The world’s leading Western economic powers warned of fresh sanctions against Russia at the G-7 summit. Led by U.S President Barack Obama, they are a weak attempt at stopping Russia’s incursion into Eastern Ukraine and the escalation of violence there. Despite having the desired effect of hurting the Russian economy, discord in the West and Russia’s continued access to the global financial system means they lack bite.
Western sanctions were first imposed on Russia following its annexation of Crimea in March 2014. The initial diplomatic measures (visa bans and asset freezes) were soon followed by more direct financial restrictions. Western financial institutions are not allowed to lend to Russian counterparts on a midterm to long-term basis, effectively isolating Russia from Western capital markets.
The Sanctions Rationale
The rationale behind the choice of economic instruments to pressure the Kremlin has been based on a straightforward assumption. The Russian economy—critically dependent on oil and gas revenues (which together comprise about 72–75 percent of the country’s exports)—is unable to withstand the economic pressures of low oil prices and financial draught.
The internal economic crisis in Russia, in turn, is calculated to generate two effects. First, it will prove too costly for the Kremlin to continue military involvement in Ukraine. Second, falling incomes and rising inflation will also weaken popular support for Putin and his rule and may bring about a change of policy (or leadership) in Moscow.
