Russia Sanctions: 10 Lessons and Questions for What Comes Next

This week marks the first anniversary of not only Russia’s invasion of Ukraine but also the imposition of stringent sanctions on Moscow in response to its attack. These measures—and the many additional sanctions that have followed since then—are unprecedented: It is the first time since World War II that Western countries are targeting a major power such as Russia, making these sanctions a crucial test case for Western economic statecraft.

Sanctions, therefore, will remain a hotly debated topic as the war goes on. Their effects remain contested, from predictions that they would lead to a Russian economic collapse to the argument that they are useless and self-defeating. A closer look at the effectiveness and drawbacks of sanctions over the past year is therefore in order.

Here is what we have learned—distilled into six lessons (including some surprises) and four key questions for what comes next.

1. Sanctions are no magic bullet. They cannot produce results by themselves. They are only one item in the Western diplomatic toolkit, among others such as arms supplies and financial support. It is therefore important to have realistic expectations of what sanctions can achieve. In Russia’s case, they are a powerful way to constrain its economic, financial, and technological ability to wage war against Ukraine.

Sanctions, however, will not produce regime change in Moscow. History shows that this never works—just look at the failure of more than half a century of U.S. sanctions against Cuba. They will also not lead to Russia’s economic collapse. Not only is this unfeasible, given that Russia is the world’s ninth-largest economy. It would also not be in Western countries’ interests, since a Russian collapse would likely set off a global recession. Nor will sanctions change the Kremlin’s calculus. Russian President Vladimir Putin is convinced that he is waging an existential war against Ukraine and the West.

2. Sanctions need to have clear objectives. Sanctions on Russia are controversial. To some critics, they are worse than useless. These naysayers contend that the Russian economy has rapidly adapted, while Europe has been weakened by the loss of energy supplies. (Never mind that Europe’s energy crisis is not due to sanctions but to Putin’s decision to cut off gas supplies.) Supporters of sanctions, on the other hand, argue that these measures are working because they will gradually force the Kremlin to make difficult financial choices between waging war and preserving social stability.

Whether or not sanctions are effective, however, can only be judged against a set of well-defined objectives. The problem is that the United States and European Union have never presented a list of goals. This is problematic on at least two counts. First, a lack of clarity about what defines success fuels confusion over the measures’ effectiveness, which in turn helps the Kremlin spread its claims that sanctions do not work. Second, sanctions research shows that clear objectives are important for sanctions to achieve results. The sanctions imposed on Libya in the 1990s that prompted the country to dismantle its weapons arsenal are an example of sanctions focused on a clear outcome.

3. Western unity on sanctions has been faultless. Trans-Atlantic unity on sanctions has been surprisingly robust, especially given the long track record of U.S.-EU sanctions disputes. The coordinated freeze of part of the Russia’s central bank’s foreign reserves only a few days after the invasion was a brutal reckoning for Putin, who had bet that Western countries would fail to act cohesively. It’s hard to argue his reasoning was flawed: After Russia’s illegal annexation of Crimea in 2014, Washington and Brussels had often disagreed on sanctions, mainly because of Europe’s unquenchable thirst for Russian oil and gas.

The EU has also proved broadly united in its sanctions drive, managing to impose robust penalties quickly. This is remarkable, considering that these measures have to be unanimously adopted by all 27 EU member states, including sanctions critics such as Hungary. Another surprise for Putin was that Europe’s resolve did not weaken this winter amid high energy prices and fears of a recession. His bet backfired. Instead of dividing the EU, the Kremlin’s weaponization of energy supplies prompted the bloc to adopt previously unthinkable measures, including a ban on Russian oil imports.

4. Chinese firms are not going to Russia in droves. In 2022, sanctions mostly targeted Russia’s ability to import high-tech products, such as top-notch semiconductors and other parts that go into aircraft and cars. For Moscow, locating alternative suppliers is a priority. However, Chinese firms are not rushing to fill the gap left by Western businesses. China’s exports to Russia grew by 13 percent in 2022—a rate on par with Beijing’s other key trade partners. Last year, Russia absorbed only 2 percent of China’s exports, hardly a solid trade relationship. These data points do not capture smuggling, but illicit trade is unlikely to provide Russia with enough high-tech components for its vast economy.

Things look brighter for China’s imports from Russia (mostly oil and natural gas): Their value rose by 43 percent in 2022. Yet China’s energy imports from Russia may have already reached a plateau. In a bid to have a diverse mix of energy suppliers, China generally caps oil imports at around 2 million barrels per day from any one country—a number that Russia probably hit by October. In addition, few Chinese refineries can work with Urals crude, which contains high levels of mercury. The picture is similar for gas. Shipments through Power of Siberia, the main gas pipeline between Russia and China, cannot grow by much until upgrades to the pipeline are completed in 2025.

5. Russia has made statistics a tool in its disinformation war. Statistics are a key part of the Kremlin’s efforts to sow doubts on the effectiveness of sanctions. This tactic has three components. First, released figures are of dubious quality and tend to be revised frequently. Meanwhile, other statistics, for instance on external trade, are simply not made available. Second, Moscow is delaying the publication of indicators that make the economy look particularly bad—a practice reminiscent of Soviet times. Third, the Kremlin and its backers communicate heavily on the most positive forecasts, wrongly presenting them as hard truths and forgetting to mention that they are very far outside of the consensus view.

