Before Russia marched into Ukraine last week, the conventional wisdom was that sanctions have limited impact on a nation-state, especially one as large as Russia. Now, however, that philosophy may need to be revisited.
The sanctions imposed in response to Russia’s invasion of Ukraine could do far more damage than Russian President Vladimir Putin ever imagined. The West is cracking down on Russia’s commercial banks, central banks, business and political leaders and industry, while such economic punishment used to take years to gradually implement when targeting smaller rogue states such as Iran and North Korea. A Biden administration official made clear on Saturday that the sanctions are designed to turn Russia into a global economic and financial pariah.
Yet like actual warfare, full-scale economic warfare would have repercussions the U.S. and its allies may not have foreseen. It is unclear whether sanctions will force Putin to change course, and they could have far-reaching negative effects on the West.
Putin has worked to reduce the ability of the rest of the world to interfere with Russia since 2014, when Russia was subjected to targeted sanctions over its annexation of Crimea. Russia’s current account and finances are in surplus, meaning there is no need for net borrowing from foreign or domestic lenders. Russia has a low level of foreign debt, a diversified international reserve size of $630 billion, a floating exchange rate and a largely autonomous central bank, which has set a target inflation rate of 4%. With this in mind, Russia has pre-emptively eliminated most of the vulnerabilities that typically trigger crises, including the kind Russia experienced in 1998.