On Feb. 24, 2022, Russian President Vladimir Putin ordered tens of thousands of his country’s troops into Ukraine, setting off a flurry of consequences that are still unfolding.
In addition to scores of military and civilian deaths and thousands of injuries, those consequences have included sanctions from the U.S., Canada and some European nations that have had near-immediate repercussions for the Russian economy.
The value of the ruble has tumbled from 85 rubles per U.S. dollar at the start of the invasion to a record low of 120 rubles per dollar by Feb. 28, spurring runs on cash machines in Russian cities. Put another way, one ruble, the currency Russians use to go about their daily lives, is now worth less than one American penny. Likewise, the Central Bank of Russia closed the Moscow Exchange for the week of March 1 rather than risk massive stock selloffs.
Among the major sanctions imposed on Russia by the U.S. and its allies so far:
- Canada, the European Commission, France, Germany, Italy, the United Kingdom and the U.S. have banned yet-to-be-determined Russian banks from using the Society for Worldwide Interbank Financial Telecommunication, or SWIFT, a secure messaging system which thousands of global financial institutions use to move money between them and to facilitate customer transactions, such as wire transfers. Without SWIFT, those Russian banks will be relegated to phone or fax to complete international transactions, according to NBC News.
- The U.S. has barred the Russian central bank from using dollars for transactions, making unavailable billions of dollars set aside to ward against ruble devaluation. Several other large Russian banks have had their assets frozen.
- The U.S. also imposed sanctions on billionaires close to Putin, curtailing their ability to conduct business internationally.
These and other sanctions have cut off large parts of the Russian economy from the rest of the world while its troops invade its sovereign neighbor to the southwest.
To learn more about the theory and process of sanctions administration, I reached out to Richard Nephew, a senior research scholar at Columbia University’s Center on Global Energy Policy who helped design and implement sanctions on Iran during Barack Obama’s presidential administration. Nephew most recently served as the deputy special envoy for Iran in the Biden-Harris administration. He also wrote the 2017 book, The Art of Sanctions, a practical guide for policymakers implementing sanctions.
Keep reading to get up to speed on what sanctions are, how they work and what sanction levers the U.S. and its allies have left to pull. One tip for journalists covering sanctions: Remind audiences that while many economic situations are unpredictable, this economic situation is particularly dynamic and that what is true today may not be true tomorrow, or even in a few hours.
Our conversation has been lightly edited for clarity.
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Clark Merrefield: Let’s start by establishing a common, baseline understanding of what a sanction is and how the U.S. has historically used them.
Richard Nephew: Essentially you take something that’s normally legal and make it illegal. It can really be anything, from that perspective. You can imagine something that includes prohibition on travel, for instance. Travel bans are a major source of sanctions leverage. Asset freezes: You’re normally allowed to move assets around, now you’re not. The reason why it works is that by taking something that was legal and turning it not legal, you create a sense of loss, both in terms of a practical sense as there’s something you could do and now you can’t, and then potentially material losses as time goes on.
The theory is that you want to then do something to get rid of it, and that’s how you go through the process of getting sanctions relief. The theory is you apply [sanctions], then you get some sort of change from the people you sanction.
CM: How do sanctions fit into the overall U.S. response so far to the Russian invasion of Ukraine?
RN: From a historical perspective, we’ve done this thing in the past. The best comparison you can make to this kind of action, meaning this kind of sanctions response, is the invasion of Kuwait by Iraq [which began on Aug. 2, 1990]. But there are some fundamental differences.
With Iraq, [sanctions] went through the U.N. Security Council, got a U.N. Security Council mandate to do everything, and everything was adopted via resolutions. That’s not going to happen when the aggressor is a veto-wielding member of the U.N. Security Council.
We also at the time went from zero to sixty [with Iraq]. It was very quickly a comprehensive sanctions regime, whereas this one is intended to be more targeted, even if the nature of the targeting is much more broad than what is normally described as targeted sanctions. The theory of targeted sanctions is usually going after an individual transaction or company or bank or something like that. Obviously, we’re going after a lot more than just that. But the theory is still the same, that you identify certain things you don’t want to happen anymore, and you switch those off as opposed to going for a comprehensive embargo where you just prohibit any kind of economic activity.
CM: Do the U.S., Canadian and European sanctions on Russia so far represent the harshest ever imposed in the postwar era?
RN: I actually think the Iraq sanctions program in 1990 is still harsher, from the standpoint of it just simply prohibited everything, and then made exceptions later on. It’s hard not to see that as the harshest.
