Economic Warfare Is Risky
And May Not Be Effective
Absent any serious provocation, Russia under its President Vladimir Putin has committed staggering acts of aggression against Ukraine and threatened to overthrow the government in Kiev, leaving the West under US leadership no other choice but to demonstrate to the occupant of the Kremlin that his government would pay dearly for its deadly gamble.
But American President Joe Biden and his North Atlantic Treaty Organization (NATO) have made it clear that they would not deploy military troops to Ukraine to help it respond to the Russian aggression.
In fact, as Washington has made it clear that a war between America and its nuclear peer, Russia, over Ukraine was out of the question, reflecting the military, economic and political constraints operating on the Biden Administration.
Instead, the United States and its European allies have announced the imposition of punishing economic sanctions against the Russian government, banks and government officials, with more to come in the next weeks.
President Putin’s “aggression in Ukraine will end up costing Russia dearly, economically and strategically, '' President Biden said in outlining the proposed measures, which include sanctions on 90 Russian financial institutions that represent 80 percent of its banking sector.
The economic sanctions are intended to bolster the Western allies diplomatic leverage over Russia without risking the use of military power.
Yet the sanctions amount to warfare by economic means and would not cost free for those who impose them that could take the form of potential economic blowback, not just in Europe, but also for the entire global economy.
That would happen at a time when the world’s economies are already being forced to deal with a two-year-long pandemic, supply chain disruptions, and surging inflation.
With a gross domestic product of US$1.7 trillion, Russia is the 12th largest economy in the world and a top oil exporter. That means that while cutting it off from the global economy would devastate it -- the move could have huge ripples on Western economies.
The recognition of that reality explains why the United States and other governments have resisted the idea of blocking Russia from the international payments network AKA Swift, which could amount to dropping a nuclear economic bomb.
While that would clearly hit Russia’s economy, cutting it off from Swift would also hurt Western business interests and could create incentives to weaken the foundations of the dollar-dominated global financial system, a process that would benefit China.
The Americans and their allies believe that the “blocking” sanctions against Russia’s banks coupled with export control targeting the country’s defence and maritime sectors would raise the costs for the Russian economy while limiting the impact of Western economies
But even under the best-case scenario that the economic steps against Russia would probably ignite a rise in global energy prices and have an upward pressure on inflation, especially if Russia would retaliate with its own punitive economic measures.
Moreover, the United States should consider that the imposition of crippling sanctions against Cuba, Iran, North Korea, and the occasional economic punitive steps against China and Russia, had failed in most cases to reverse these governments’ foreign policy decisions that reflected their core strategic interests.
From that perspective, President Putin believes that by attacking Ukraine he is averting a major threat to his country’s national interests by preventing its neighbour from joining NATO.
Trying to respond to these concerns may prove to be the most effective way to reach an agreement between Kiev and Moscow and bring an end to the war.