Malcolm Rivera
Since Russia's invasion of Ukraine in February 2022, the US, UK, EU, and other countries have imposed thousands of sanctions on Russia. These sanctions aim to weaken Russia's ability to finance the war and specifically target the political, military, and economic elite responsible for the invasion. The US has a history of offering sanctions relief as a bargaining tool in negotiations, and sanctions have been used as a form of diplomacy to bring an adversary to the negotiating table. Russia, on the other hand, has claimed that European sanctions have not harmed the country, and President Vladimir Putin has stated that Russia has growth while Europe is in decline. However, the US Treasury claims that sanctions have cut 5% from Russia's potential economic growth over the past two years. This article will explore how Russia uses sanctions for diplomacy and the impact of sanctions on Russia's economy.
| Characteristics | Values |
|---|---|
| Target | Russia's money, oligarchs, and oil industry |
| Sanctions | Travel bans, asset freezes, import and export restrictions |
| Impact | Reduced economic growth, increased inflation, and a "wartime economy" |
| Circumvention | Use of a "shadow fleet" to sell oil, import sanctioned goods through third countries |
| EU restrictive measures | Target political, military, and economic elite, exclude food, agriculture, health, and pharmaceuticals |
| US sanctions | Target Russia's war machine, export restrictions, penalize individuals connected with imprisonment of Alexei Navalny |
| UK sanctions | Frozen assets, travel bans, restrictions on Russian metal, diamond, and energy exports |
| Diplomatic incentives | Resume high-level contacts, restaff embassies, limited relaxation of sanctions |
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What You'll Learn
- The US and EU imposed sanctions on Russia after its invasion of Ukraine
- Sanctions target Russia's money, oil industry, and wealthy individuals linked to the Kremlin
- The US and EU have frozen assets and imposed travel bans on certain individuals
- Sanctions relief can be used as a bargaining tool in negotiations with Russia
- Russia has found ways to circumvent sanctions, such as importing sanctioned goods through other countries and using a shadow fleet to export oil
The US and EU imposed sanctions on Russia after its invasion of Ukraine
The US imposed sanctions on individuals and entities responsible for violating Ukraine's sovereignty and territorial integrity, as well as those stealing the assets of the Ukrainian people. These sanctions included travel restrictions and targeted sanctions on certain individuals and officials. The US Treasury Department also designated a number of Russian entities, including defence companies and individuals in Putin's inner circle, for sanctions. In addition, the US prohibited transactions with Russia's Central Bank and imposed sanctions on key sources of Russia's wealth, such as its energy sector.
The EU imposed massive and unprecedented sanctions on Russia, including targeted restrictive measures (individual sanctions), economic sanctions, diplomatic measures, and visa measures. The economic sanctions involved import and export restrictions, limiting the sale of certain products to Russia and prohibiting the purchase of certain products from Russia. The EU also prohibited the sale, supply, transfer, and export of euro-denominated banknotes to Russia to limit its access to cash in euros. In addition, the EU imposed sanctions on several Russian oligarchs and politicians, as well as some Russian banks, banning them from using the SWIFT international payments system.
The sanctions had a significant impact on the Russian economy, with Russia's finance minister announcing that the sanctions had cost Russia $40 billion as of 2014. The sanctions also contributed to the reduction in the value of the Russian ruble and worsened the economic impact of the 2022 Russian invasion of Ukraine. However, despite the sanctions, Russian energy sales have increased in value, and its exports have expanded with new financing options and payment methods for international buyers.
To mitigate the impact of sanctions, Russia has relied heavily on China and India to procure sensitive technology for its military and economy. In response, the US has put pressure on China and India for their support of Russia through sanctions, export controls, diplomacy, and enforcement actions.
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Sanctions target Russia's money, oil industry, and wealthy individuals linked to the Kremlin
Since Russia's invasion of Ukraine in February 2022, the EU and the US have imposed a series of sanctions targeting Russia's money, oil industry, and wealthy individuals linked to the Kremlin. These sanctions are designed to impose severe consequences on Russia and to thwart its ability to continue its aggression.
One key target of the sanctions is Russia's oil industry, which is a primary source of revenue for the country. The US Department of the Treasury has taken action to fulfil the G7 commitment to reduce Russian revenues from energy, including blocking two major Russian oil producers: Gazprom Neft and Surgutneftegas. The US has also imposed sanctions on over 180 vessels, many of which are part of Russia's "'shadow fleet," used to circumvent sanctions. In addition, the US has blocked liquefied natural gas projects and targeted oilfield service providers and energy officials. The EU has also implemented import and export restrictions on Russia, preventing Russian entities from selling certain products to the EU.
