8 August 2022

Let’s not pretend sanctions can win this war – Putin will only be defeated on the battlefield


José María Aznar, the shrewdest and most effective of modern Spanish statesmen, once privately told Fidel Castro that his regime had survived the collapse of Communism in 1989 for only one reason: the US blockade. American sanctions, Aznar suggested, had allowed the comandante to blame his people’s squalor, not on socialism, but on the yanqui siege. As Aznar tells it, the old monster responded by winking and raising a finger to his bearded lips.

When have economic sanctions ever resulted in regime change, or in significant policy change? They did not prevent Kim Jong-un pursuing his nuclear ambitions. They did not bring down the ayatollahs. They did not topple Saddam – on the contrary, they strengthened his malign grip on Iraq, enabling him to enrich selected cronies through the oil-for-food boondoggles. 

Nor, contrary to myth, did they break apartheid which, as numerous studies have concluded, came to an end partly because of the resistance of South Africans themselves and partly because those who had once upheld it could no longer look themselves in the mirror.

Sanctions generally fail because they hurt the wrong people – ordinary folk in the country that applies them and in the country that they target – while creating a siege mentality that rallies support to even the most autocratic regimes. There are cases where they have worked – typically when there is limited goal, such as release of a political prisoner – but, more often, they are applied less from a measured calculation of their likely effects than from the desire to be seen to be doing something.

I have so far written in general terms because, once a specific country is mentioned, the issue of whether sanctions work tends to be subordinated to that of whether we approve of the regime in question. When people say ‘We need sanctions against Country X’, what they generally mean is ‘I dislike Country X’. For some, Country X might be China, for others Burma or Venezuela or Saudi Arabia or Israel. But hardly ever, in any of these cases, is there a cool-headed assessment of what sanctions would practically achieve.

In the current climate, to question the effectiveness of economic measures against Russia is tantamount to treason. Last week, Simon Jenkins argued in a Guardian column that trade sanctions – as opposed to military aid, which he supported – were ‘the most ill-conceived and counterproductive policy in recent international history’. They had pushed up the price of oil, allowing Russia to amass a record surplus by selling to China and India, and so making the rouble one of the world’s strongest currencies. It was not Russia that was suffering, argued Jenkins, so much as the rest of us, ‘starved of gas, grain and fertiliser’.

Jenkins was exaggerating for effect, as columnists sometimes do; and he was wrong on several points. But his critics were not exercised by the details. Rather, they were outraged by the very idea of ‘going soft’ on Russia. The letters that poured into the Guardian were revealing. Even if sanctions were wholly ineffective, argued readers, we should still apply them to distance ourselves from ‘immoral behaviour’. One letter-writer, a Ukrainian, said that while he was reading Jenkins’s article, his wife had been weeping over the deaths of Ukrainian POWs: ‘While our people die from Russian missiles, there’s no room for ‘Yes, but …’ We just don’t get that. We have a right to ignore all those ‘buts’.’

This, of course, is why sanctions happen. It is human nature to begin with our gut feelings and then work backwards. The fact that sanctions might be, not just useless, but actively counterproductive, gives way to the emotional imperative to do something – anything.

I strongly support the independence and integrity of Ukraine. I am proud that Britain has, since 2014, been the foremost military ally of that brave country. We should let Ukrainians have whatever armaments they need to recover their lost territory, including military aircraft. If so much as a single Russian toecap crosses into Nato territory, we should consider ourselves in a state of war.

It is precisely because I want to see Putin defeated that I dislike talk of letting sanctions do their work. Russia will win or lose on the battlefield. It has so far suffered around 60,000 casualties, including 15,000 fatalities. In a country whose birth rate collapsed in the 1970s, such losses are calamitous. Many of those 15,000 will have been only sons. At the same time, more than 400,000 younger and more educated Russians have emigrated since the invasion. A nation of pensioners cannot easily sustain such losses.

Not that Putin cares. His defenders, including a certain kind of Trumpy Westerner, talk of his love for Russia, but he is quite happy to rain missiles on the Russian-speaking populations of southern and eastern Ukraine. Putin is not interested in the welfare of ordinary Russians, but in his own survival – quite literally, since dictators generally leave office riddled with bullets.

