More sanctions are needed to bring Putin to the negotiating table

The Russian invasion of Ukraine has shifted from a failed lightning campaign to shock leaders in Kyiv to a merciless war of cities. As of March 2, as many as 2,000 civilians have been killed and Russian forces have launched hundreds of ballistic and cruise missiles into Ukraine alongside constant shelling and airstrikes on urban areas, despite economic sanctions likely to cut the Russian economy by 35 percent next quarter. The fanfare over the existing sanctions regime is premature and the economic cost of Russian President Vladimir Putin’s war in historical perspective is in line with the 1998 default, 2008 global financial crisis and, more recently, the 2020 COVID shock. The only way to end the war in Ukraine without risking a broader conflict is by escalating economic sanctions. 

There is a new stability-instability paradox at play in the war in Ukraine. Instead of risking a direct military confrontation and the prospect of nuclear escalation, the West has opted to rely on defensive arms transfers and economic sanctions. To compel Putin to stop his war, the United States and European nations unleashed sanctions designed to turn oligarchs against Moscow and isolate Russia from the global financial system, restricting an estimated 80 per cent of Russian banking sector assets.

Yet, this coercive campaign largely has spared the energy sector. Seven Russian banks were barred from SWIFT, except for energy trades. Sberbank, Russia’s largest lender, and Gazprombank have not been included in the list because they are the main channels for payments for Russian oil and gas, which European Union (EU) countries are still buying and rely on, especially Germany and Italy. As a result, Russian banks are exiting the European market but remain major financial institutions in Moscow ready to support Putin’s war by facilitating energy sales abroad.

Despite stopping short of hitting the Russian energy sector, the sanctions regime is a radical escalation from prior episodes of economic warfare. On Feb. 28, the Office of Foreign Assets Control (OFAC) issued new Directive 4 under E.O. 14024, “Prohibitions Related to Transactions Involving the Central Bank of the Russian Federation, the National Wealth Fund of the Russian Federation, and the Ministry of Finance of the Russian Federation.” OFAC also designated three entities critical to managing one of Russia’s key sovereign wealth funds: Russian Direct Investment Fund (RDIF), its management company, and one of the managing company’s subsidiaries. By blocking these entities, OFAC is terminating yet another route through which Russia has benefitted from access to the U.S. financial system. Personal sanctions are being imposed on Putin and Russian Foreign Minister Sergei Lavrov by the U.S., EU and United Kingdom, and 351 Russian MPs are being targeted by the EU. Additionally, Germany has halted approval on Russia’s Nord Stream 2 gas pipeline, a major investment by both Russia and European companies.

The devastating sanctions imposed on Russia have begun to create cracks in the Russian economy. Still, these sanctions have not weakened Russia enough to stop Putin from continuing the current invasion plan. Since external military intervention beyond transferring defensive weapon systems, such as anti-tank guided missiles and shoulder-fired surface-to-air missiles, are unlikely, all the West has left is vertical escalation in the economic domain. Putin is unlikely to care about United Nations denouncements, war crimes investigations, or the fact that Russia was barred from the United Nations Federation of Cats. If doping scandals didn’t disgrace Moscow, its unlikely that other shaming acts will. Economic pain is the only alternative to a broader war to stop the suffering in Ukraine.

First, Washington should get partner nations to expand the Russian oil equipment-export ban. It is not enough to ban high-technology exports related to defense. The United States recently imposed a ban on Russian technology exports targeting Russia’s oil-refining capabilities. The U.S. should begin discussions with all partners to participate in this ban and limit Russia’s access to vital technologies for processing and refinement. This ban could incrementally weaken Russia’s status as a lead supplier of energy over time and release its powerful hold on other nations, all while protecting European and American consumers and not reducing the global supply of energy.

Second, the West should cut off all Russian banks from SWIFT. Only seven Russian banks are off SWIFT. All other Russia’s banks are on, including giants Alfa Bank, Gazprombank and Sberbank, even though they were included in the sanctions designation by the U.S. Treasury Department on Feb. 24. Sberbank has twice as many assets as any other bank in Russia, the world’s largest energy exporter. It holds around half of the country’s deposits, with more than 100 million retail clients.  Sberbank, Russia’s largest lender, and Gazprombank do not face the EU asset freeze because they are the main channels for payments for Russian oil and gas, which EU countries are still buying. Alfa-Bank stated it was continuing to carry out cross-border transactions via the SWIFT global interbank payments system. In other words, Russia’s largest banks were spared. 

Third, Congress should consider new legislation to limit Russian energy imports. Russia exports 8 percent of the global supply of energy. While the United States only imports 3 percent of its oil from Russia, taking the lead on banning imports sends a clear message and encourages partners to do the same. U.S. domestic producers can likely cover the difference, and while climate change is a real concern, the survival of Ukraine is a more immediate matter.

Russia is standing on the wrong side of history. On March 2, the U.N. General Assembly voted 141 in favor and 5 opposed, with 35 nations abstaining on the draft resolution “Aggression against Ukraine,” which was co-sponsored by 94 countries to demand that Moscow stop fighting and withdraw its military force. Sadly, Putin is unlikely to heed this call. Because of the risks of a larger war, the West will need to find ways to ratchet up the economic pressure.

Benjamin Jensen, Ph.D., is a senior fellow at the Center for Strategic and International Studies (CSIS). Ivan Vinnyk, the former secretary of the Ukrainian Parliament Committee on National Security and Defense, and Carolina Ramos, a research associate at CSIS, contributed to this article.