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What U.S. Sanctions Against Russia Will (Really) Do

Author: James M. Lindsay, Senior Vice President, Director of Studies, and Maurice R. Greenberg Chair
March 21, 2014
Fortune.com

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In a move to punish Russia's hostile takeover of Crimea, the White House on Thursday announced a second round of sanctions against 20 Russians and a St. Petersburg bank. This builds on asset freezes and visa bans President Obama ordered Monday against 11 Russian and Ukraine officials, which some didn't take very seriously, especially Russian Deputy Prime Minister Dmitry Rogozin, one of the officials targeted. He taunted Obama on Twitter for letting "some prankster" craft his sanctions.

At least publicly, U.S. officials say the sanctions are meant to force Russia to return Crimea to Ukraine. Privately, however, they probably know that is unlikely to happen; Russia President Vladimir Putin is too heavily invested politically in Crimea's annexation to be moved by economic punishment.

Instead, U.S. sanctions will seek to accomplish less ambitious (but more realistic) goals: For one, such measures could deter Russia from encroaching further into Ukraine. Also, they would signal that land grabs like Crimea come with a price and therefore could discourage foreign capitals considering similar acts of aggression from following Putin's lead.

All this depends on whether President Obama masters four critical tasks:

Get all of Europe on board

Sanctions have the biggest bite when other major economies sign on. Without followers, the target country simply looks elsewhere for goods and investments. Whether Europe will sign up to tough sanctions, though, remains to be seen. While the region is unified in denouncing Crimea's annexation, nations are split over who should bear the costs of punishing Moscow. France and Great Britain, for instance, are bickering over whether Paris should give up its arms sales to Moscow and whether London should sacrifice profits from servicing Russian oligarchs.

Overcoming these and other divisions within the European Union will be a focus for President Obama's conversations next week in The Hague, Brussels and Rome. After all, support won't likely come from emerging powers, such as China, Brazil and India. Despite previously being staunch defenders of respecting state borders, they all look to be sitting out the Crimea dispute.

Deflect counter pressures

Sanctions work best when the target country can't strike back. Unfortunately, Russia can retaliate against the U.S. and its allies; it could stymie the push to stop Iran's nuclear program – possibly one of Washington's top foreign policy priorities. Moscow could also cease allowing supplies destined for U.S. troops in Afghanistan to pass through Russian territory, thereby leaving Washington vulnerable to pressure from Pakistan, which controls the other main supply route. Also, 12 European countries depend on Russia for more than half of their natural gas imports; developing alternative sources of supply will take time.

Avoid triggers that could escalate the conflict

President Obama could institute the economic equivalent of the nuclear option—closing the U.S. financial system to any firm, American or otherwise, that does business with Russian companies or individuals. However, for now such a would alienate even Washington's closest allies.

Worse yet, it could trigger the very outcome the administration is trying to prevent – a Russian move in eastern Ukraine. If Moscow is forced to pay the maximum price for its transgressions, it might decide to seek the maximum gain. For that reason, Washington is likely to ratchet up sanctions bit by bit, always with an eye to the facts on the ground in Ukraine.

Give sanctions time

Sanctions don't inflict pain overnight. A sanctioned country, and especially one with significant financial reserves like Russia, can deflect economic coercion for a time. The UN Security Council imposed its first sanctions on Iran for its nuclear program in 2006. Seven years passed before Tehran began to bargain seriously. It will still take months if not years for Moscow to feel the consequences of its actions. Further complicating matters is the fact that Moscow is likely willing to pay a significant price for righting what it insists is a historical wrong.

So even if President Obama masters all four of these tasks he will not satisfy critics looking for quick results on Crimea. But over time sanctions could exact a significant economic toll on Russia, just as they have on Iran. And once imposed, Russia will discover it is stuck with them. It will be politically difficult for Washington and its allies to roll them back—even if they want to.

Worse yet for Russia could be the knock-on consequences of sanctions. Foreign companies averse to risk and uncertainty will likely look to invest elsewhere, just as European countries will take steps to lessen their dependence on a predatory neighbor.

Neither development would be good news for a sclerotic Russian economy that rests heavily on the vagaries of energy prices. So in time, Mr. Rogozin, and his boss Mr. Putin, may come to realize that even a "prankster" can inflict real pain.

This article appears in full on CFR.org by permission of its original publisher. It was originally available here.

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