With Donald Trump in the White House, one big question keeps coming up: how will the new administration handle President Obama’s sanctions against Russia? But while the term gets tossed around in the news quite a bit, what they mean—and what they actually do—often get lost in the noise.
Indeed, the sanctions came up again this week. The United States Treasury Department amended former President Barack Obama’s sanctions regimen against Moscow, to allow certain transactions with Russia’s FSB, the country’s domestic intelligence agency.
While it sounds suspicious for American companies to require FSB approval for business transactions, it really isn’t. Russian law requires FSB approval of any products that contain cryptography, like cellphones and laptops. The amendment does not allow for critical oil and gas drilling technology to be exported to Russia, and all current economic sanctions against Russian businessmen and designated politicians stand.
Basically, that means there’s no significant change in the sanctions Obama instituted back in 2014, which were designed in concert with Europe to punish Russian President Vladimir Putin for his annexation of Crimea and backing rebels in eastern Ukraine.
But this week’s news, coupled with Trump’s recent phone call with President Putin, requires some explanation of what sanctions are, what purpose they serve, whether or not they work, and how, in the case of Russia, they attempt to leverage U.S. interests against Moscow for bad behavior.
Here are several key areas of the current economic sanctions against Russia, and what could happen if Trump drops (or significantly amends) them.
What Are Sanctions, And Why Is The U.S. Sanctioning Russia?
Economic sanctions are a withdrawal of financial and trade partnerships levied against governments to punish them for violating international norms, such as what Russia did by invading sovereign Ukraine without provocation. The U.S. body that oversees sanctions is the U.S Department of the Treasury.
The American sanctions specifically target Russia’s energy sector, which makes up more than half of the country’s Gross Domestic Product. No U.S. oil company can do business with Russia, nor can any companies sell drilling technology needed to access oil and gas reserves. U.S. banks cannot issue long-term loans to Russian businesses for energy-focused projects.
European banks are also prohibited from engaging in similar financing, as the European Union has also sanctioned Moscow; consequently, Russian companies have been forced to rely on Beijing for loans for significantly lower amounts.
All of this is designed to weaken a key sector of Russia’s economy in hopes the pressure will entice Putin, over time, to reverse his annexation of Crimea and to withdraw Russian troops and its support of rebels in eastern Ukraine.
The Obama administration believed economic sanctions were the most precise method of punishing Moscow without an escalation of involving the U.S. in an armed conflict. Some experts believe they are effective so far. But Obama is gone and how much of an impact sanctions will have in the future largely depends on Trump.
How Effective Have Sanctions Been?
Well, there’s the rub. There is no consensus on whether they “work” or not, because there is no universal measure of determining their effectiveness.
Much of it depends on what the enacting parties have in mind. In the case of Russia, economic sanctions are designed to hit Russia in its energy sector, where the country is most vulnerable. The Russian economy is not very diverse, so if its energy sector is disrupted in anyway, it will in fact cause problems.
Russia’s GDP contracted 3.7 percent in 2015 because of sanctions and low oil prices, forcing Moscow to made budget cuts. As for loans, Beijing has become the biggest lender to Russian companies, but the amounts it lends pale in comparison to what the E.U. and the U.S typically lend.
In 2013, China loaned Russian companies $11.6 billion. Compare that with $22 billion from the UK alone. Huge difference.
If the aim is to hurt the Russian economy, then the sanctions are working. As for a change in Moscow’s behavior, that hasn’t taken place yet. Russian troops are still in Crimea and rebels are still fighting Ukrainian forces with significant Russian military assistance.
But sanctions are a long-term method that can easily take years before any real changes in behavior from the targeted party occurs. It took more than three decades of sanctioning Iran before the Obama administration significantly dialed them down with the controversial Iran Deal.
Of course, while Iran has followed the letter of the deal, Obama said in December that Tehran was not adhering to the “sprit” of the deal. At any rate, the International Atomic Energy Agency has said Iran has passed all of its inspections, with a few minor exceptions. Depending on who you ask, Iran is behaving much better than in times past because it sees the benefit of having its oil on the global market, and that economic isolation was not in its long-term interests.
