D.C. bureaucrats have worked stealthily with allies to open a financial front against Putin.
By SHEELAH KOLHATKAR
One afternoon at the end of March, barely a month into Russia’s full-scale invasion of Ukraine, nine slightly rumpled officials from the U.S. Treasury Department emerged from a train at the Brussels station, boarded a waiting minibus, and headed toward the headquarters of the European Union. The Americans had come to meet with their European counterparts and further a plan of economic retribution against Vladimir Putin and the Russian Federation. Leading the U.S. delegation was Adewale (Wally) Adeyemo, the Deputy Treasury Secretary. Born in Nigeria, raised in California, and educated at Yale Law School, Adeyemo served as an economic adviser in the Obama Administration. Now he directs Joe Biden’s campaign to devise sanctions and weaponize global financial systems against Putin’s war machine.
Before the invasion, Western leaders had tried to use sanctions as a deterrent. After Putin’s forces attacked anyway, President Biden, rather than send American troops into battle and risk a third world war, committed billions of dollars in weapons and military support to Ukraine. The Administration also devoted itself to a more aggressive sanctions effort that, carried out with member states of nato and other allies, aimed to help drive Putin’s tanks back across the border.
As the minibus crawled through central Brussels, some of the Americans took note of the Russian Mission to the E.U., a stately white building fortified by barbed-wire barricades. Adeyemo and his colleagues were on their way to meet Mairead McGuinness, the European Commissioner for Financial Services, Financial Stability, and Capital Markets Union, to evaluate the effectiveness of the earliest rounds of sanctions. If the U.S. didn’t work closely with its allies, Adeyemo knew, Putin would find ways around the sanctions, avoid meaningful economic pain, and continue on his course of controlling or annexing Ukraine.
The Treasury Department, the E.U., the U.K., and Canada had already prohibited transactions with the Russian Central Bank, immobilizing approximately three hundred billion dollars of its assets held outside the country. The U.S. sanctioned Russia’s two largest commercial banks and dozens of oligarchs and other élites close to Putin. Treasury Department directives restricted the ability of major state-owned companies in Russia to raise money in American markets. The U.S. and the E.U. also blocked seven large Russian banks from using swift, the financial-communications system that facilitates the transfer of money around the world. The French finance minister, Bruno Le Maire, described the swift ban as a “financial nuclear weapon.”
John E. Smith, a former director of Treasury’s Office of Foreign Assets Control, told me, “This is the first global use of such massive economic power against a single country of such size.” The unprecedented level of coöperation between the Americans and their Western counterparts on the sanctions, and their apparent willingness to risk disrupting their own economies in the process, surprised many experts, and likely surprised Putin, too. But the collaboration had been taking shape, in secret, since the previous year.
In April, 2021, Adeyemo had contacted finance officials in the Group of Seven (Canada, France, Germany, Italy, Japan, and the United Kingdom, in addition to the U.S.) to learn why their countries had not joined earlier U.S.-led sanction efforts, and what might persuade them to participate in future ones. The director general of the French Treasury, Emmanuel Moulin, and other officials responded that they didn’t want to just sign on to punitive measures that the U.S. had already crafted. They wanted to be part of the design process from the beginning.
As the invasion began and the first tranche of collaborative sanctions against Russia was announced, the country’s main stock-market index fell thirty-three per cent, the fifth-largest drop in its history. The value of the ruble also plummeted. A month into the fighting, however, Putin was undeterred, and his military continued to rain missiles on Ukrainian towns and cities.
Adeyemo and his team had developed new proposals to take to the G-7, but the Americans’ ambitions were limited by an uncomfortable fact: Europeans were highly dependent on Russia for the fossil fuels that warmed their homes and powered their cars. (Nearly forty per cent of the natural gas consumed on the Continent in 2021 came from Russian sources.) Finding ways to reduce that dependency would not be resolved in a single meeting, but unless drastic steps were taken to change the situation Europe would end up inadvertently financing a brutal conflict that the West had condemned.