Overall, it is safe to assume that things cannot possibly be better than Russian data shows—and they could well be worse. In addition, two factors are artificially boosting Russia’s GDP. First, global energy prices have spiked since the start of the war, supporting growth and exports in 2022. Second, Russia has become a war economy, producing tanks, missiles, and other armament at a rapid pace. These activities certainly fuel headline growth figures but hardly result in a rise in Russian living standards.

6. Sanctions are biting, and things will not get better for Russia anytime soon. After long delays, Russia’s statistics service finally published 2022 GDP data in late February. According to Moscow, the Russian economy contracted by 2.1 percent in 2022. This number looks dubious, but even if Russia’s recession were twice as deep, it would be a much better outcome than the Russian authorities initially forecast: At the start of the war, Moscow predicted GDP to decline by as much as 10 percent in 2022. However, less bad than expected does not mean great. In December 2022, retail sales and industrial production registered the steepest year-on-year declines in almost three years, highlighting the fact that the Russian economy is not yet in recovery mode.

Growth data for 2023 will be deceptive, given the low base of comparison from 2022. Looking at the size of the Russian economy will be more informative. Here, things look bleak: Russia’s GDP will take around five years to recover to its prewar level. Sanctions are not the only cause of Russia’s economic stagnation; poor demographics and low productivity growth are other well-known issues. Sanctions will compound these weaknesses by accelerating the demise of Russia’s oil and gas sector, which is now deprived of the Western technology it needs in order to develop new fields in the Arctic region.

What’s next? To a great extent, that will depend on the answers to the following four questions:

1. Can the West tighten sanctions implementation and close loopholes? After rushing to draft sanctions in 2022, the United States and EU will seek to identify and close sanctions loopholes in 2023. Across the EU, harmonizing the interpretation of sanctions laws will also be a priority. (European sanctions are adopted at the EU level but implemented at the member state level.) To strengthen sanctions implementation, Western democracies will need to get non-sanctioning countries on board. They will focus their efforts on Turkey and Kazakhstan, which have become smuggling hubs for sanctioned goods going to and from Russia.

Western countries will also concentrate on further tightening Russia’s access to advanced semiconductors. These sanctions have a massive impact on the Kremlin. In the short term, Russia needs microchips to build the missiles it uses in Ukraine. In the long run, Russia’s lack of access to semiconductors will weigh on the Kremlin’s economic diversification efforts. Beijing will not be able to help Moscow much, since China faces similar restrictions on top-notch microchips.

2. Can Russia’s sanctions propaganda in the global south be countered? The Russian disinformation machine is working full steam to spread hoaxes about sanctions in the global south. Moscow’s propaganda seeks to sow doubts about the ripple effects of sanctions, falsely claiming that food and energy insecurity in emerging countries is the effect of sanctions and not the war and Russia’s Black Sea blockade. Sanctions are yet another element in Russia’s influence campaigns in the developing world: During the COVID-19 pandemic, for instance, Moscow claimed that Western countries were hoarding vaccines.

Tackling Russian propaganda will be another priority for Western countries in 2023. This will be easier said than done. Resentment against former colonial powers is strong in the global south, especially in Africa. Russia will also be able to score goals by claiming that Western states have double standards regarding military interventions. Moscow will not shy away from drawing dubious parallels between the 2003 U.S. invasion of Iraq and Russia’s so-called special military operation in Ukraine. The Kremlin does not care that its arguments are intellectually flawed. Sowing doubt is the primary goal.

The coordinated freeze of part of the Russia’s central bank’s foreign reserves only a few days after the invasion was a brutal reckoning for Putin.

 3. Will the United States impose secondary sanctions on Russia? Russia’s global economic clout, coupled with the need for sanctions to act as both deterrent and leverage, means that the United States and EU have not exhausted all the options in the sanctions arsenal. Western sanctions against Russia are not the most robust ever imposed: The sanctions against Iran between 2012 and 2015 were far more stringent. In Russia’s case, Western countries want to keep some sanctions firepower in reserve to deter Moscow from escalating the war even further. Keeping some of their powder dry would also give Western countries leverage in eventual peace negotiations, however unlikely they are at this stage.

Crucially, the United States has not yet imposed secondary sanctions on Russia. Such measures would force all businesses around the world to make a choice between the U.S. and Russian markets—a scenario in which most firms would certainly ditch Russia. Washington’s calculus on secondary sanctions has changed in recent months; forcing a global decoupling from Russia was not possible as long as Europe was dependent on Russian energy. However, the United States will tread carefully. Going down the secondary sanctions road would disrupt global commodities markets and give credence to Russia’s claims that sanctions are fueling energy and food insecurity around the world.

4. How can the West tackle sanctions resistance? Russia, Iran, China, and other countries at odds with the United States are doubling down on efforts to vaccinate their economies against sanctions. These measures have little to do with sanctions circumvention: Instead, they represent preemptive steps to render potential financial sanctions entirely ineffective. Such mechanisms include de-dollarization efforts, the development of alternatives to SWIFT (the Belgian cooperative that connects all banks across the world), and the creation of central bank digital currencies.

These innovations are dangerous. In addition to weighing on the effectiveness of sanctions, they give illicit groups access to financial channels escaping Western scrutiny. The fragmentation of the global financial landscape is not just the result of the recent proliferation of sanctions. It was always to be expected that increasingly powerful emerging countries would eventually want to develop their own financial channels. The rise in non-Western financial tools also mirrors the growing fragmentation of global geopolitics among a Western alliance, a Chinese-led bloc, and a third grouping of emerging countries that have yet to pick a side.