 2022. Although experts believe an attack on Finland and Sweden is unlikely while Russia is focused on Ukraine, Finland and Sweden remain vulnerable until they are included in NATO’s mutual defense guarantees. Ahead of their formal application, British Prime Minister Boris Johnson visited Finland and Sweden to sign security guarantees. President Biden expressed support for the two countries’ NATO bids and welcomed Finnish President Sauli Niinistö and Swedish Prime Minister Magdalena Andersson at the White House.

Swedish and Finnish NATO membership has a number of advantages. Sweden has naval bases on the Baltic Sea and a navy with experience operating in confined waters, which adds key capabilities in the Baltic region. Gotland is a strategically important Swedish island which can act as a staging ground for naval operations in the region. Finland shares a long border with the Kola peninsula, which is Russia’s Arctic navy and nuclear submarine base. This puts NATO in a position to isolate the peninsula from mainland Russia.

NATO has functioned as an instrument for United States security interests and conflict leadership, but lost credibility by mishandling conflicts in Libya (2011) and Afghanistan (2015-2021) under US leadership. NATO’s reemergence provides the US a chance to strengthen its relationship with its longest allies and exert US influence on the European continent.

Ending Aggression Through a United Front

Some speculate that Trans-Atlantic solidarity will not hold if the war turns into a protracted, localized conflict, with Russia forcibly occupying parts of Eastern Ukraine. There are concerns that the economic toll of the conflict on sanctioning nations, declining public interest, and other international priorities will lead to disunity in the alliance. However, a destabilized Ukraine will remain a source of insecurity for the entire continent.