Adeyemo is self-possessed and confident in his bearing, but when it came to sanctions he was careful to manage expectations. During the train ride to Brussels from London, where he’d discussed strategy with British officials, he told me, “Ultimately, sanctions are a tool intended to change someone’s behavior. You look for behaviors to change, but it may not come for a while.” Nevertheless, he sensed momentum. “All those export revenues they’re getting today, instead of building them up and using them to fund their war, Russia has made clear they’re using those funds to prop up the ruble. Those are exactly the types of choices we want Russia to make. Choices to waste resources to prop up the stock market.”
The minibus pulled up to the Berlaymont building, the towering glass headquarters of the European Commission, the E.U.’s executive branch. Before heading into his scheduled negotiations, Adeyemo stood before a bank of video cameras to coolly express a central talking point of the day: “One of the Kremlin’s goals in its unprovoked invasion of Ukraine was to divide us, but it has only strengthened our alliance.”
In the days that followed, Russian forces retreated from an attempt to take Kyiv, an immense military and psychological victory for the Ukrainians. But what might have seemed to some like the beginning of the end of the Russian invasion would soon prove to be, as Churchill put it in 1942, the end of the beginning. More than six months later, Ukraine has won back crucial towns and villages, tens of thousands of Russian troops are estimated to have been killed, and nationalist critics in Moscow have felt emboldened to call the invasion a failure. However, this month, the Russian military intensified its air strikes and Putin declared martial law in four occupied regions. The conflict seemingly far from over, Adeyemo and his team keep discovering what unprecedented Western sanctions can and cannot do to deter a nuclear superpower intent on occupying its neighbor.
The use of economic sanctions dates at least to ancient Athens. Around 432 B.C., Pericles issued the Megarian Decree, which set up a blockade aimed at Sparta’s allies. The tactic’s effectiveness, however, remains in doubt; some historians speculate that the decree helped ignite the Peloponnesian War.
After the First World War, as the League of Nations considered the use of economic measures as a way to deter countries from invading one another, Woodrow Wilson spoke of sanctions as a tactic “more tremendous” than physical conflict. One nation had only to impose on another this “economic, peaceful, silent, deadly remedy and there will be no need for force,” he said. “It is a terrible remedy. It does not cost a life outside of the nation boycotted, but it brings a pressure upon that nation which, in my judgment, no modern nation could resist.” Wilson’s assessment proved optimistic, as the threat of sanctions against Germany, Italy, and Japan failed to prevent another global conflict.
Still, the appeal of economic sanctions persisted, particularly in the modern history of American foreign policy. In the past eighty years, the U.S. has deployed them against the Soviet Union, China, Cuba, Vietnam, Iran, and Iraq, among others; some ten thousand entities have been designated as targets of sanctions. The clearest success of a sanctions effort to date was perhaps the global campaign against South Africa’s apartheid system. In 1986, the U.S. joined other of South Africa’s trade partners in passing sanctions, and the movement to divest and boycott the country’s goods and services spread. The resulting economic pressure helped to end apartheid, in 1994.
After the terrorist attacks of September 11, 2001, George W. Bush quickly pledged to “starve terrorists of funding.” Al Qaeda had been raising cash through charitable networks and front companies, moving money around the world using couriers, local moneylenders, and various international banking institutions. To choke off that revenue stream, Bush turned to the Treasury Department, which had previously played a less central role in national-security debates. Its officials had financial expertise that could be useful in weakening a network such as Al Qaeda, which needed access to large amounts of cash to pay for weapons and training.
The U.S.A. Patriot Act, which was passed in response to the 9/11 attacks, granted the government vast new powers to combat terrorism. One provision gave the Treasury Department the authority to designate a foreign jurisdiction or financial institution a “primary money laundering concern,” and to force American banks and other institutions to cut the entity off from the American financial system. Because the U.S. plays such a dominant role in global finance, this kind of order is usually devastating to the target. “All of a sudden, the Treasury Department found itself thrust into the biggest issue of the day,” said Daniel Glaser, who worked on those sanctions and, during the Obama Administration, became the Assistant Treasury Secretary for Terrorist Financing and Financial Crimes. “We were going to bankrupt Osama bin Laden. When I look back on it, I’m almost embarrassed by the stridency of it. But this idea of targeted sanctions became ingrained in the international community’s response to terrorism.”