To limit Russia's access to cash, the EU has prohibited the sale, supply, transfer, and export of euro-denominated banknotes to Russia. This aims to prevent the Russian government, its Central Bank, and individuals in Russia from accessing cash in euros and circumventing sanctions. The EU has also banned 10 Russian banks from using SWIFT, further restricting their international transactions.
Sanctions have also been imposed on wealthy Russian individuals and entities linked to the Kremlin, particularly those benefiting from or supporting Russia's war in Ukraine. The US Department of the Treasury's Office of Foreign Assets Control (OFAC) has imposed nearly 100 sanctions on Russian elites, financial institutions, and technology suppliers. These sanctions aim to undermine Russia's capacity to wage war and hold accountable those who profit from the invasion. In addition, travel bans and asset freezes have been implemented, preventing listed individuals from entering EU territory and freezing their assets in EU banks.
Russia has responded to these sanctions by attempting to evade them through various schemes. For example, the US Department of the Treasury exposed a secret payment channel and targeted a Kyrgyzstani financial institution for supporting Russia's military-industrial base. Russia has also sought to acquire foreign assets to provide funds to its banks and has engaged in a disinformation campaign to destabilize neighbouring countries and the EU.
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The US and EU have frozen assets and imposed travel bans on certain individuals
The US and the EU have imposed sanctions on Russia since its annexation of Crimea in 2014. These sanctions have included freezing assets and imposing travel bans on certain individuals. The US and the EU have continued to add new names to their national lists of "designated persons". These designated individuals are subject to travel bans and asset freezes. Travel bans prevent listed individuals from entering or transiting through EU territory by land, air, or sea. Asset freezes mean that all accounts belonging to the listed persons in EU banks are frozen, and it is prohibited to make any funds or assets available to them directly or indirectly. The US and the EU have also imposed sanctions on entities, which consist of asset freezes and import and export restrictions.
The US has a history of leveraging economic power and restrictive economic measures to advance its national security objectives. The US has also offered sanctions relief as a bargaining tool in negotiations. Executive Order 13660, signed on March 6, 2014, authorized sanctions on individuals and entities responsible for violating the sovereignty and territorial integrity of Ukraine. Executive Order 13685, issued on December 19, 2014, further increased the diplomatic and financial costs of Russia's aggressive actions towards Ukraine. The US has worked in close coordination with the EU and other international partners to send a strong message to the Russian government that there are consequences for their actions.
The EU has implemented a separate sanctions framework targeting "hybrid activities" by Russia, which include activities aimed at undermining electoral processes, sabotaging economic activities, and destabilizing the EU and its member states. Those designated under this framework are subject to an asset freeze and are forbidden from receiving funds from EU citizens and companies. The EU has also prohibited the sale, supply, transfer, and export of euro-denominated banknotes to Russia to limit access to cash in euros by the Russian government and its entities. Similar sanctions have been applied to Belarus to combat the circumvention of sanctions due to the close integration of the Russian and Belarusian economies.
The asset freezes and travel bans imposed by the US and the EU on certain individuals and entities in Russia are intended to impose severe consequences on Russia for its actions and to thwart its ability to continue its aggression. These sanctions send a strong message to Russia that its actions have consequences and are designed to bring Russia to the negotiating table. The windfall net profits generated by immobilized Russian assets are being used to support Ukraine's armed forces, defense industry, and reconstruction.
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Sanctions relief can be used as a bargaining tool in negotiations with Russia
Sanctions relief can be a powerful bargaining tool in negotiations with Russia, and the United States has a history of leveraging this strategy to achieve its desired outcomes. The US, along with its allies, has imposed a multitude of sanctions on Russia since its invasion of Ukraine in February 2022. These sanctions have targeted Russia's financial system, oil industry, and wealthy individuals linked to the Kremlin, among others. The goal has been to weaken Russia's ability to finance the war and inflict economic pain to bring Russia to the negotiating table.
The sanctions have had a significant impact on Russia's economy. According to the US Treasury, sanctions have cut 5% from Russia's potential economic growth over the past two years, and annual inflation remains high at 10% as of February. Russia's oil revenues have also taken a hit, with a drop of over 40% in February 2023 compared to the previous year. Additionally, about half of Russia's foreign currency reserves, totalling $350 billion, have been frozen, and 70% of the assets of Russian banks have been frozen as well.
