Western governments have united to impose a number of severe economic sanctions against Russia in retaliation for its violence in Ukraine, including the latest announcement that the United States is revoking Russia’s “most favored nation” status which will impose new trade tariffs. The moves were no surprise.
The United States and its Western allies have increasingly turned to sanctions, investment bans, embargoes and other forms of economic warfare over the past two decades.
But sanctions and economic warfare have unintended consequences. They can divert from diplomatic mediation and dialogue. They also have a price for those who apply the sanctions, as well as for third parties who may be indirectly affected by the sanctions.
The desire to use these financial tools is understandable, especially by the US government, because it means avoiding armed conflict. After two decades of war in the Middle East and Afghanistan, economic warfare is more palatable to war-weary Western societies than boots on the ground.
Powerful nations often use economic warfare measures to avoid lengthy or difficult diplomatic negotiations, or to weaken the target country of the negotiations. Sometimes countries impose sanctions to buy time or to strengthen their bargaining power.
However, sanctions and economic embargoes are also imprecise tools – even the highly targeted interventions on bank accounts and financial flows that the US government developed after 9/11 to combat terrorist financing. They also have side effects, which may not be predicted in advance.
Research finds that the unintended consequences of economic sanctions and financial warfare measures are difficult to predict initially – and the more severe and comprehensive the sanctions, the greater the unintended consequences.
Consumers in North America and Europe are now seeing it in soaring gasoline prices. More inflation and supply problems are looming in Western economies as sanctions against Russia take effect.
The developing world is also feeling the impact of war on grain supplies and the unintended effects of sanctions on soaring food and other commodity prices. Food shortages will again destabilize societies in the developing world, as they have done in the past with the food riots in Egypt in 1977, 1984 and as recently as 2017.
Food prices will be impacted
Countries in North Africa and the Middle East are already on high alert as war and rising wheat prices cut their supply of staple grains from Ukraine and Russia. South Africans are concerned about soaring energy and bread prices, which will hit the poor particularly hard even as they attempt to recover from COVID-19, and about the more than 200 South Africans (mostly students) fleeing Ukraine for security reasons.
But there are other inherent dangers. The overreliance on sanctions and economic warfare measures has led to strategic complacency and avoidance of negotiation by the governments of Western nations.
Announcements of sanctions against Russia are coming fast and furiously. Politicians are eager to announce their final punishment of Russian President Vladimir Putin, Russian oligarchs and the Russian people.
As a Canadian diplomat, I witnessed the intended and unintended effects of US sanctions on the assets of North Korean entities at a Macau-based bank in 2005. I am currently researching the unsuccessful use of financial sanctions Americans against Hong Kong and China in response to the implementation of the national security law in Hong Kong. I fear that the wave of economic sanctions against Russia lacks strategic clarity. Simply saying that the sanctions are meant to punish Putin and Russian elites for their actions is not a serious strategy.
How will impacts be measured?
Other questions need to be answered: what combination of diplomatic tools are sanctions and economic warfare part of, and for what purpose — what exact change in target behavior? When will we know that economic warfare has worked? How do governments track effects, intended and unintended? When will the measures end and how?
If the goal is a stalemate or to aid Ukrainian efforts to push back forces in Russia, how likely is that to be achieved given the asymmetry of the armed forces of both sides?
Or is the goal even broader, like destabilizing Russia to regime change? This too could have unintended consequences, especially given the failure of Western governments to manage regime change in smaller countries like Libya, Iraq and Afghanistan.
What if sanctions, investments and SWIFT bans, embargoes and arms transfers don’t work? Is there a point where the cost of human life is too high – in Ukraine or elsewhere?
If the Russian military succeeds, will economic sanctions remain indefinitely? Although some may make this argument, it would be the end of the globally integrated economy of the past 40 years, especially if China were somehow drawn into the conflict.
China would likely attempt to negotiate a cessation of violence, but would not cease all financial dealings with Russia. This could lead China to develop alternatives to SWIFT and US dollar payment systems.
Read more: Why China could become a mediator in the negotiations between Russia and Ukraine
The end of an integrated global economy?
One of the truths of the world order since the 1980s is that the world was increasingly open and integrated – particularly the global economy, but also socially to a large extent.
Political left and right social movements raged against the globalized world. But there were no major wars between military superpowers in the eight decades following World War II.
The world order is now undone by all sides.
It is time for the major world powers to think seriously about how to return to diplomacy, as unpleasant as it may be at this stage. While it may seem lukewarm to call for mediation and dialogue, cooler heads are needed to work towards a ceasefire and to get serious and strategic in the search for a negotiated solution in Ukraine. Exit ramps must be found from the escalation of violence.
Sanctions, embargoes, financial bans and dead-end arms transfers are not the solution, tempting as they are to Western governments. Further escalation only leads to the unthinkable.