By 2004, a new unit of the department, the Office of Terrorism and Financial Intelligence, had been granted almost imperial powers. It could cut off financial support not just to suspected terrorists or money launderers but to anyone doing anything that threatened national security or undermined the integrity of the international financial system. The unit’s analysts played offense and defense, as Glaser put it. In addition to identifying and disrupting the financial networks that bad actors used, the group tried to pinpoint vulnerabilities in the international financial system which were ripe for exploitation by terrorist groups, narcotics networks, and rogue regimes. An opportunity to test the unit’s capabilities came later in 2004, when U.S. intelligence sources reported that Banco Delta Asia, a small bank in Macau, was being used by the North Korean government to launder money. The regime in Pyongyang had been economically weakened by a series of traditional trade sanctions applied after the end of the Korean War, and in order to raise money Kim Jong Il was allegedly trafficking illegal drugs and selling counterfeit products, the proceeds of which were moved through front companies. One particularly robust line of business was producing high-quality counterfeit hundred-dollar bills, which were nicknamed Supernotes.
On September 15, 2005, the Treasury Department announced that it was designating Banco Delta Asia a “money laundering concern” and issued a decree requiring all U.S. banks to stop doing business with it. “We wanted North Korean financial activity to be rejected like an infection by the antibodies we had built up in the international financial system,” Juan Zarate, a former deputy national-security adviser to George W. Bush, wrote in his book, “Treasury’s War,” about his time in government. In the following days, account holders rushed to withdraw their funds, and the Macau monetary authority eventually stepped in and put the bank into receivership, freezing approximately twenty-five million dollars’ worth of assets related to North Korea that were held by the bank. The institution’s collapse had a ripple effect: other governments and banks around the world stopped interacting with North Korea. Within months, the country was effectively cut off from the global financial system. The action also became a bargaining chip in negotiations with Kim Jong Il regarding his nuclear program.
“That was where we showed, to ourselves and everybody else, that the U.S. Treasury Department, essentially operating alone, could put massive pressure on a jurisdictional target,” Glaser told me. “We couldn’t believe what we had done. People thought we were magicians.”
During the next few years, the officials running the Office of Terrorism and Financial Intelligence grew more ambitious. One of their efforts was a vigorous financial campaign against Iran. The U.S. had, from the mid-eighties, classified the country as a state sponsor of terrorism. In 2006, the T.F.I. sanctioned an Iranian bank, accusing it of facilitating the activities of Hezbollah, which the United States had designated a terrorist organization. Not long afterward, the department sanctioned a second Iranian bank, for servicing Iran’s weapons program. This pattern continued, and in 2010 Congress passed legislation authorizing even more sanctions, freeing the Treasury Department to target the Iranian Central Bank itself. By 2015, Iranian leaders, made desperate by the cumulative effects of the economic blockades, agreed to halt the development of nuclear weapons in exchange for sanctions relief.
Paradoxically, such harsh and prolonged sanctions have sometimes consolidated the power of the regime that the Americans were trying to undermine. Even in Tehran, fundamentalist leaders gained political legitimacy from the external embattlement. So did Fidel Castro during a decades-long embargo of Cuba.
Nicholas Mulder, a historian and the author of “The Economic Weapon: The Rise of Sanctions as a Tool of Modern War,” notes that, in these and other countries aggressively sanctioned by Western governments, despotic leaders lasted for years or remain stubbornly in place. “Sanctions are kind of like alchemy,” he said. “You apply all this pressure to this black box of a country’s economy and hope that, on the other side of that black box, political change comes out. But making sure that pain and pressure lead to the kind of change you want to see—that’s the real challenge, and often people underestimate how difficult that will be. And that’s why sanctions are often much less effective than you would think.”
In November, 2013, the President of Ukraine, Viktor Yanukovych, abruptly pulled out of a major trade agreement with the European Union. With that sudden reversal, he not only betrayed the wishes of much of his citizenry, he also revealed how beholden he was to Putin. Tens of thousands protested in the streets of Kyiv, and as the situation became increasingly unstable Yanukovych fled Ukraine. (Eventually he resurfaced in Russia.) In February, 2014, Russian forces, wearing unmarked uniforms, began to wrest control of Crimea from Ukraine, and Putin soon declared the peninsula sovereign Russian territory.
