While the sanctions regime imposed on Russia has dented its economy, it is far less severe than those imposed on North Korea and Iran, which included penalties on third-party countries. Imposing secondary sanctions could tighten the screws on Putin, but also accelerate deglobalization.
CAMBRIDGE – US President Joe Biden deserves all the praise he received for his recent trip to Ukraine and Poland to mark the first anniversary of Russia’s full-scale invasion. Biden’s ten-hour train ride from the Polish border to Kyiv – no small feat for an octogenarian leader – completely pre-empted Russian President Vladimir Putin’s propaganda plans for the occasion. It was a great day for Ukraine, the United States, and its NATO allies.
But when, during a speech at the Royal Castle in Warsaw, Biden claimed that the current sanctions on Russia represent “the largest sanctions regime ever imposed on any country in history,” his statement, though accurate, was also misleading. The sanctions that the US has used elsewhere, for example on North Korea and Iran, have been far more severe than the current sanctions on Russia, because they include secondary sanctions on third-party countries that continue to trade with these regimes. In the case of Russia, this is only just starting.
For now, Russia continues to sell oil to India and China and buy fresh fruits and vegetables from Israeli exporters. Moreover, a huge amount of trade takes place through so-called transshipments. To be sure, European exports to Russia have plummeted in line with the sanctions regime. But at the same time, the trade volume between Russia and countries like Turkey, Armenia, Kazakhstan, and Kyrgyzstan has shot up.
As a result, the sanctions have not hit Russia’s economy nearly as hard or as fast as expected. In the early days of the war, the US surprised even seasoned veterans of international finance when it swiftly froze $300 billion of Russia’s official foreign-exchange reserves. When Apple Pay and Google Pay were suspended in Russia, many hoped that Moscow’s subways would come to a standstill. But while Russia’s GDP was projected to shrink by at least 10%, the International Monetary Fund now estimates that the Russian economy contracted by just over 2% in 2022, and even expects it to grow slightly this year.
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