I think the [sanctions against Russia] stand out for two other reasons: They’re certainly sanctions targeting the biggest economy that I can think of. Obviously, we’ve had various prohibitions on trade with the Soviet Union, they with the West back during the Cold War, but that’s not really quite a sanctions regime. If you’re really thinking about pure sanctions, I would say this is the most significant economy to be sanctioned. That’s meaningful in some way. You’re talking about [sanctions] on a major global economic power, in particular with regard to certain commodities, like gas and oil.
The second thing that stands out is how sophisticated the application of still pretty broad sanctions has been. It’s comparatively easy to have a comprehensive sanctions program. If you were to tell me to choose a comprehensive sanctions program or implement a much more targeted one, just purely from a practitioner’s standpoint it’s easier to do a comprehensive one. Everything’s forbidden. This requires a lot more nuance and a lot more work — but it’s better. It’s a more effective, more efficient way of doing things, especially if you can minimize some of the adverse humanitarian impacts, and certainly the problems that could come with targeting energy reserves.
CM: Where does the authority come from for the U.S. president to impose sanctions on foreign countries?
RN: There’s a couple of acts of law that give the president the ability to do it. International Emergency Economic Powers Act, or IEEPA, is the basis of everything that’s been done thus far. There may be some smaller measures that rely on the Immigration and Nationality Act.
But the basics of how executive order-based sanctions work is they use IEEPA [pronounced i-e-pah]. And IEEPA in the 1970s was put out to give the president the ability to say, “If there is a problem in the world, I am able to impose an embargo or other targeted measures. I just have to declare an international emergency, describe what the emergency is and then tell people what I want to do about it.”
It’s not a constitutional authority. It is an authority delegated to the President by Congress. Which is interesting because it actually means there’s an oversight function there, it also means that Congress could theoretically strip that authority away. But, actually, quite the opposite in the last 40 or 50 years, there’s been a lot more interest in the president using that authority and using it vigorously when certain bad acts come up. The one exception to this is with regard to trade tariffs under the previous administration. There was some consideration of pulling back some of the president’s ability to declare emergencies and to impose some of these authorities, in part because there was a question as to whether or not they were doing them capriciously.
CM: Do sanctions work both ways, so to speak? Are there meaningful sanctions that Russia could impose on the U.S. and NATO allies?
RN: The big one is oil and gas. Over the last 20 years — actually, if you go all the way back to the 1980s, there has been a fear that the Soviet Union then, Russia now, could turn off the taps if they were ever in a crisis. The U.S. position, going back all the way to the ‘80s, was it’s a bad thing for Europe to be so dependent on Russia. There’s been a lot of worry about this ever since the Russians were turning the taps on and off a little bit with the Ukrainians back in the early aughts, and continuing until today. So they could certainly do that if they wanted to.
Now, of course, that would come with its own costs. People aren’t going to pay for gas they’re not getting, and if 60% of your economy is dependent on oil and natural gas sales, that’s not a great place to be for them. So they could do it, but it’d be costly.
CM: You mentioned costs and that was something I wanted to talk about, because sanctions have consequences that cut both ways. What in your mind are the biggest costs, humanitarian or otherwise, of these sanctions going on now?
RN: Humanitarian is always the most important one that you need to be thinking about. The tragedy of what Putin is doing is he’s not only messing with the lives of Ukrainians, he’s also messing with Russians, and not for any good reason whatsoever. He’s decided to do this in a way that’s going to be damaging to both. He’s damaging the Ukrainians by attacking them and he’s damaging the Russians by exposing them to sanctions. It will be Russians in the end who will suffer a lot of damage as a result of this. It’s part of the reason why the sanctions programs try to target the oligarchs more than they try to target the normal population.
But, look, as we’re seeing right now with the [Russian] stock markets, what we’re seeing right now with the value of the ruble, you cannot have a significant sanctions program without at some point or another damaging the economy. If you damage the economy, you damage people. It’s just one for one. That’s the one massive consequence that can happen as a result of this.
Now, I’ll say it’s a little unfair to describe that as an unintended consequence of sanctions. The reason why this is all happening is the invasion of Ukraine. It’s more that this is an unintended consequence of an active military aggression against Ukraine.
The second thing that bears thinking about is the Russians have already started describing what’s going on with their central bank as economic warfare. They have apparently raised the alert status of their strategic nuclear forces as a result of that. A very unpleasant potential consequence of this whole episode could be that the Russian nuclear arsenal is on a hair trigger and that’s not a great place for any of us to be in either. Even if you don’t go to that, the Russians could determine that the reason they’re doing, thus far it seems, badly in Ukraine is because of the West, and decide to take it out on NATO and take it out on the European countries, including militarily. So there’s a lot of bad outcomes that can come out of this. Of course, then the question is raised, what about not doing anything? Not great outcomes from that, either.
CM: Just to get back to some of the nuts and bolts of how the sanctions process works, say a U.S president holds a press conference “announcing sanctions” against a foreign country, what comes next? What does that set in motion, typically?