The Obama Administration and European leaders did not act militarily, but agreed that Putin’s aggression called for strong economic sanctions. Officials in Washington developed a menu of measures that they hoped would punish Russia and compel it to withdraw from Crimea and eastern Ukraine without seriously harming the rest of the global economy.
Russia, the eleventh-largest economy in the world, could mitigate the effects of sanctions by turning to China or other countries outside of the Western sphere of political influence. Jack Lew, the Treasury Secretary at the time, brought together the department’s sanctions experts and its economists to identify aspects of the Russian economy that were solely dependent on the West. One area of vulnerability was Russia’s access to stock and bond markets in London and New York. By targeting that access, the Treasury Department would make it far more difficult and expensive for Russian enterprises to borrow money or to find foreign investors.
In March, 2014, the U.S., the E.U., and Canada started enacting rounds of sanctions against Russia. An important component of the effort was the authorization of measures that could be implemented down the line—an attempt to signal to Putin what could be in store if he failed to retreat. Daleep Singh, who was then a senior official in the Treasury Department, told me, “The best sanctions are those that never even have to get used.”
Unfortunately, as Singh acknowledged, the steps taken by the West that month failed to deter Putin. On July 16th, the U.S. went further. It imposed limited sanctions on entities including two of Russia’s largest oil companies, Rosneft and Novatek, and two of its largest banks, Gazprombank and Vnesheconombank, along with eight arms manufacturers and the Russia-backed Luhansk and Donetsk regions. Putin seemed unmoved. The next day, forces in eastern Ukraine shot down a Malaysia Airlines flight on its way from Amsterdam to Kuala Lumpur, killing everyone on board. (Russia has denied involvement, despite evidence linking it to the event.)
More Western sanctions against Russia were levied in the next year and a half, including travel bans and asset freezes on Russian officials and separatist leaders responsible for the invasion of Crimea. Americans were not allowed to provide new financing to major Russian financial institutions, and some Russian state-owned companies were prevented from accessing Western financing sources. Almost no restrictions, however, were placed on Western purchases of Russian fossil fuels, that engine of immense revenue for the Kremlin and the business élites.
When Donald Trump assumed office, there were concerns that he might reverse some of the existing sanctions. Congress, which at the time was controlled by the Republicans, preëmptively restrained Trump, passing legislation that imposed further sanctions on Iran, North Korea, and Russia, and blocked unilateral lifting of certain penalties. Inside the Treasury Department, career staff members were confused about Trump’s intentions toward Russia. One former Administration official told me that Trump did not seem interested in sanctioning Russia: “He was focussed on Ukraine and Hunter Biden. He was focussed on Iran. He was focussed on, could he make a deal with China.”
Most of the former Treasury officials I spoke to agreed that the sanctions levied in that era were insufficient. Vladimir Ashurkov, a director of the Anti-Corruption Foundation, which is connected with the imprisoned Russian opposition leader Alexei Navalny, echoed that conclusion. He said, “If the sanctions we have now had been gradually introduced over the eight years that passed since the first hostilities started in Ukraine, in 2014,” the current tragedy might have been avoided. “I think they sort of encouraged Putin’s assertiveness over this eight-year period. By February, 2022, I think he didn’t expect much retaliation.”
The sanctions rolled out in those years also provided Putin with an opportunity he could later turn to his advantage. He and his fellow-élites in Russia learned how to accommodate and compensate for the worst penalties of the Western sanctions regime. The government built an enormous cushion of foreign reserves that could be drawn upon to prop up the value of the ruble. It also established front companies across the world that could, if needed, help with the procurement of crucial technology and components. As a result, the work of Wally Adeyemo and his colleagues this year wasn’t just informed by a long line of previous sanctions programs. It was complicated by them.
Standing behind public-facing officials such as Adeyemo are career civil servants, many with deep expertise, who have chosen to forgo more lucrative jobs in the private sector. One of them is Elizabeth Rosenberg, the Assistant Secretary for Terrorist Financing and Financial Crimes. Earlier in her career, having completed graduate work in Near Eastern studies, she’d covered the energy sector, national security, and sanctions as a trade journalist. But eleven years ago she decided that it was worth taking a pay cut to help create the sanctions she’d been writing about.
