By Peter C . Earle

Just after Thanksgiving 2021 , international warnings began circulating that a massive Russian troop buildup along the eastern border of Ukraine might not be a matter of simple posturing . The deployment of blood transfusion units and military equipment typically associated with invasion forces raised suspicions that were confirmed on February 24 , 2022 , when Russian military forces stormed into Ukraine . Framed as a liberation of the eastern , Russian-speaking oblasts , the attack was the apotheosis of years of dueling accusations , diplomatic wrangling and territorial encroachment .

At the time of the 2022 invasion of Ukraine , Russia was already the target of a wide range of international sanctions . The seizure of the Crimean region in 2014 triggered a global response which sent Russia ’ s economy into a tailspin . But if sanctions were already in effect against Russia for eight years , why hadn ’ t they forestalled the recent escalation ? Were the existing sanctions insufficient in size or breadth ? Did they miss their targets ? Or is there something about sanctions as a policy tool which is flawed at a fundamental level ?

Sanctions

The use of sanctions — punitive measures imposed by one or a group of nations upon

At a meeting in Kyiv , Ukrainian President Volodymyr Zelenskyy and Federal Chancellor of Austria Karl Nehammer discuss increasing sanctions pressure on Russia , April 9 , 2022 . one or a group of countries to enforce compliance with international agreements or treaties — dates back to at least 432 bc , when the Athenian Empire imposed the Megarian Decree in the lead-up to the Peloponnesian War . Sanctions can also be used to influence behavior more generally ; for example , to influence state policy choices outside the realm of established international laws . The modern era of sanctions dates roughly to the end of World War II and the founding of the United Nations . Between 1950 and 2019 , more than 1,000 sanction initiatives were imposed by individual states , international organizations or ad hoc coalitions .

Russia and Ukraine

In early 2014 , Russia annexed Crimea , the eastern peninsula of Ukraine on the northern coast of the Black Sea . A large number of nations quickly responded with sanctions , including some notably far from Europe ( Japan , Australia ) and some with historically strong ties to Russia ( Albania , Montenegro ). The measures imposed included an embargo on military equipment and dual-use technology ; a freezing of the assets of groups and individuals supporting the annexation of Crimea ; and restrictions on engaging with major Russian firms including Sberbank ( the largest Russian financial institution ), Rostec ( a Russian arms manufacturer ) and numerous Russian oil and gas firms . Over the subsequent year , the ruble was devalued and the Russian central bank raised interest rates from 10 to 17 %. The Russian economy contracted , inflation spiked and many former republics of the Soviet Union saw their currencies and economies dragged down as well .

Now , following the February 2022 invasion of Ukraine , Russia is facing over 5,000 different sanctions , instantly becoming the most sanctioned nation in history . A full accounting of the steps taken defies concise summarization . Many of the penalties target “ oligarchs ,” as they are called in the Western media : business magnates whose exorbitant wealth and station are secure in exchange for supporting the Russian political elite . And compounding the moves of state actors , hundreds of multinational firms have voluntarily opted to discontinue commercial activities within Russia : Starbucks , Coca-Cola , McDonalds , Volkswagen , British Petroleum and Toyota among them .

In June , the US Treasury Department ’ s ban on purchasing newly issued Russian government and corporate debt was extended to include secondary market transactions , permitting only liquidating transactions ( sales or transfers of said securities to non-US counterparties ). The obvious objective of banning primary market transactions is to prevent the Russian government and corporations from raising funds . Banning trading of Russian securities in the secondary market brings illiquidity , mis-pricings and hampers economic calculation among Russian financial institutions and potential counterparties alike . It may also trigger defaults , hindering access to credit for generations to come .

12 FINANCIAL HISTORY | Summer 2022 | www . MoAF . org