Sanctions on Russia slow to bite as experts call for tougher “package” to end Putin's war

As Russia continues to make gains in eastern Ukraine some analysts say war fatigue could set in and public for sanctions against the government of president Vladimir Putin will weaken.

But as the war drags on and the cost mounts – for both sides – economic sanctions are slowly beginning to bite, with painful results for ordinary Russians, experts say. “ Everybody is now realizing this is going to be a long war,” said Erich de la Fuente, a Miami-based international relations professor at Florida International University (FIU), who is an expert on Ukraine.

De la Fuente was in the Netherlands in late June to receive his PhD in governance and policy analysis from the University of Maastricht, before traveling through Spain, Ukraine, Poland, Latvia and Lithuania. “You can start sensing the fatigue, in western Europe. Prices are getting high. People don’t see over the horizon,” he said.
“But when you move out east their commitment is fierce. Everywhere you go there are Ukrainian flags and refugee families being taken in,” he added.

In Lithuania (population 2.8 million), a crowdfunding campaign last week raised a whopping $6 million in donations to buy a Turkish military drone for Ukraine military. "We showed the world what a small united nation can do”, Andrius Tapinas, one of the organizers of the fundraising campaign, told local media.

Russia's existential threat is felt in Eastern Europe

Speaking by phone, De la Fuente said a friend he was staying with in Lithuania, near the border with Russia, had stocked up with water and gasoline, in case of Russian invasion. “For the people here, Russia is an existential threat, so [for the war] remains very strong,” said De La Fuente.

While Putin continues to pursue his war goals to conquer the eastern Donbas region of Ukraine, it’s hard to see the impact of global sanctions led by the United States and Europe. But its slowly piling up, experts say, though much more needs to be done to reinforce the measures already taken, and block some of the loopholes that have emerged.

“There is an enormous impact on Russia,” said Peter Piatetsky, a former U.S. Treasury official who now monitors sanctions at Castellum AI, a global risk database.

Measuring how much Russia has been damaged is hard to do accurately as Moscow has stopped publishing statistics and has also taken serious measures to prop up the ruble and maintain income by shifting exports from Europe to Asia and selling more oil at a lower rate. Instead, a better way to gauge the success of sanctions is to examine “what extent it has been cut off from the West,” said Piatetsky.

Since Russia invaded Ukraine in late February, the largest global sanctions regime has been mobilized against the Kremlin. Total sanctions against Russia have increased by 290% since the invasion,” according to data compiled by Castellum.

The pace of sanctions has slowed dramatically since April, though the scope has grown, including targeted Russian oil exports. “Instead of targeting individuals and entities, sanctions against Russia target the broader economy to limit the Kremlin’s ability to fund its war,” Castellum, reported in its latest analysis earlier this month using data from the 100 days of the war.

46 countries have imposed sanctions on Russia so far

“The effectiveness of sanctions will become more apparent as sectoral sanctions start to bite the Russian economy. Russia’s ability to weather sanctions based on the strength of the ruble is temporary. The loss of oil markets in Europe and the absence of key imported [high-tech] goods will put massive strain on Russia,” it added.

So far, 46 countries have adopted sanctions against Russia, though notable exceptions include China, India, Israel, Turkey, and Serbia, as well as most of Africa and Latin America.

“Russia is certainly suffering economically, but it will take many months for the brunt of sanctions, export controls and an attempted European move away from Russian energy to be felt by its citizens… For now, the Russian government’s coffers remain full,” they added.

Other experts stress that sanctions should not be seen as a policy of regime change.

"Sanctions are working if they are seen not as a regime change strategy, but as a constraint on Russia's state capacity and to make it a less capable military adversary," said Maximilian Hess, a London-based political risk consultant and member of the Foreign Policy Research Institute.

Russia has had to idle some factories and is suffering supply chain problems for basic items such as car parts and cell phones. "We are seeing the quality of life go down in Russia. The idea that there isn’t a lot of pain is rather misguided. They are suffering much more than we are and it's only going to be more painful for them," he added.

