The Washington PostDemocracy Dies in Darkness

Economic sanctions will attempt to slow advance of Putin’s tanks

Measures may sting, but impact will take time Ukraine probably doesn’t have

President Biden prepares to deliver remarks at the White House on Feb. 24. (Bill O'Leary/The Washington Post)
6 min

President Biden turned up the pressure on Russia’s economy Thursday, gambling that higher prices and a protracted recession might eventually compel the Russian military to quit its offensive in Ukraine.

Speaking in the East Room of the White House, the president unleashed measures designed to starve Russia of the cash and technology it needs to compete in global markets and to develop advanced weaponry and space vehicles.

The latest U.S. sanctions, which follow limited penalties unveiled this week, will cut out top Russian banks from the U.S. financial system and choke off more than half of Russia’s advanced technology imports, the president said. Several prominent Russian business executives considered close to Putin — and their relatives — are also being placed on a U.S. blacklist.

As U.S. actions bite, Russian citizens could face bank runs, soaring inflation and unemployment. In response to questions, the president said Putin will find the sanctions as “devastating” as military force and will confront a choice between seeing Russia’s $1.5 trillion economy wither or meeting demands for peace.

“He’s going to begin to see the effect of the sanctions,” Biden said, adding: “He’ll have to make a very, very difficult choice of whether to continue to move toward being a second-rate power or, in fact, respond.”

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Even before the president announced the expanded sanctions, Russian markets were in free-fall. The RTS stock index lost more than 38 percent of its value on Thursday and is down more than 61 percent since October.

Still, those financial setbacks showed no sign of sapping Putin’s will to fight, as Russian tanks and troops continued their advance. Biden defended his reliance upon sanctions as a long-term bet on eroding Russian power.

“No one expected the sanctions to prevent anything from happening,” the president said. “This is going to take time.”

But Ukraine may not be able to wait.

In confronting Putin’s rockets, aircraft and warships with the antiseptic work of financial regulators and customs officials, Biden said the sanctions were “designed to maximize the long-term impact on Russia.” And economists expect the measures, along with similar steps by U.S. allies in Europe and elsewhere, to tip Russia into recession.

But Putin in recent years has reduced Russia’s exposure to the outside world, stockpiling $630 billion in financial reserves, reorienting trade ties, and shedding investments denominated in U.S. dollars. Each step was designed to insulate his economy from foreign pressure for a moment like now, when he is pursuing a strategic goal of overwhelming importance.

“Sanctions don’t necessarily work immediately. They build up pressure over time,” said Adam Smith, a partner at Gibson Dunn and a former Obama administration sanctions official. “He’s attacking Kyiv today, and sanctions’ impact might not be felt for months.”

Biden’s stance recognizes the reality that Americans, fatigued from two lengthy military commitments in Iraq and Afghanistan, have little appetite for war in Europe. The president’s strategy also represents a bid to break with the historic pattern.

Presidents of both parties in recent years have increasingly turned to sanctions as a principal foreign policy tool, attracted by the ease of imposition and the lack of any government budget cost.

Crippling U.S. sanctions on the Iranian economy are credited with driving Tehran to negotiate the 2015 agreement limiting its nuclear weapons development.

But the communist government of Cuba, North Korea’s nuclear weapons program and continuing Chinese human rights abuses stand as monuments to sanctions’ frequent failures.

The U.S. formally designates 9,421 individuals, companies or terrorist groups as sanctioned or barred from dealings with American citizens and financial institutions, more than 10 times the number in 2000, according to the Treasury Department.

Yet since 1945, only about one-third of U.S. sanctions programs have achieved their objectives, according to Dursun Peksen, a political scientist at the University of Memphis who has studied their use.

“Sanctions tend to fail more often than they succeed,” he said. “And sanctions rarely work against authoritarian regimes.”

Indeed, Russia has endured U.S. sanctions for years. Russia under Putin has been living with such restrictions since 2014, when President Barack Obama imposed limits on Russian access to U.S. financial markets and energy technology after Russia’s annexation of Crimea.

The Russian economy has grown by less than 1 percent a year since 2014. But oil prices and the coronavirus pandemic depressed economic activity more than sanctions, which “have had a negative but relatively modest impact on Russia’s growth,” according to the Congressional Research Service.

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Biden’s latest move severed to varying degrees the U.S. links of Russia’s two largest banks, Sberbank and VTB, as well as those of three smaller institutions. All effectively are barred from processing payments through the U.S. financial system. New limits also will prevent 11 state-owned companies and two privately held Russian companies from tapping U.S. capital markets.

By strangling the major financial arteries connecting Russia to global financial centers, sanctions will both shrink the Russian economy and damage the lives of individual Russians.

“It will have a severe impact on the Russian economy and the Russian people,” said Elina Ribakova, deputy chief economist for the Institute of International Finance. “The average person will feel worse and will feel poorer.”

Even after Thursday’s action, there is more Washington could do. Ukrainian President Volodymyr Zelensky on Thursday called for the United States and the European Union to expel Russia from a global financial messaging system known as the Society for Worldwide Interbank Financial Telecommunication (SWIFT).

Biden said some U.S. allies in Europe that have more trade at stake with Russian customers oppose the move. And he described the new bank bans as possibly “more consequential” than a SWIFT cutoff, which the president said “is always an option.”

Pressure to go further could grow. Senior Republicans on the House foreign affairs and armed services committees, Reps. Michael McCaul (Tex.) and Mike Rogers (Ala.), said Biden needs to do more — and fast.

“The people of Ukraine do not have the luxury of time,” they said.