In the autumn of 2021, when intelligence reports about Russia’s activities on the Ukrainian border made it plain that Putin was preparing for a large-scale invasion, she and other officials began to model steps that they might want to take, such as restricting Russian oil and gas imports, and the possible impacts those moves might have on the global economy. “Sanctions involve costs. There’s no way around it,” Rosenberg said. “We are cutting ourselves off from the Russian market. We have a responsibility to make sure we are not doing more than we have to.”
A crucial aspect of the bureaucrats’ work is sifting through intelligence data and predicting collateral damage—not just humanitarian costs but those detrimental to U.S. economic interests. Assessments of that damage had to be considered well before any decisions were finalized.
Rosenberg worked closely with Andrea Gacki, the director of the Office of Foreign Assets Control, who earlier in her career was at the Justice Department defending sanctions against targets who had sued the government. Through the fall and winter, the two officials consulted with their foreign counterparts about some of the knottier aspects of what they hoped to do.
Rosenberg and her colleagues travelled repeatedly to the U.K. and Europe. Sometimes her delegation would arrive and learn that the Europeans had budgeted only an hour or two for the meeting. “I would say, ‘No, we’re going to need a lot of time,’ ” Rosenberg recalled. “ ‘We need coffee, we need snacks, we need room availability.’ ” Other times, they would be met with surprise when they asked that representatives of a given country’s justice department and intelligence services attend the discussion, as national-security issues were bound to come up. Hours were spent reviewing whether a particular country had the legal authority to freeze Russian assets, and, if it didn’t, what it needed to do to establish such authority. After most meetings ended, Rosenberg and her team would rush to the American Embassy to send the results of the sessions to Treasury Secretary Janet Yellen.
The U.S. Treasury Department is the only such institution in the world that has its own intelligence agency, situated in the department’s headquarters, on Pennsylvania Avenue. On the night of February 23rd, Rosenberg went through heavy metal doors, placed her phone in a lockbox, and began work on a classified memo to Yellen about proposed sanctions. In an adjoining room, intelligence analysts who are on duty twenty-four hours a day stood behind banks of blinking monitors. Around 10 p.m., one of the analysts announced that Russia had launched missiles at Ukrainian targets. The war had begun. An official in the room that night recalled how the team’s sense of purpose intensified: “I will not forget how that felt.” Sweeping sanctions against Russia went into effect within hours.
Yellen told me, “I’m involved in some discussions with people at the finance-minister level. But when I hang up the phone I say, ‘My senior staff will be in touch with yours,’ and I cast all of this on Andrea and Wally and Liz, and they do the heavy lifting. If this all works out, it’s because of them.”
Some of the plans activated in February were less comprehensive than they first appeared. Dozens of Russian officials hadn’t been touched, and the initial swift ban applied to only seven banks. But the sanctions designers wanted to leave room to ramp up the pressure should Putin not respond as they hoped.
As Rosenberg explained to me, designing and implementing sanctions, which are largely about economic forecasts and banking relationships, often feels like mechanical work. Typical days involve composing and editing memos and passing them up the chain. Humanitarian concerns may feel very far away. “And then you have Bucha”—the site of a massacre of civilians by Russian forces this spring—“and you think, Oh, my God, this is why we’re doing it.”
Not all of what unfolded shortly after the invasion was anticipated, including a mass private-sector exodus from Russia. Within days, the anger of the Western public had moved dozens of companies—among them Apple, Netflix, ExxonMobil, and Shell—to announce that they were withdrawing from the country. Before long roughly a thousand more businesses joined them and, in Yellen’s account, “multiplied the impact” of sanctions.
Singh thought that the pullout would have a lasting effect. “Once a McDonald’s leaves, it doesn’t come back, especially those that had physical infrastructure that they just abandoned in Russia,” he said. “That was big.”
From the Treasury officials’ perspective, more penalties are not always better; heedlessly adding names to sanctions lists may have destabilizing consequences. In 2018, for instance, the Office of Foreign Assets Control sanctioned the aluminum magnate and oligarch Oleg Deripaska and his companies in response to Russia’s invasion of Crimea and other activities. The announcement jolted the global aluminum market, prompting a price spike.
