Swift and severe costs? EU sanctions and the Russo-Ukrainian conflict

By Robin Vandendriessche

In February 2022, Russia deployed up to 190 000 troops in and around Ukraine. This constitutes the greatest military build-up since the country’s annexation of Crimea in 2014 and sparked a major international crisis. Moscow declared to be open to diplomacy but demanded legal security guarantees such as the withdrawal of NATO troops in the Eastern member states or a commitment to reject Ukrainian membership of the alliance. Nevertheless, following weeks of fruitless talks and numerous bilateral visits, on February 24, 2022, Russia launched an all-out assault on Ukraine using non-proven and absurd arguments as justification.

The uncomfortable truth is that NATO will not take military action against Russia as this could easily escalate into a third world war. Nevertheless, President Putin’s flagrant violation of international law, his attempt to reintroduce spheres of influence and his use of a war of aggression as a foreign policy tool cannot be tolerated. Due to this, the European Union adopted the ‘harshest ever sanctions’ in concert with the United States, Great Britain and many other Western allies.

Following President Putin’s recognition of the two separatist-held areas of Eastern Ukraine as independent republics and his decision to deploy Russian troops to the region, the Union agreed on a first package of sanctions. First, individual sanctions such as asset freezes and travel bans for the 351 members of the Russian State Duma who voted in favor of recognition as well as other persons, banks and entities. Second, financial sanctions such as restricting the access of Russian banks and public companies to EU capital and financial markets. Third, economic sanctions such as limiting trade with the separatist regions. In addition to these measures, the German government suspended the certification process of Putin’s pet project, the Nord Stream II pipeline, in a move it had refused to commit to in recent weeks.

Following Russia’s attack on Ukraine, the EU agreed on a second package of sanctions during an emergency summit of the European Council. First, the Union cut off more and bigger banks from the EU capital markets. Second, assets of several Russian oligarchs, including President Putin and Russian foreign minister Lavrov were frozen. Third, strategic sectors of the Russian economy such as energy and transport were cut off from the international capital markets. Fourth, the Union imposed more bans on the export of dual-use goods, high tech products and airplane parts, as well as tighter export controls and a restrictive visa policy.

At first, a desperate Ukrainian call for the most massive and painful package of sanctions was not completely answered as the option to deny Russian banks access to the international payment system SWIFT was not pursued. Several member states, such as Germany, feared that such a move would encourage the development of an alternative non-Western dominated international payment system and that it would affect the EU more than Russia as (energy) imports would plunge. Berlin eventually dropped its opposition conditional upon a targeted and functional restriction of SWIFT that would only apply to selected banks. This expulsion, accompanied by new restrictive measures on Russia’s Central Bank, will significantly harm President Putin’s ability to finance his war. By severely impeding Russian trade and sending the Russian ruble into free fall, the Union intends to plunge domestic support. 

Only days later, the EU went a step further by banning the state-owned Russian media broadcasters Russia Today and Sputnik and their spread of disinformation as well as by shutting down the EU airspace for Russian-controlled aircraft.

Despite unprecedented EU unity in imposing sanctions as well as the unparalleled severity of these sanctions, the question remains whether these measures will have a meaningful impact on President Putin’s ambitions in Ukraine as they are subject to a fundamental trade-off. On the one hand, the EU seeks to minimize the fallout, both for ordinary Russians and the EU economy. On the other hand, for sanctions to be effective, they often need to be blunt instead of targeted. This trade-off, and the division caused between member states, explain why sanctions were only gradually expanded in recent weeks.

Furthermore, the questions which side needs the other the most, and which side can better diversify ultimately determine the success of the sanctions in the long term. The Russian economy is heavily dependent on the export of energy products. Unfortunately, the EU cannot exploit this vulnerability as it is equally dependent on Russian energy imports. Exploding energy prices will affect domestic support in the West while at the same time creating record Russian revenue. Diversification of energy supply is the logical answer, for example, through LNG from Qatar and the United States, but it cannot take place overnight.

Member states better be ready to accept that there is an economic price to pay for defending the rules-based international order as smart or targeted sanctions have a more limited effect than blunt alternatives such as cutting off access to SWIFT. Appeasement now would send a strong signal to Moscow that a future invasion of Moldova or Georgia to prevent EU or NATO accession is acceptable. Finally, the EU seems to have found an unusually strong and unified momentum, it should further act on it as the right of a sovereign nation to choose whom they align with must be defended at all cost.

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