Deep Dive: Can Economic Sanctions Work Against Russia? At What Cost?

By Amandeep, Garima & Yuvaraj

Legality of Economic Sanctions Under International Law

All the States under international law are supposedly bound by the Statute of the International court of Justice (ICJ) which helps to ascertain the legality or illegality of the state conduct.  Article 38 of the Statute recognizes four primary sources of international law, namely, treaties, international customs, general widely recognized principles of law, the decisions of national and lower courts, and scholarly writings. Among them, treaties and international custom constitute the two principal sources of international law. Thus, to ascertain the legality of economic sanctions, we have to resort to these sources.  Basically, economic sanctions have historically been used by a dominant state to assert influence over the other states by influencing domestic and foreign policies with the other states.  This is a type of excessive force imposed by a country over another. The scope of “force” has been enshrined in Article 2(4) of the United Nations Charter. It reads as “All Members shall refrain in their international relations from the threat or use of force against the territorial integrity or political independence of any State, or in any other manner inconsistent with the Purposes of the United Nations.

 However, it still lacks clarity about whether such force included non-military force, i.e., economic coercion.  The text has been given a narrow interpretation to only include those type of forces that include military threat. This was seen in the majority view taken by the court in the decision involving United States imposition of trade embargo against Nicargua. The majority view was of the opinion that force did not include economic coercion. Nevertheless, even if Article 2(4) of the Charter is given a wider interpretation to include economic forces as well; it would be inconsistent with article 51 which recognizes the right to self defense against military attack. Since article 51 would only recognize self defense in response to armed attack, it would leave the targeted country hopeless as it would not be able to take measures against illegally instigated economic forces. This will indeed be against the basic principles of sovereignty and self defense embodied by article 51. Hence, in terms of legality, there is no specific international law that excludes or penalizes economic sanctions and states continue to use it as a powerful weapon. Moreover, leaving no legal recourse for the targeted country. Further, the country on which such sanctions are imposed have to bear heavy ramifications in terms of economic costs and the extent of sanctions imposed on them.

Consequences for the Global Economy

The United States along with its allies, the European countries had imposed a slew of harsh sanction measures to cripple the Russian economy and thereby, stop the source of funding for the Ukrainian war.

  1. The freezing of $300 billion dollars of Russian foreign exchange reserves during the war has raised questions about the reliability of dollars as the default reserve currency across the world. According to Barclays, this economic decision can lead to be a decrease in the holdings of USD by upto $1.7 trillion by 2026. Countries are increasingly looking towards exploring other stable currencies such as Canadian dollar, Singapore dollar, Euro etc. This will weaken the economic dominance of the United States and subsequently will have an impact on its international reputation as a declining superpower.
  2. During a war, the popularity of the leaders serves an important role in assessing the overall mood of the country. It would be beneficial to the US and European media if they can broadcast information or spread the propaganda that ordinary Russians are turning against Putin for raging a war against Ukraine. In this process, countries can gather more international support for their retaliatory actions against Russia which include heavy sanctions and even future military interventions. 

However, the harsh sanctions have unfortunately enhanced the popular support for Putin to a staggering 83% and similarly a 17% rise has been observed in respondents who are under the impression that Russia is working towards the right direction.