The Russian car company Lada now sells vehicles without safety features such as ABS, airbags or even air conditioning. The BBC reported Saturday that Russia’s replacement for McDonald’s ran out of French fries last week after a shortage of potatoes.

Russia received $98b in oil export revenue

For the time being, Russia’s monthly oil exports remain healthy, up more than 60% percent in April compared to a year ago. The European Union ed for 61% of Russia’s $98 billion in fossil fuel export revenue, in the first 100 days of the war, including oil, natural gas and coal, according to the Centre for Research on Energy and Clean Air. The main buyers continue to be China, , Italy, Holland and Turkey.

Not only has the world felt the pressure of gas prices, some poorer countries, especially in Africa, have been hit by a shortage of grains after Russia blockaded crucial export ports on the Black Sea and Azov Sea and hijacked Ukrainian grain shipments. Russia has also targeted destroyed Ukrainian farms and grain silos with heavy artillery. Ukraine supplies nearly 20% of the world’s grain and corn, and nearly 50% in other key agricultural products such as sunflower oil.

A group at Yale University have been tracking the responses of private corporations and found that over 1,000 companies have publicly announced they are voluntarily curtailing operations in Russia to some degree beyond the bare minimum legally required by international sanctions — though others have continued to operate in Russia undeterred

Ukrainian president Volodymyr Zelensky last month addressed a gathering of 150 top CEOs and 35 major city mayors that Yale convened in New York, telling them to “whisper in the ears of political leaders” against misguided attempts at appeasement with Putin.

He also offered his own “concrete steps businesses can take”, such as hiring highly trained Ukraine-based tech workers for remote jobs; hiring Ukrainian refugees, investment in green, renewable energy; continuing purchases of Ukrainian exports; and pledging funds to rebuild the country’s decimated infrastructure and industrial capabilities.

An International Working Group on Russian Sanctions at Stanford University has done its own analysis, with recommendations for even tougher measures to come, authored by a high-powered group of economists, academics, bankers, diplomats and Ukrainian officials.

It noted Russia’s dependency on the Western financial system, in particular on Western reserve currencies, as backing for the ruble, and on Western markets and banks, including to facilitate trade.

Although financial sanctions resulted in Russian citizens and businesses lost access to Visa, Mastercard, and other payment services, “the Russian financial system has recovered substantially from the initial impact of financial sanctions,” it noted in a 17-page white paper published in late June.

“The ruble is now trading above its pre-war range [and] the effectiveness of some sanctions has weakened over time… more and better sanctions are needed,” it went on. It predicted a double-digit decline in growth and continued strong inflation, but said more pain could be inflicted.

Next target? Banks, stock exchange, cryptomarkets and tax havens

In the next wave of sanctions, it proposed “immediate full blocking sanctions on the top 30 Russian-owned banks, many of which remain unsanctioned or only partially sanctioned,” as well as the Russia stock exchange, and the designation of Russia as a state sponsor of terrorism.

On top of that, it recommended full divestment from Russia by Western funds and companies, as well as bans to cut Russian enterprises and wealthy Russians off from wealth advisory, investment consulting, or fund management services, as well as from crypto-markets.

It also advocated targeting “hidden, less regulated or dark parts of the financial system – such as “friendly countries”, offshore jurisdictions, and crypto exchanges – which provide loopholes to Russian entities to avoid sanctions.”

In many cases, offshore centers appear to be complying with sanctions with, for instance, reports of Jersey, the Cayman Islands, and Bermuda freezing Russian assets. However, we think that further action may be required in relation to Dubai, which appears to have become a center for Russians evading sanctions since the invasion.

Ukrainians are encouraged by Biden’s recent statements and the NATO meeting in Madrid which affirmed its commitment to Ukraine. Some lamented the resignation this week of disgraced UK prime minister Boris Johnson, a strong ally of Zelensky, though his successor is expected to maintain London’s military for Ukraine.

With the conflict turning into a grinding war of attrition, global unity will be critical to defeating Russian, experts say.

“This is a long race of who is going to get tired first,” said De la Fuente, noting that Russia’s gains on the battlefield have come at an enormous loss in men and material, for both sides. “We are going to see a long war, and I always thought there will two losers here,” he added.