An autocracy, provided it pays the security services, can withstand a lot of things. It can exile opponents, close down critical media, murder dissidents. It can shrug off international condemnation. But it cannot survive military defeat. Let’s call it the Galtieri Principle: a strongman who loses a war fails in his own terms.

What will do for Putin in the end are not shortages at home – a people whose grandparents lived through the siege of Leningrad are not going to throw in the towel because McDonald’s is closed – but Ukrainian advances, backed by Western matériel.

For what it’s worth, I think Jenkins got much of his analysis wrong. Yes, Russia has a record trade surplus, but that owes more to the total collapse of imports than to the rise in energy export revenue. And, yes, the rouble is at a record high at the official exchange rate – but it has ceased to be a convertible currency. Russia has implemented one of the toughest capital control regimes in the world, making it effectively illegal to buy dollars. We are, in a sense, almost back in the pre-1990 days, when the stated value of the rouble bore little relation to its actual price.

Nor can Russia simply switch its gas sales to Asia. Its pipelines begin in Western Russia and end in Europe. Yes, there are Asian pipelines under construction, but most are years away from completion. Oil is a bit easier to shift, and exports to China and India have indeed surged. But these countries, well aware that their seller has limited options, have succeeded in knocking around a third off the price.

In any case, no country can be blasé about the mass withdrawal of foreign investment. According to Yale University’s School of Management, 12 per cent of foreign companies have scaled back their Russian operations, 35 per cent have suspended them and 24 percent have withdrawn entirely – not in response to sanctions laws, but of their own volition. There is no question that sanctions are affecting the Russian economy.

But why assume that this will lead to a significant shift in policy – any more than similar sanctions did in Cuba, Iraq and the rest? A major study of sanctions regimes by the Peterson Institute found that they had some success in 34% of cases – generally where the aim was limited and proportionate, and where the sanctioned country was relatively democratic. In the other 66%, the problem was not that they made no difference, but that tyrannical regimes could ignore them.

As the report’s authors put it: ‘The economic impact of sanctions may be pronounced, but other factors often overshadow the impact of sanctions in determining the political outcome.’

Of course, the political imperatives work both ways. Just people in the sanctioned country bridle at the thought of giving in, so those in the sanctioning states find it hard to back down. Listen, for example, to the language with which the Brussels justifies its embargoes. It evidently sees them more as an opportunity for further European integration than as a way to budge Putin. Here is the EU’s foreign minister, Josep Borrell:

‘Europe must become a real power, as I have been calling for since the beginning of my mandate. Faced with the invasion of Ukraine, we have moved from debates to concrete actions, showing that, when provoked, Europe can respond.’

If Putin were truly bothered by the thought of the EU refusing to buy his energy, he would not have cut its supplies himself. His action reminds us of a fundamental truth about trade, namely that there is no such thing as a one-way sanction. Not being able to sell is costly; but not being able to buy is usually worse.

As Adam Smith pithily explained, “consumption is the sole end and purpose of all production.” Exports are of no value except insofar as they pay for imports.

This view, uncontroversial among economists, is counter-intuitive. Most people assume that a nation’s economic health depends upon its having a trade surplus – when in fact, there is no correlation between growth and balance of trade. Hence, for example, the surreal argument we used to hear during the Brexit negotiations to the effect that we had to make concession X or Y lest the EU refuse to trade with us. It is amazing how many MPs, newspaper editors and pundits seem to imagine that trade is an act of generosity.

The same fallacy distorts our attitude to sanctions on Russia. To pluck an example at random, the EU’s semi-official think tank, recognising that walking away from Russian gas would be extraordinarily painful, suggests tariffs as a half-way house. But tariffs almost always cause the most harm to the nation (or customs union) that applies them. They would be paid, in this as in every case, not by Russian exporters but by EU consumers. 

No, we keep coming back to the battlefield. What will break Putin’s malign despotism is losing – which currently seems a likely prospect, provided the West continues to give Ukraine practical support.

Putin’s calculation is that he can halt the West’s support for Ukraine by cutting off its energy supplies completely as winter approaches. That action, he believes, will force European leaders to push Ukrainians into a dishonourable peace. In other words, Putin himself sees a ban on oil and gas sales – a self-sanction, if you like – as the key to victory. That should give us pause for thought.

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Daniel Hannan is an author and columnist. He teaches at Buckingham University and is a member of the Board of Trade.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.