While Russia has found ways to mitigate the impact, such as selling oil above the G7's price cap using a "shadow fleet" and importing sanctioned goods through third countries, the overall effect has still been detrimental. Russia's economic growth is minimal, and it has retracted into a "wartime economy" heavily reliant on military spending and government support.
In negotiations, sanctions relief can be offered as a concession in exchange for Russia's cooperation or compliance with certain conditions. This could include a relaxation of restrictions on Russian oil, as suggested by the Atlantic Council, or a willingness to resume high-level contacts and restaff embassies as mentioned by Witkoff. However, it is important to note that any sanctions relief should not compromise on core issues, such as embracing Russia's flawed claims to various territories based on illegal referendums.
The Trump administration's approach to the Russia-Ukraine conflict has been criticized for skewing towards offering benefits to Russia while putting heavy pressure on Ukraine. Therefore, it is essential to strike a balance in negotiations and ensure that any incentives offered to Russia do not undermine the interests of Ukraine and its allies. Negotiations should focus on providing Ukraine with the necessary support to deter and defend against Russian aggression.
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Russia has found ways to circumvent sanctions, such as importing sanctioned goods through other countries and using a shadow fleet to export oil
Since the Russian invasion of Ukraine in 2022, the EU, UK, US, and other allies have imposed a series of sanctions on Russia. These sanctions aim to limit Russia's ability to continue its aggression and inflict economic pain to bring the country to the negotiating table. However, Russia has found ways to circumvent these sanctions and continue its trade in critical goods and oil.
One method Russia has employed is the use of third countries to import sanctioned goods. Russia procures Western military, dual-use, and other critical goods through countries such as India and China, often without the knowledge of their governments. This allows Russia to access sensitive technology, industrial machinery, laboratory equipment, and electronic components that it would otherwise be unable to obtain due to the sanctions. Russia's reliance on these deceptive tactics demonstrates its determination to evade established export controls and sanctions enforcement.
Another way Russia has circumvented sanctions is through the use of a shadow fleet to export oil. After the US, EU, and other allies targeted Russia's oil industry with import bans and price caps, Russia assembled a large shadow fleet of vessels to maintain its oil exports. This fleet includes grey fleet vessels that obscure their origins and ownership to appear law-abiding, and dark fleet vessels that operate without regulation or insurance from Western providers. The top destinations for these shadow fleet vessels include India, China, Turkey, Singapore, Brazil, the United Arab Emirates, and Bulgaria. The oil is often re-exported to other markets, sometimes with certificates stating a different national origin, making it challenging to track and enforce sanctions.
The use of the shadow fleet has rendered the price cap on Russian oil ineffective, with Russia's oil exports expected to increase in 2024. The old age of some of the vessels in the shadow fleet has raised concerns about environmental risks, as evidenced by the recent oil spill in the Kerch Strait involving two ageing tankers. Despite these risks, Russia continues to reject Western pressure to limit its oil exports and relies heavily on its shadow fleet to circumvent sanctions and maintain its oil trade.
To counter Russia's circumvention of sanctions, exporting countries have stepped up their efforts by imposing sanctions on specific vessels engaged in the large-scale transportation of Russian oil and denying them access to ports. However, the complex nature of the shadow oil trade, with concealed identities of buyers and sellers, presents challenges in enforcing sanctions effectively.
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Frequently asked questions
Since Russia's invasion of Ukraine in February 2022, the US, UK, EU, and other countries have imposed sanctions on Russia. These include targeted restrictive measures, economic sanctions, diplomatic measures, and visa measures. The main target has been Russia's money, with foreign currency reserves worth $350 billion being frozen.
The US Treasury claims that sanctions have cut 5% from Russia's economic growth over the past two years. The World Bank estimated that in 2022, Russia's trade in goods and services was set to decline significantly. Sanctions targeting oil imports have also resulted in a drop in Russia's revenues, with the International Energy Agency reporting a 26.9% drop in January 2023 compared to January 2022.
Russia has claimed that European sanctions have not harmed the country. President Vladimir Putin stated, "We have growth, and they have decline." Russia has also managed to sell oil abroad for more than the G7's price cap and import many sanctioned Western goods through third countries.
Sanctions are used as a form of diplomatic pressure to advance national security objectives and bring an adversary to the negotiating table. They can also be offered as sanctions relief in exchange for certain concessions or agreements.
One challenge is that sanctions may not always be effective in stopping aggression or changing a country's behavior. Additionally, offering too many incentives or embracing flawed positions during negotiations can weaken diplomatic efforts.
