Success in global competition is often measured by the strength of a country’s military, but a variety of other tools are frequently overlooked. Among the most widely used are financial attacks. Sanctions are a key tactic in American grand strategy to hinder the economic success of Washington’s adversaries in the long term.
Today, the war in Ukraine is testing the solidarity of Western values and interests against the Russian advance. These financial packages are part of the mission to give the U.S. an economic edge over Russia.
Specific Sanctions for Moscow
Sanctions diminish the legitimacy of Putin’s presidency by threatening his base and making it increasingly difficult for Moscow to project power on the international stage. This was the goal of sanction packages in 2014 when Moscow attempted to invade Ukraine for the first time. Today, the objective is to fracture the Russian economy.
There have been 13 sanction packages placed on Russia since their initiation of the Ukraine invasion in 2021, with a 14th package being prepared by the U.S. that will target Moscow’s Liquified Natural Gas (LNG) projects. LNG investment has been a focal point since 2013 when Moscow decided to emphasize this specific type of energy for export. Eleven years later, Russia is exporting tens of millions of tons of LNG to its neighbors. These efforts to reduce the flow of currency from Western nations into Putin’s war chest have only been partially successful. Politico reported that the President of Russia has accumulated 1 billion euros from energy exports to the European Union in 2023 alone.
Russia’s Fuel Sector
European nations are facing rising gas prices, which are reducing fuel consumption across the region. Reuters reported that the region’s consumption of gas has decreased by 10-15% since the beginning of the invasion of Ukraine. However, according to the EU natural gas price index, the price of gas imports fell to 8.6 in March 2023 compared to a high of 70.04 in August 2022. This drop in natural gas prices is a result of a shift to reliance on liquefied natural gas. Overall, this shift has enabled Russia to invest in more LNG projects to benefit from the decline in natural gas usage.
Short Term Outlook
With the recent Houthi attacks already hindering the LNG market, the 14th sanction package targets Russia’s involvement in that sector. It is possible that Western sanctions will alter the exportation process of LNG products, as happened with other fuel sources when the first sanctions were implemented. A slowdown could occur in this sector specifically, resulting in decreased profits for the Kremlin. This would mean a slower rate of incoming capital for Putin’s war chest, which relies on revenue from gas exports.
There is a loophole within the sanction packages targeting fuel exports concerning the differentiation of crude and refined oil. Turkey, India, and Bulgaria are the only countries that did not agree to support and sign onto the sanction packages enacted by other Western nations. Due to this decision, those countries are still able to buy large quantities of crude oil, refine it, and export it to EU nations and others that are barred from importing refined Russian oil.
The inflow of capital to Putin’s war fund will evidently slow as a result of these sanctions, restricting some actions and spending associated with government funds. This will aid the effort to limit the Russian advance through monetary policy. However, there will likely be more loopholes that will reroute LNG exports.
Long Term Outlook
The main long-term metrics to observe are GDP growth and other quality-of-life measurements tied directly to the Russian economy. In 2014, the Western sanctions forced the Russian economy into a recession during the first quarter of 2015 and helped devalue the country’s currency, according to NATO Review.
From Washington’s perspective, the packages are meant to weaken Moscow’s economy, putting it at a disadvantage in Russo-American competition. Even though these sanctions contain loopholes allowing Russian oil to continue flowing out of the country, they still reduce the probability that Russia will outperform the U.S. economically on the international stage.
Already, the standard of living in Russia has decreased significantly, and the ruble has lost a significant portion of its value. Sanctions need to be recognized as a quick and current action that will pay off in the long term. Viewing the Russo-American relationship as a competition is necessary to understand the value of these sanctions. The sanction packages deployed in 2014 in response to the Russian annexation of Crimea yielded similar results, putting Moscow’s economy at a severe disadvantage for many years after the conflict settled.
Looking into the future decades, these packages will hinder Putin’s ability to outperform and grow the Russian economy compared to the United States. This is the capability of the sanctions and will result in Washington having a stronger economic standing on the international stage compared to the Russian model.