As for Russia, a significant change in behavior would be a withdrawal of its support for rebels in Ukraine. That should result in some significant lifting of sanctions, but how long will it take for Russia to make such a move is unknown.
Why Might Trump Want To Lift The Sanctions?
The running argument is that sanctions have hurt his many business ties to Russia, known and unknown. As the New York Times recently reported, Trump and his associates have been chasing business deals there since before the fall of the U.S.S.R. There is no incentive for him preside over a sanctions regime that hurts any potential business ties he has to Russia.
Just as well, Rex Tillerson, Trump’s Secretary of State, calls Putin a “friend” and has spent decades dealing with him while an executive at ExxonMobil. The 2014 sanctions sank a lucrative deal Exxon inked in with Russia back in 2013; the sanctions have resulted in a loss of more than $1 billion for Exxon. The loss in money is supposed to be an incentive for Russia to reverse its actions in Ukraine and force companies like ExxonMobil to encourage them to adhere to the conditions of the sanctions for the sake of not losing more capital.
In fact, Exxon not only petitioned Congress to lift sanctions while Tillerson was CEO, Tillerson has personally signaled that he might be in favor of lifting them.
This, of course, would help his business interests more than encourage Russia to adhere to international norms—like not invading sovereign lands.
That said, there is no concrete explanation behind why Trump has such warm feelings toward Putin. The fact that he’d want to lift sanctions after the intelligence community told him that the Kremlin hacked the U.S. election is troubling. And Trump’s adversarial tone towards NATO alliance members who fear Russia will invade them just as it did Ukraine only intensifies the belief that Trump has personal business interests in Russia that he favors more than American national security and NATO.
What Happens If Sanctions Are Lifted?
Then Russia will likely feel it can do what it wants, when it wants, without any international repercussions. It will also send a clear message to Ukraine, a state that has received billions of dollars in American loans, that the U.S. is not the partner it always claimed to be.
And if Russia can invade Ukraine unpunished, what, then, will stop them from coming up with a reason to invade Georgia, or Moldova, or Washington’s Baltic NATO allies, or Poland?
Another way to look at it is that if sanctions are lifted, Putin will view the U.S. as weak and feel he can get away with anything—particularly if he feels the current president has a more isolationist mindset about the world than his predecessor, as I explained yesterday.
Why Should you Care?
Sanctions can be a very powerful tool governments use to leverage other nations into adhering to certain norms. Most importantly, they are a powerful alternative to war. Unless militarily threatened, a head of state has the option of sanctioning a key economic sector of a hostile nation’s economy over using its military—even if the military option is non-lethal.
Members of Congress on both sides of the aisle implored Obama to provide Ukraine with lethal weapons, but he refused, choosing to hit the Kremlin in its pockets instead. It is doubtful that most Americans would have been alright with Obama sending lethal weapons to Kyiv, if he truly believed the move would escalate the conflict even more or pull American troops into a conflict with Russia.
It’s also important to note is that the world functions on rules and laws—or at least that’s the goal among civilized states. Consistent violation of those laws would send the world into chaos. As former U.S. diplomat and NATO official Alexander Vershbow wrote in The Hill:
Sanctions are not just about Russia and Ukraine. They are about the international world order we live in. If its basic rules are violated — just as they were by Moscow’s actions in 2014 — then our global order turns into chaos. Rule by force would replace the rule of law. This would be hardly conducive to America’s global economic, political and security interests.
Up until now, there have been few signs that Moscow is ready to reverse its course, but the inauguration of a new U.S. president is an opportunity to put Putin to the test. If it were to lift sanctions without a Russian withdrawal from Ukraine, however, the Trump administration would essentially send a green light to Moscow and other countries that it is content with Russia solidifying its sphere of influence in parts of Europe, or powerless to prevent it. America itself would thus start to undo the post-World War II international order it has helped to build and protect.
America is a relatively safe nation because it is in a position to defend itself with a powerful military. Ukraine, unfortunately, is not. But, equally important, most nations do not go around invading sovereign nations because they can and want to. When nations like Russia decide they can, it should be checked.
If not, then every nation is subject to being invaded at the discretion of a predatory leader like Putin and anything goes. In such a world, any country can become the new Ukraine. Even the United States.