Almost a year and a half into Russia’s invasion of Ukraine, sanctions imposed by the West have damaged, but not devastated, Russia’s economy. The current measures are diverse and unprecedented. The Russian ruble is hitting new lows, causing Russia to struggle. In a report we recently prepared for the RAND Corporation on international sanctions, we found that sanctions have shrunk oil and gas revenues in the federal budget and paralyzed essential Russian industries such as auto manufacturing and metallurgy.
But the West can do more to both ensure that existing measures are effective and increase economic pressure on Russia to degrade its warfighting capability, thus giving Ukraine a chance at prevailing with the support of a united Western alliance.
First, the U.S. and its allies can increase their pressure on Russia’s energy sector. The current EU embargo and the G7’s price cap on Russian oil have lowered revenues, which make up a major portion of Russia’s budget and war spending. However, these measures have not been severe enough.
To further deplete Russian revenues, the G7 should lower the price cap on Russian crude oil well below its current level of $60. Western estimates suggest Russian oil production costs are as low as $20 to $25 per barrel, while Russia claims this figure is $44. Regardless, a notable profit margin remains.
Second, the West should explore incentives to persuade nations on the fence to join the sanctions regime and enhance the efficiency of export controls. Some non-participating countries are helping Russia circumvent the sanctions — Russia’s continued trade with China, Iran, Kazakhstan and Turkey allows it to produce the equipment needed to sustain the war; Ukraine continues to find Chinese components in Russian weapons; and Iran became Russia’s top military supplier in mid-2022, providing Russia with hundreds of drones. Kazakhstan and Turkey allowed Russians to establish shell companies for the import of drones, microelectronics and other restricted items used for weapon production.
While convincing China and Iran to change policy is unlikely, the U.S. and its allies hold greater influence over Turkey and Kazakhstan. In the case of Kazakhstan, Western nations should aid in developing alternative oil export routes that bypass Russian infrastructure, thereby increasing Kazakhstan’s energy sovereignty. Boosting energy partnerships benefits both sides: The EU diversifies its energy sources, while Kazakhstan reduces its dependence on Russian oil infrastructure.
Third, the U.S. and its partners can do more to target Russia’s wealthiest citizens, especially those close to the government. Early financial sanctions froze oligarchs’ Western assets, but after the initial financial shock, Russia’s elite class regained $152 billion by the end of 2022. While this wealth is largely confined to Russia, oligarchs have found ways to operate around sanctions.
More effective means of sanctioning should expand those targeted to include all family members, including extended family, and wealth managers who assist oligarchs in avoiding sanctions by laundering and redirecting their funds. Targeting these money laundering networks has the potential to inflict genuine financial damage against Russian oligarchs. This will likely require going after individuals living within Western nations who are adept at navigating financial law, so sanctioning them could be complicated and costly.
The West should focus on communicating realistic expectations for sanctions. The goals stated by politicians at the beginning of the invasion led to hopes of rapid and dramatic effects on Russia’s economy. However, these did not match the actual objectives set by the policymakers implementing sanctions. By communicating realistic goals, politicians will temper public expectations.
Sanctions damaged but did not devastate Russia’s economy and war machine. After the initial shock, Russia has learned to circumvent sanctions through its partners and various loopholes. But sanctions did succeed in decreasing the value of the ruble, curbing Russian oil revenues, and preventing some weapons from flowing into Russia that could be used against Ukraine. The effect of sanctions can be enhanced to help inflict economic pain on Russia and bring this war to a favorable end. However, international actors need to improve sanctions and see them as a part of a comprehensive, holistic approach that includes military assistance, humanitarian aid and political support.
Yulia Bychkovska, Ana Mikadze and Jacob Saionz are the authors of “Working Hard or Hardly Working? Understanding the Sanctions’ Effects on Russia’s Economy and War Efforts,” a Syracuse University Maxwell School Capstone Project conducted for the RAND Corporation. They recently completed their Masters of Public Administration degrees at Syracuse.