RN: You know, this is kind of an interesting case, somewhat unusual. There’s an awful lot of coordination already happening with European and other partner governments.
Normally, what you would imagine is the president announces [sanctions], there would have been some pre-consultation [with government officials and the financial sector], but then there’ll be a lot of consultation afterwards about what that means and how to work within it with partners and allies.
What happens in a practical sense is that the actual implementers go about drafting regulations and then announcing them via various websites and other such things. And then that information gets out to the banking and commercial sector. They begin to implement it, and they have compliance departments that are capable of doing that. But they also ask questions. They say, “Hi, government, you didn’t think about the following 15 things. No worries — we understand why you didn’t think about it, but you didn’t and so we’re going to need you to answer these questions.”
So there are specific implementation challenges that come up that people in government just didn’t think of. They’re human and they don’t have infinite knowledge and they don’t have infinite awareness of the circumstances out there. The government will say, “OK, those are good questions.” They’ll think about them, they’ll put out answers and then set a cycle in motion of compliance officers talking to government folks about what it all means and how to best implement the rules. In some cases, that can lead to an adjustment of sanctions and in many cases what it leads to is an explanation of what the implementation will look like.
How are U.S. sanctions administered? Along with other executive branch staff, the Office of Economic Sanctions Policy, part of the U.S. Department of State, develops and implements sanctions on foreign countries. The U.S. Department of Treasury’s Office of Foreign Assets Control also plays a key role in administering and enforcing economic and trade sanctions. The Bureau of Industry and Security at the U.S. Department of Commerce issues export licenses and works in concert with other federal agencies to implement sanctions. Further resources: o Bureau of Industry and Security Russia Rule Fact Sheet, an overview of the bureau’s export sanctions actions in response to Russia invading Ukraine. o State Department Relations with Russia Fact Sheet, a brief history of diplomatic and economic relations between the U.S. and Russia. o Treasury Department Sanctions List, a searchable database of all individuals subject to financial sanctions. o 6 Things to Know as You Read About the War in Ukraine, a quick fact sheet from our Harvard Kennedy School colleagues at the Technology and Social Change team.
CM: Are the current sanctions against Russia working? Are they having their desired effect, or at this point is it too soon to tell?
RN: Too soon to tell. There are two levels of “working” when it comes to sanctions. Level one is, are they doing damage? These sanctions are clearly doing damage. If you’ve looked at the dollar-ruble exchange rate in the last 24 hours, they’re doing damage — no doubt about that. And the Russian stock market’s in bad shape, too, as are Russian companies.
So, that you could describe as a success — but it’s not. The success is in actually achieving the outcome the sanctions are intended to support, which in this case would be something vis-à-vis Russia’s invasion.
Now, the [U.S.] government and European partners haven’t laid out specifically what they’re looking for. Presumably, they’re looking for, among other things, a Russian withdrawal, a Russian restatement of support for the territorial integrity of Ukraine, any number of things that they could potentially ask. Those are the sorts of things that need to come next in order to help the Russians know what they need to do. That also would give us the ability to say whether or not they’re working.
If you set them against, “Are they working?” equals “Have the Russians withdrawn from Ukraine?” No. But by the same token, if I’ve got to make a five-mile run and I’ve managed to get through milepost one, you could say it’s “not working” because I haven’t reached milepost five. On the other hand, I’ve got more to do, and I think that’s where we are now. [The sanctions] are causing some damage, they’re causing some pressure to mount on the Russian government, that’s all what’s intended.
CM: What’s left on the table in terms of sanctions and how far away is the U.S. and its allies from running out of sanction options?
RN: There’s a lot left to do. We’ve got sanctions that will restrict transactions to the Bank of Russia. That’s pretty big and pretty broad, but it’s not actually a freeze of the assets, right? So that’s something that could be done. It’s not secondary sanctions on other people engaged in these transactions. If you see the Chinese [government and financial institutions] engaging in transactions with Russia and the central bank is involved, are those affected? No, not at present. Those could be targeted as well. And that’s just within that space, let alone within energy, within other banks and other financial activities and other industrial sectors.
So there’s a lot more headroom. And I don’t think anyone wants to go there, but there’s a lot more space that could be pursued if we don’t see diplomatic and political progress happening.
CM: Do you have any critiques or feedback related to how the U.S. media has covered these sanction actions so far?
RN: I think thus far it’s been pretty good. The one thing I would just say is that we’re not done. So I think more than anything, just making sure that when journalists in particular are putting out information on what’s going on in the sanctions regime or what’s coming next, to put down that this is timestamped. This is as of right now. And it’s not going to be good for six hours, it may be only good for two. And just constantly noting that this is a very dynamic situation. I think that’s quite important.
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