The sanctions or seizures of foreign assets—for instance, the impounding this March by European officials of gaudy yachts linked to Rosneft, the state-controlled oil conglomerate, and to Alexey Mordashov, reportedly the richest man in Russia—are preceded by careful study and legal review. Before an individual or a company appears on a sanctions list, a multidisciplinary team at ofac, often working with other government agencies, analyzes the potential consequences and tries to minimize unintended results.
Putin countered the sanctions with strategies to create demand for rubles and drive up their value. He required that most Russian oil and gas purchases be paid in rubles, and the Russian Central Bank restricted the ability of the country’s citizens to exchange their money for foreign notes. By the end of June, the price of the ruble had rebounded. A month later, the Russian military had made slow but solid gains. Among its achievements was bombing the strategically important port of Odesa, which disrupted plans to release grain stores there that were badly needed in other parts of the world.
E.U. countries had by now adopted their sixth sanctions package, which included a pledge to phase out seaborne imports of Russian crude oil. This, along with a decrease in pipeline deliveries, the E.U. claimed, would allow it to cut Russian oil imports by some ninety per cent. The member countries also agreed to reduce their consumption of gas by fifteen per cent. Shortly afterward, the Russian state-owned energy company Gazprom drastically reduced natural-gas flows to Europe through the Nord Stream 1 pipeline, which runs from Russia to Germany. (Russia blamed technical problems that were exacerbated by sanctions.)
Russia was also selling much of the oil and gas that European countries didn’t want to countries including China and India, which were offered better deals than they’d previously been getting. Estimates of Russian oil-and-gas revenue reached a stunning billion dollars a day, nearly forty per cent higher than they had been in 2021. A former Treasury official called the enormous profits “the elephant in the room.”
Margarita Balmaceda, a professor at Seton Hall University who studies the politics of Russian energy markets, noted that in this instance extensive sanctions may produce only a middling effect. Western policymakers, she said, may end up “thinking we are doing something when we aren’t doing that much.”
By this summer, the Treasury Department’s sanctions experts were sometimes racked with self-doubt. “I think the going has gotten tough,” Elizabeth Rosenberg told me. “It’s frustrating that Russia is able to reap this premium with oil prices with this war it created. I find it demoralizing and sad to think that this horrible war grinds on.”
In early autumn, the conflict, along with other economic factors, was worsening a food crisis in Africa and the Middle East, and driving worldwide inflation higher. Western political leaders found themselves facing not just economic distress but simmering popular resentment at the costs of supporting Ukraine.
In the United States, nearly thirty per cent of respondents to a Pew study said that they weren’t concerned by the prospect of a Russian takeover of Ukraine. Such indicators of Western indifference served Putin’s interests at a moment when, according to the International Monetary Fund, Russia’s G.D.P. appeared to be stabilizing after a perilous summer.
The predicted rate of decline in Russia—more than three per cent in 2022—was roughly a tenth of the predicted decline of G.D.P. in Ukraine. It was also less than some Western leaders had hoped. But its consequences were being felt on the ground in Russia.
Ilya Matveev, a political scientist who studies Russian economic policy, estimated that in 2021 there were some twenty auto manufacturers, including Volkswagen, Nissan, and Hyundai, operating in Russia. All of their plants depended on imported parts. Today, few are still operating. One of those, Avtovaz, is a large carmaker founded in the Soviet era that had a partnership with Renault. But Renault is now gone and Avtovaz is making do with whatever components it can find. Another is a Chinese company trying to do the same thing. Sales of new cars in Russia fell nearly sixty per cent in September from a year earlier, according to the Association of European Businesses.
Matveev cited Tikhvin, a town of about sixty thousand people in northern Russia, as a telling example. Until recently, it had two main employers, an ikea furniture-manufacturing plant and a Russian factory that assembled railroad freight cars. After the invasion, ikea announced that it was closing its Russian operations. The plant is now empty. The freight-car manufacturer struggled to get the parts it needed; that factory was shuttered for months. Workers who were furloughed learned to live with less.
