Removed Diplomacy: Why U.S. Sanctions Against Russia Have Gone Stale

Sanctions against Russia are an ineffective substitute for diplomacy,

Since 2014, Russian and American diplomacy has been defined by economic sanctions. This has become the default, expected option for US policymakers – but Russia has refused to concede, repent and ask for forgiveness. The US had hoped Russia would experience just enough economic hardship that they would revert their course, retract their reunification with Crimea, and end any involvement in Eastern Ukraine. Almost seven years later, there is no evidence to suggest that Russia has any intention of buckling under the pressure and denying its national interests.

What the United States has failed to realize is that sanctions work on countries that are highly dependent. Russia is one of the most independent countries in the world and has become more economically independent as a result of the US sanctions. Russian domestic industry has flourished since sanctions were first imposed. Sanctions imposed by the United States are predicated on some combination of the following: either the United States has enough of an economic relationship prior to sanctions, so the loss of the United States as a trade partner alone is extremely detrimental to the target economy, or the United States is able to influence other countries who share a larger economic relationship with the target country to carry out the same policies.

Venezuela is a country that has been grievously affected by US sanctions, as one would predict, given the country’s dependence on the exportation of crude oil, particularly to the US. With oil comprising roughly 95% of exports and their petroleum industry making up 25% of GDP overall, Venezuela is considered very resource-dependent when engaging in international trade. Venezuela has also been plagued by Dutch Disease, which has largely prevented their economy from diversifying for the past century. In 2013, the United States brought in 29.5% of Venezuelan exports and delivered 23% of the countries imports. Strangely, despite the sanctions imposed in 2014, Venezuela has grown more dependent on the United States. By 2018, 39.2% of Venezuelan exports and 52.9% of Venezuelan imports were in trade with the US. With this increased dependence on the United States after the implementation of US sanctions, it is no wonder that Venezuela has been increasingly devastated beyond comprehension since sanctions were first imposed in 2013. Venezuela’s trade balance through this period has consistently been in surplus. However, the volume of trade has shrunk $101.9 billion from $143.76 billion in 2013 to $41.86 billion in 2018. The country has been rocked by astronomical inflation, reaching as high as 344,509%. Is Russia the same way? Nope – This is due in part to Russia’s Soviet legacy. Their vast territorial area and tough climate have also helped the Russians to develop a much more diverse and independent economy. Additionally, the United States is simply not one of Russia’s main trade partners.

As illustrated by data from the Observatory of Economic Complexity, Russia and Venezuela couldn’t be more unalike. Russia’s largest trade partners for the past 20 years have been Germany and China. In 2014, when the sanctions were first imposed, Russia’s economy and international trade figures were at an all-time high. In that year, Russia exported $454 billion and imported $296 billion, a trade surplus of $158 billion. In this year, the United States only accounted for 5.58% of Russia’s imports and 3.87% of Russia’s exports. In 2018, with even stricter sanctions imposed, Russia exported $427 billion and imported $231 billion, increasing the trade surplus from $158 billion in 2013 to $196 billion in 2018. Russia’s trade balance from 2013 to 2018 still experienced a shrink of $92 billion. A key difference between Russia and Venezuela is that from 2014 to 2018, Russian trade decreased by just 12%, compared to Venezuela’s loss of 71%. What does Russia have working to its advantage that Venezuela is lacking? Remember, for sanctions to work they require high economic dependence from either the country issuing the sanctions.

Russia and Germany have a bit of interesting codependency on one another. The Nord Stream project has been a source of tension between the US and Germany, a recent Bloomberg article points out that there is an anticipated clash between newly elected president Biden and German Chancellor Angela Merkel. The German chancellor openly supports the completion of the second pipeline, because the project is a means for securing German influence over Western Europe, as they will maintain their status as energy distributors once the pipeline is complete. Merkel also understands that the German economy depends on Russian energy. Nord Stream has become the only option since the Ukrainian pipelines have gone cold. Merkel has received criticism from those close to her, including from Norbert Röttgen, the head of the foreign affairs committee in the German parliament. In September of 2020, he is quoted saying “We need to respond with the only language that Putin understands, the language of natural gas” Meaning the one thing that Germany has at its disposal is the ability to back out of the Nord Stream deal to pressure the Kremlin into correcting their behavior to satisfy western leaders. The only problem is that Germany is dependent on Russian natural gas. Germany has been falling behind other European countries in environmental efforts and has grown more dependent on coal power to supplement energy demand when renewable sources fail to meet the needs of the German people.

It’s important to consider is the continuation of the oil trade between the Netherlands and Russia. If the west is so concerned about preserving its ideals, why hasn’t this trade been pressured? Likely because Nord Stream 2 is a relatively recent development but the arrangement between the Dutch and Russia has been around for some time. What is odd, however, are the numbers. Between the Netherlands and Russia, there is hardly a difference in the dollar value of Russian exports in various petroleum products, it has maintained an average of about $33 billion for the past decade. This spans time both before and after sanctions. How does the west expect itself to be taken seriously if it is hyper selective about the battles it chooses to fight even when concerning sanctions. What is more comical about this particular deal is that the Netherlands supplies much of Western Europe’s oil. Henceforth, further defending the point of Western Europe's dependence on Russian energy.

In conclusion, Russia has proven very resilient in the past six years. It shouldn’t be implied that the sanctions have had no effect on the Russian economy, however: Russians have faced pervasive negative externalities such as inflation and decreased average national income, despite the sanctions having “designs” to only affect a select group of individuals. Even so, the Russian economy is growing and proving to be insulated and resilient against increased trade barriers. At first, the sanctions appeared to have a monumental effect on the Russian economy, shrinking it by 44% from $2.292 trillion in 2013 to $1.272 trillion in 2016. Since 2016, however, the GDP has steadily stabilized and gained back 42% of losses from 2013 figures at $1.7 trillion as of 2019. It can be surmised that if the US continues to impose sanctions on Russia for years to come, the Russian economy will still continue to grow, develop, and become more independent.

Michael Anderson is a Policy Analyst at the Russian Public Affairs Committee (Ru-PAC). This article was originally published with the Russian International Affairs Council.