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Research Report


Sergey Aleksashenko
Copyright Date: Dec. 1, 2016
Published by: Atlantic Council
Pages: 28
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Table of Contents

  1. (pp. 1-1)

    It has been more than two years since the European Union (EU) and the United States (US) imposed economic sanctions on Russia for its aggression in Ukraine. For some of the measures, though not all, that is time enough to evaluate effectiveness. But before such an assessment can be made, the initial goals of the sanctions should be clearly stated. This is not as straightforward as it might seem.

    United States Assistant Secretary of State, Victoria Nuland, told a Senate panel in June 2016 that sanctions were meant to “press Moscow to bring an end to the violence in Ukraine...

  2. (pp. 2-4)

    On February 22, 2014, then Ukrainian President Viktor Yanukovych fled Ukraine amidst mass popular protests. Taking advantage of the political upheaval, Putin ordered the implementation of a plan for the annexation of Ukraine’s Crimean Peninsula which began with the deployment of special forces.³ Working from its Black Sea Fleet base in Sevastopol, the Russian military gained control over the peninsula within ninety-six hours.⁴

    On February 27, 2014, the parliament of Crimea was occupied by so-called “little green men,” troops in Russian uniforms without insignia. Under their guns, parliament established a new pro-Russian government and instituted a so-called independence referendum in...

  3. (pp. 5-5)

    Other than sanctions, the West used isolation as a lever against Russia. The country was excluded from the Group of Eight (G8), which canceled a summit planned for Russia.23 All types of dialogue with NATO, the EU, and the United States were suspended, as were military exchanges and joint exercises. NATO organized a special meeting to discuss security concerns raised by Poland and canceled its first joint mission with Russia on neutralizing Syria’s chemical weapons.24 Negotiations on Russia’s Organization of Economic Co-operation and Development (OECD) accession were also frozen.25

    Because of its vastness, and with its involvement in various international...

  4. (pp. 6-6)

    The sanctions introduced against Russia had three goals: to force the Kremlin to change its course in Ukraine,29 “to continually raise the costs for Russia of their actions” in Ukraine,30 and to demonstrate a common Western approach to Russia’s military actions.

    Their effect on Russia’s foreign policy and economy merits a deeper analysis, but before that, a few quick words about the Crimea-related and personal sanctions, and about the West’s response to Russia.

    The success of the Crimea sanctions has been mixed. On the one hand, they have stunted Crimea’s economic growth under Russian occupation and have prevented some firms...

  5. (pp. 7-8)

    The biggest debate among politicians and experts concerns whether sanctions have been able to stop Russian aggression and more broadly to affect Russia’s policy in Ukraine. The hard truth is that Russia has achieved its goals in Crimea and created a hotbed of tension in the east of Ukraine, allowing the Kremlin to destabilize its neighbor at any time. Meanwhile, the West has been unable to compel Moscow to fulfill the Minsk ceasefire agreements or even to acknowledge its direct participation in the conflict.

    Western conventional wisdom says that the July 2014 wave of sanctions, restricting the ability of Russian...

  6. (pp. 9-16)

    “Russia is isolated with its economy in tatters,” Obama proclaimed in his January 2015 State of the Union address, assessing the results of a US policy of sanctions and containment.40 At the time, many believed the same thing. Russia’s currency was in free fall, its budget revenues declining, its government spending reserves it had taken years to accumulate. Some experts even predicted the collapse of the Russian economy.41

    Although Russia plunged into a crisis that would last for six consecutive quarters, the real scale of economic shock was less significant.42 GDP fell by 3.7 percent in 2015, and most experts...

  7. (pp. 16-16)

    However, we should not overlook another effect of sanctions that cannot be measured by statistics, at least in the short run. While financial sanctions have inflated the cost of capital for the Russian economy, the political pressure on Russia has dramatically increased the political risks of doing business there. Indeed, the flow of Western investment projects and innovation into Russia has slowed to a trickle. This lack of access to technologies and human capital is much more sensitive for the Russian economy in the medium- and long-run. The country’s industrial and technological infrastructure will require massive innovation if the economy...

  8. (pp. 17-18)

    If the policy goal of Western sanctions against Russia is to change Russian policy on Ukraine and if sanctions are to remain as the preferred policy tool, then the United States and the EU must not only renew sanctions but escalate them. Only a stricter and more comprehensive sanctions regime, as demonstrated by the successful sanctions program against Iran,76 could change the Russian calculus on Ukraine. The West could consider the following:

    Close loopholes that allow individuals and entities to circumvent existing sanctions;

    Expand sanctions to include all members of the Russian Federation Council who voted to allow the use...

  9. (pp. 18-18)

    Relations between Russia and the West are at a standstill without a clear way forward. Still, Western leaders must not be content to maintain the status quo in eastern Ukraine, which could set a dangerous precedent for further unilateral changes of international borders by other states. For example, China is playing similar territorial games in its increasingly tense neighborhood.

    If the West cannot compel Russia to fulfill the Minsk-2 agreement in the near future, military force could again become an acceptable instrument of foreign policy, ready to be used by countries around the world. The political instruments used by the...