Those workers have no safe way to express their frustrations with their government, though. Acts of protest are restricted, and the independent media have been shut down. “Russia is now a full-fledged military dictatorship. It was not announced, but it is de-facto martial law,” Matveev said. “This is why it is really difficult for me to imagine political change in Russia.”
Matveev, who fled the country this spring, predicted pockets of labor unrest in Russia in the coming months, but he believes that Putin will still have resources to continue fighting the war for months, or even years. “This is the most tragic thing,” he said. “Like in the First World War—it was an extremely intense conflict, but it lasted four years. This could be similar.”
Vladimir Ashurkov, of the Navalny-affiliated Anti-Corruption Foundation, described sanctions as “a blunt instrument and not a silver bullet,” and said that those who expected sanctions to stop the war in Ukraine quickly were naïve. “Economic sanctions degrade Russian military and economic capabilities over time, but it’s not immediate,” he said. “Personal sanctions, they turn the life styles of the rich and famous of the Russian political and economic élite upside down, but they are not going to end the war immediately.”
Oligarchs who have been sanctioned by the U.S., the U.K., Canada, and Europe are now being forced to choose sides. Some will leave Russia with close to nothing. The entrepreneur Oleg Tinkov, who criticized the war on Instagram and claims he was forced to sell his stake in a bank for a fraction of its value, is reportedly living in fear of being assassinated. Others will stay in Russia and relinquish their assets outside its borders. For a person “who is used to traversing the Mediterranean on his mega-yacht, it’s highly inconvenient,” Ashurkov said. But, for an average Russian person, seeing unemployment and prices skyrocket and the availability of goods declining, “it’s death by a thousand cuts.”
Nicholas Mulder, the historian, believes that the use of sanctions fundamentally altered the meaning of war and peace. Although often presented as a way to prevent military conflict through deterrence, sanctions are themselves akin to a brutal form of warfare whose effects fall most directly on civilian populations. “A nation put under comprehensive blockade was on the road to social collapse,” Mulder writes. “The experience of material isolation left its mark on society for decades afterward, as the effects of poor health, hunger, and malnutrition were transmitted to unborn generations. Weakened mothers gave birth to underdeveloped and stunted children. The economic weapon thereby cast a long-lasting socioeconomic and biological shadow over targeted societies, not unlike radioactive fallout.”
Members of the Biden Administration, including the sanctions experts in the Treasury Department, take pains to note that the economic weapons they’ve deployed have exemptions for food, humanitarian aid, and medicine. But Adeyemo and his team have had to confront a range of unintended consequences, from global inflation to crop shortfalls in impoverished countries. For instance, in disrupting supplies of certain fertilizers of which Russia is a major producer, E.U. sanctions could exacerbate already acute food insecurity in Tunisia and other parts of Africa.
Daniel Glaser, the former Assistant Secretary for Terrorist Financing and Financial Crimes, said that it’s important not to be coy about the damage sanctions do, collaterally or head-on. “When you talk about trying to raise inflation, or raise unemployment, or damage the G.D.P.—what do you think that is? Those are numerical representations of ways you’re hurting the people.” He went on, “I think we need to own it. I’m not saying I don’t understand the criticism. It’s tragic that someone like Vladimir Putin puts us in a position where we have no choice but to do this. But I do agree that the world sucks, and you often have to do things that are the lesser of two evils.”
The next escalation of the sanctions war, Treasury officials hope, will include a price cap on Russian oil—a proposal that Rosenberg and her colleagues have been trying to finalize with coalition members this month. Yellen told me that the cap was the best way to damage Putin and to make it difficult for him to continue the war while shielding the U.S., its allies, and the global economy from adverse consequences. Oil prices are around eighty-five dollars a barrel today, down from a high of more than a hundred dollars in March; a Bloomberg News report suggested that a range between roughly forty and sixty dollars a barrel was being discussed. As Rosenberg put it, “We don’t want Russia to stop selling oil into the global market, which would elevate prices even more. But we want it to earn less.”
The idea of a group of countries banding together to limit the price at which Russia can sell a barrel of oil may seem fantastical, but the bizarre structure of the global oil market puts it within the realm of possibility. Western companies provide much of the insurance and financing that Russian oil tankers need in order to transport their oil to foreign buyers; the most recent packages of sanctions have already barred companies in the E.U. from providing insurance for Russian oil shipments. Some energy experts have dismissed the idea, however, noting numerous potential ways around the cap, among them finding alternative sources of tanker insurance. Nonetheless, Adeyemo went to Paris, Brussels, New Delhi, and Mumbai in recent months to generate support for the idea.
