What Have We Learned From 32 Months of Economic Warfare?

Notes from a sanctions conference.

Photo by FlyD on Unsplash

Over the past two weeks the hard-working staff here at Drezner’s World has been busy attending conferences about economic sanctions. It’s kind of my thing.

The first conference, at the end of September, was on the “Global Repercussions of Russia-West Economic Warfare.” It was run by Fletcher’s Russia and Eurasia Program — and hey, I’m the co-director of that joint! The purpose of the conference was to evaluate both Russian and Western efforts to impose economic sanctions, export controls, and import restrictions before and during the Russo-Ukrainian war.

The second conference, earlier this week, was entitled “Sanctions 2024,” run by Chatham House (and co-sponsored by the Fletcher School).¹ Its goal was to develop a broader understanding of what we know about economic statecraft — not just the events in Russia, but ongoing sanctions cases involving Venezuela, Iran, and Cuba.

I learned a great deal from both of these conferences. Here are some initial takeaways from my active listening — I will likely have more to say in the future:

First, we are now in a world of economic warfare. That might sound pedantic to anyone who has paid a smidgen of attention to economic sanctions over the past decade, but it is nonetheless worth stressing. An increasing amount of economic statecraft is being employed where the goal is not coercive bargaining — the goal is to fundamentally weaken the targeted actor. And because it is economic warfare, this is also a world in which the “economic fog of war” is definitely a thing. Policymakers may enter a sanctions situation thinking that they are attempting to do one thing (deterrence) but wind up advocating the same policies to serve another purpose (containment).

Second, some private-sector actors have yet to adapt to this new world of economic warfare. The dirty secret about sanctions is that the lion’s share of implementation is performed by the private sector. Until recently that meant the financial sector. Banks and other financial institutions have been living with economic sanctions for decades now. They have invested significant resources into compliance. The recent use of more ambitious sanctions and export controls, however, has broadened the number of affected economic sectors. They range from semiconductors to energy to machine tools to professional services. Some of these sectors have moved down the learning curve quickly; others are claiming, perhaps disingenuously, that they cannot. The future of economic statecraft depends in no small part on whether governments are able to force these more recalcitrant sectors to adapt to the new regulatory requirements.

Third, there are some hard limits on economic statecraft. There is a fair amount of Monday-morning quarterbacking about whether the Russia sanctions could have been implemented more effectively from the outset, and whether including the energy sector would have made a difference. The truth, however, is that economic sanctions alone almost never force a great power to make territorial concessions that they are willing to expend blood and treasure to keep. Just about every speaker at both conferences acknowledged that sanctions are merely one instrument in a symphony of power. Believing that sanctions alone would have done the trick in the case of Russia is wrong.

Fourth, economic statecraft rests on political as well as economic logics. To be sure, the goal of sanctions might be to impose economic costs on the targeted actors. That is not unimportant. But sometimes political matters impinge on sanctions success and failure. In the case of Russia, the initial flex of transatlantic cooperation counted as a political win. The war in Gaza, on the other hand, denuded the West of the moral high ground. Focusing on infringements of Ukrainian sovereignty at the expense of discussing infringed Palestinian sovereignty was a political loss for the sanctioning states. It made it all too easy for the Global South to cry hypocrisy and continue trading with Russia.

Finally, Russia’s Great Unwinding is a source of great geopolitical uncertainty. Russia has been operating a war economy for two years, with the bulk of economic growth coming from the military-industrial complex. In the short term that has produced low unemployment and economic projections that have exceeded expectations. But this has also produced a badly distorted Russian economy, one that will find it difficult to subsequently redirect military investments into the civilian sector. It is possible that Putin’s resolve in the Ukraine war is a function of how much he thinks Russia needs to produce weaponry to fuel its economic growth. And since Putin seems to think he thinks Russia needs this a lot, Russia will continue to pursue its war at the risk of even more lives lost.

1. Yes, the conference operated under the Chatham House rule.