In the United States the Office of Economic Sanctions Policy and Implementation (SPI) holds responsibility for the development and implementation of international sanctions. A key factor in the development of effective international sanction policy and support is the cooperation of various internal organizations.
The SPI focuses on providing guidance to the Department of Treasury and Commerce and continuously works with Congress for the purpose of drafting legislation in order to achieve policy goals in foreign areas. Many of the developed sanction policies focus on placing the largest amount of harm on a targeted state, while simultaneously minimizing the amount of economic harm to the United States and/or neighboring states. Economic sanctions are also enforced in a manner where a threatened state will be rewarded for good behavior through the removal of certain aspects over time. Effective enforcement of international sanctions also relies on joint cooperation of the Office of Foreign Assets Control Department of the Treasury, Bureau of Industry and Security Department of Commerce, and the President’s Export Control Reform Initiative. But as we shall see, these carefully laid rules have not worked well in the Russian case.
Economic sanctions involve several financial initiatives, such as annual appropriation bills. Over the years, sanctions have become a very popular first-action initiative in foreign policy maneuvers. This so called post-Cold War movement has created an increasing number of sanction impositions on foreign nations. Between 1993 and 1997 alone there were 61 U.S. laws and executive orders enacted against 35 countries. According to the Institute for International Economic Sanctions, U.S. sanction enforcement cost the United States between 15 and 19 billion USD in 1995 alone. Just such sanctions have been imposed on Russia today due to the recent activities occurring in Ukraine. While initially effective, the potential for major economic turmoil to neighboring countries is very real due to the important role that Russia plays in the regional economic system and beyond.
How much sanction imposition is too much? Imposing economic sanctions on nations that are heavily involved in trade, import, and export could have serious ramifications to surrounding areas, resulting in more harm to not only the neighboring countries but the global system as well. Affected states or nations could in turn punish sanction-supporting entities by cutting off valuable supplies, resulting in a downward economic spiral. Economic sanctions by the U.S. and the EU onto the Russian government have resulted in this kind of collateral damage and intentional retaliatory actions. For example, a smaller but no less relevant consequence has been Europe facing one of its largest dairy farmer economic crises in the last decade. In the case of the Swedish farmer who needs the cost of milk to remain at roughly 3.6 and 3.7 krona in order to survive, the current milk cost is at 2.65 krona, creating a true crisis for Sweden. This could lead to the bankruptcy of a large portion of the 4,200 private dairy farmers that currently exist there. Such negative effects, even though seemingly insignificant, can and will spill into various other industries and create a negative cascade effect on the everyday lives of ordinary citizens across many countries.
The impact of economic sanctions on Russia has had a very far reach. Eastern and Central Europe is feeling the same struggle in dairy farming economics seen in Sweden. Massive quantities, 500 to 1,500 tons of dairy products that typically went to Russia, now need a new home due to the inability to export products there. Germany lost 12,600 tons of cheese, equivalent to 1.26 million dollars, due to sanctions against Russia. For those who hold a close economic relationship with Russian trade, such as the Baltic States, sanction enforcement can have long-term ramifications leading to great economic stress and internal turmoil. Current global policy does not offer side support to offset the harm being done to nations peripherally connected to target nations under sanction enforcement.
The continuous enforcement of economic sanctions on Russia will lead to not only short-term ramifications, but long-term economic strains on the Russian economy for years to come. Russia is suffering from inflation, foreign capital is continuing to flow out of Russia, and its 2 trillion dollar economy is beginning to stall. The bans imposed by the U.S. and EU on transactions with Russian companies such as VTB Group, OAO Novatek, OAO Rosneft and OAO Gazprombank have created a great deal of financial stress on the people of Russia, not just Russian oligarchs. According to a report from Bloomberg Business, construction volume has fallen by 8.1 percent, while retail sales have dropped over 8.2 percent. As previously mentioned, there is a great risk that sanction enforcement could lead to harmful economic spill-over to neighboring nations. Therefore, the U.S. has tried to ensure that existing contracts between states would be honored in order to limit the potential for additional foreign economic strain in the short-term.
The most crucial long-term ramification from sanctions on Russia, however, is the negative impact it will have on disconnecting Russia from the global economy. Over the last several years the integration of the Russian economy brought 140 million new Russian players onto the global market, creating a financial boom that began to finally create a legitimate Russian middle class. Now that economic integration has been threatened, the potential of seeing that middle class disintegrate beyond recovery is very real. It is ironic that the United States, the leader in pushing Russia into the global economy and wanting consolidated democracy to take root there, has single-handedly also created a counter-force that could risk those priorities. It is a clear example of when short-term national security concerns trump and compromise long-term ones.
Nevertheless, the U.S. is not short on allies when considering further sanction extensions. Russia’s inability to create and hold a cease-fire in Eastern Ukraine is said to be undermining international diplomacy. It is clear both the U.S. and EU consider that failure to be purposeful. Allies and adversaries do not have to be government entities alone, however. The general public can play an equally important role. According to a poll done by American news corporation CNN, 59% of people approve of economic sanctions imposed on Russia. While public support is crucial for international policy enforcement at first, long-term economic spill-over due to strict sanctions can cause a shift in approval ratings over time. Import and export trade limitations with Russia will continue to have a negative impact on Europe and the United States. The longer this plays out, the more likely international support may wane.
While the overall impact of sanction enforcement on Russia could lead to more international instability and disruption, it seems to be having minimal impact on Vladimir Putin and his agenda at home. While economic sanctions have been a nuisance on the Russian government, it is the people of Russia that seem to be paying the largest price. Traditionally, this is exactly when those imposing the sanctions hope for internal pressures to enact change within the target nation. But in Russia the opposite has actually occurred: able to effectively and compellingly show the decline in everyday standards of living coinciding perfectly with the imposition of foreign sanctions, Putin has actually seen his home approval rating recover and increase to levels never before seen. In this case, it seems something as small as spilt milk has a diplomatic and geopolitical ripple effect far more significant than the U. S. and EU ever thought possible.