Remarkably, the mere discussion of a price cap seemed to have an effect, contributing to uncertainty that in September forced Russia to offer further discounts for oil sales to China and India. Adeyemo argues that the proposed cap would work well with existing export restrictions that limit technology sales to Russia. “It’s starting to bring down their revenues,” he told me recently. “But, even if they continue to have revenues, a key piece of this is making sure the revenues they have can’t buy the things they need to continue the war in Ukraine.”
The Western prohibitions on exports of technology such as microchips have degraded Russia’s ability to make precision-guided missiles and other sophisticated weapons. Yellen noted with satisfaction that two Russian plants that made battlefield tanks had shut down because they’d run out of components. Treasury officials are similarly encouraged by the results of the risky step G-7 countries took in freezing Russia’s foreign-currency reserves—those hundreds of billions in dollars, euros, pounds, yen, and gold. The move prevented Putin from accessing the financial cushion he’d spent years building as a bulwark against this very situation.
Singh said that sanctions are only part of a broader Western strategy to constrain Putin, one that includes providing weaponry and equipment to Ukraine; helping Europe to diversify its energy sources; and fortifying the presence of nato troops in countries including Poland, Estonia, and Latvia. But, he said, “there is always a connection between a country’s economy, its military-industrial complex, and its performance on the battlefield.”
Earlier this fall, the Ukrainian military reclaimed Russian-held areas in eastern parts of the country. Around the same time, China and India, under pressure from the West, began distancing themselves from the Kremlin. On October 5th, however, Saudi Arabia gave Putin a break. The group of countries called opec+, of which Saudi Arabia is the de-facto leader, announced a two-million-barrel-a-day cut in oil production in an attempt to reverse falling oil prices. The decision was not only a boon to Putin; it was a rebuke to the Biden Administration, which had been urging countries to keep production high so that prices would continue to fall.
Margarita Balmaceda, the Seton Hall professor, told me that opec+ countries were likely motivated more by economic self-interest than by a desire to help Putin. Even so, she said, “this is going to create havoc and chaos in Western societies, including in the U.S., where we have elections in a few weeks. That kind of signal is exactly what Putin wants.”
The political and financial benefits derived from the opec+ cut won’t likely be felt by Russian workers currently experiencing the sharpest effects of the economic contraction. But Putin himself retains the short-term advantages of an autocrat and a kleptocrat. The system he’s created, including a vast and sophisticated secret service, is dependent on him, loyal to him, and also aware of the grave risks that come from breaking with him.
Still, Elizabeth Rosenberg remained confident that the central goal of the sanctioners, starving Putin of funds for war, was working. “All of our indications are that these restrictions we’ve put in place when it comes to accessing finance or importing technology and material—these are vises that keep tightening,” she said. “And our playbook is to keep tightening them.”
Many experts see Putin’s September mobilization of three hundred thousand reservists for mandatory military service as a sign of desperation. But he’s evidently not out of ideas. Earlier this month, his military deployed unguided kamikaze drones—reportedly manufactured in Iran—to sabotage Ukrainian electricity grids and water supplies, just in time for winter. States that are much sanctioned by the West sometimes collaborate effectively, too.
Many of those I interviewed underlined how hard it is to gauge the true state of Russia’s economy, or its leader, when the Kremlin controls information so tightly. Determining when and how this conflict will end is even harder. As Sergei Guriev, a Russian economist who now lives in Paris, said, “This is really a twentieth-century war,” with soldiers on the ground killing civilians and destroying towns. “That’s not supposed to happen in the twenty-first century. It should not happen now. But it is happening. We should not rule out scenarios that seem implausible.” FIRST PUBLISHED IN NEW YORKER ON OCTOBER 24, 2022♦
*Published in the print edition of the October 31, 2022, issue, with the headline “The Money War. Source: https://www.newyorker.com/magazine/2022/10/31/will-sanctions-against-russia-end-the-war-in-ukraine