  1. Although the size of the Russian economy is meager compared to other smaller countries like France and Germany, it depends on the exports of petroleum and defense products. In 2019, Russia was the second-highest exporter of petroleum in the world and some countries like Finland, Hungary and Slovakia import more than 50% of their oil needs from Russia. As a result, from the beginning of the war, a possible embargo on Russia crude oil raised the international prices of petroleum to an all-time high of nearly $140 per barrel. This endangered the energy needs of most countries to varying extents and resulted in inflationary tendencies around the globe, hurting the poorer countries the most.
  2. According to Food and Agricultural of United Nations, Russia contributes 20% of the world’s wheat export while Ukraine is responsible for 10% of the trade. With Ukraine’s supply capacity severely damaged due to the war in its eastern front, sanctions on Russia have temporarily paused its exports to Europe. This has pushed up the global prices for wheat and wheat futures had rallied as much as 8.7% in a single day. This deeply hurts the food security of low-income countries which depend mostly on wheat and has an impact on their poverty alleviation targets. 
  3. Russia along with its ally Belarus, accounts for more than 40% of the global potash exports, which is an essential fertilizer used to boost agricultural production. Furthermore, Russia has an export share of 22% in ammonia, 14% in urea and mono-ammonium phosphate in world trade. Even the US understands the significance of these nutrients as it has strategically excluded these fertilizers from its harsh sanction measures. Yet the sky-rocketing prices have created a sense of global food crisis and Peru has already declared a state of emergency to combat rising food insecurity.

Historical Trends and Efficacy of Sanctions

According to Richard N. Haass, an eminent American thinker on foreign policy affairs, the history of economic sanctions has been a mixed success. There are important lessons to be drawn from past sanctions regimes which have had missed results themselves. For instance, in the case of sanctions being imposed upon Pakistan for conducting nuclear tests, and on China for encouraging proliferation, it can be reasonably argued that the sanctions may only work against the supplier country, id est, China in this case. This is because while Pakistan might see its nuclear weapons program as a means to its national security and survival, the stakes are much less for China to risk a disproportionate loss in terms of trading benefits with the west.

There are nuanced observations to be gathered from previous sanctions regimes, particularly in Iraq, Libya, Cuba, Haiti among others. Sanctions in these cases have required broad international support, arguably similar to the one enjoyed by the current round of sanctions against Russia. While there is no UN committee administering these sanctions, the band wagoning of the western world in support of these sanctions has dealt a pretty comprehensive blow to the Kremlin. It has China to bypass some of the effects, but that is as far as it goes for now.

Another important lesson from history is that it is difficult for economic sanctions alone to deliver the desired results in a short time period. This is evident from the fact that travel bans and listing of targeted entities does not really stop an invading army in its tracks. The Russian offensive running behind its timetable is not a direct outcome of sanctions, but a host of other factors including logistical and planning constraints on the part of the Kremlin. However, now that the offensive has effectively stalled for the next two or three months, there is an argument to be made that the sanctions will make it progressively harder for the Russian economy to replace Putin’s losses.

The law of unintended consequences would surely apply in the realm of sanctions, as is evident from the above discussion on global headwinds originating from the effect of the sanctions against Russia. At the same time, if history is our guiding light, according to Haass, authoritarian dictators ranging from Saddam Hussain to Kim Jong Un are able to hunker down and withstand the bite of sanctions. The sanctions regime against Iraq may have weakened that country’s military power over time, but it came at a catastrophic cost in human hardship and suffering as the government “passed” on the sanctions to its citizens’ lives. Humanitarian aid indirectly suffered, which exacerbated the already grim situation.

Going forward, it is evident that actions such as asset freezes and the denial of SWIFT payment systems are literally swift and consequently effective blows against any state actor. Russia had built up its reserves looking forward to this war, and now that major war chest sits blocked in western banks. Such purposeful actions have strong signaling effects, and produce a stronger deterrent against further aggression.

Conclusion

There is a need to put in greater thought into the design and implementation of sanctions regimes, preferably through multilateral institutions that command the legitimacy of the international comity of nations. Besides, accountability measures such as strong monitoring and annual impact statements can soften the blow from sanctions for the imposing countries, strengthen the effects on the target and hopefully help us balance the tightrope walk on this serious and blunt foreign policy instrument. While the mandated use of aircraft and missile systems accomplishes the use of decisive and coercive force quite well, sanctions need to be used as the surgical instruments that can hit transgressors where it hurts the most, their economic and decision-making jugulars.

Amandeep and Yuvaraj are students at Ashoka University; Garima is currently pursuing law at Jindal Global University.

Image credits – Financial Times

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