During the European-led "coalition of the willing" talks in Paris held today, 27 March 2025, there has been a discussion about increasing European sanctions on Russia to give Ukraine increased bargaining power in an armistice agreement with Russia currently being mediated by the United States.
Nevertheless this is not likely to have been a straightforward conversation. The dynamics of economic sanctions are complex, particularly in the context of international conflicts like the one in Ukraine. To craft an effective sanctions strategy that could compel Russia into a realistic armistice, including (as Europe and Ukraine insist a team of international peacekeepers), it is crucial to consider various types of sanctions available, their potential impacts, and the time scale within which they might be effective.
Types of Sanctions
1. Financial Sanctions: Enhanced restrictions on Russian financial institutions, including:
- Further exclusion of major Russian banks from the SWIFT international payment system.
- Increased scrutiny of foreign currency transactions involving Russian entities.
- Targeted sanctions on government officials and oligarchs with ties to the Kremlin.
- Restrictions on foreign investments in the Russian energy sector.
2. Trade Sanctions: Broader prohibition on imports and exports, particularly in critical sectors including:
- Energy: Further bans on Russian oil and gas exports, which constitute a significant portion of Russia's GDP.
- Technology: Bans on dual-use technologies, particularly in sectors like aerospace and military.
3. Sectoral Sanctions: Targeting key industries, particularly the energy, finance, and defence sectors, through:
- Export controls on critical technology, machinery, and components.
- Denial of insurance and re-insurance services for Russian shipping and energy exports.
4. Asset Freezes and Travel Bans: Expanding existing measures that prevent key individuals from travelling abroad or accessing their foreign-held assets.
5. Secondary Sanctions: Threatening foreign entities that trade with sanctioned Russian companies or individuals with similar sanctions, extending the reach of the restrictions.
Economic Impact and Cost
Projected Revenue Loss: In 2021, oil and gas revenues accounted for approximately 40% of Russia’s federal budget. Further sanctions could reduce these revenues significantly. Estimates suggest that additional sanctions could cost Russia upwards of $100 billion or more annually, depending on the oil and gas markets' response.
GDP Impact: The Russian economy has shown resilience, but a sustained downturn due to sanctions could lead to a contraction of 5% or more over several years. In 2022, the Russian GDP fell by about 2.1%, but forecasts for 2023 and beyond suggest a prolonged stagnation, potentially leading to a cumulative drop of up to 10% over several years if sanctions persist aggressively.
Time Scale for Sanctions Effects
The time scale for sanctions to exert enough pressure on the Russian leadership to consider an armistice could vary significantly:
- Short-term (within 6-12 months): Initial effects may be observed on supply chains and inflation, leading to public discontent.
- Medium-term (1-2 years): Continued economic isolation could compound issues, such as technological stagnation and a significant drop in living standards.
- Long-term (3-5 years): If Western countries maintain a united front, the lack of foreign investment and access to international markets could lead to a severe incapacitation of the Russian economy, increasing unrest and potential changes in political sentiment.
US Involvement and European Coordination
Need for US Involvement: While Europe has substantial economic clout, the alignment of US sanctions would amplify the effect significantly. The US dollar remains the world’s primary reserve currency, and the inclusion of major financial institutions in sanctions is critical. The US can exert pressure on allies to adhere to sanctions and could also mobilise international organisations, such as the IMF and World Bank, to further isolate Russia economically.
Unity of Effort: For sanctions to be truly effective, Europe and the US must act cohesively. Divergent interests among EU member states, particularly those heavily reliant on Russian energy (e.g., Germany, Hungary), may impede broad-based sanctions. Coordinated efforts, including alternative energy partnerships, are essential.
Scope of Sanctions for Armistice Agreement
The scope of sanctions that could compel Russia to agree to an indefinite armistice must strike a balance between military effectiveness and economic pressure:
Comprehensive sanctions: A combination of sectors aimed at significantly reducing the fiscal capacity of the Kremlin and affecting the everyday lives of Russian citizens could create the impetus for change.
International peacekeeping discussions: Ensuring security of any potential peace terms would require the prelude of economic hardship, giving rise to a scenario where Russia is more willing to engage in negotiations involving peacekeeping forces both military and civilian.
Conclusion
A combined approach combining enhanced sanctions from both the US and Europe, with a focus on critical sectors and unified enforcement, is necessary to apply sufficient pressure on Russia. The timeline for these measures to influence the Kremlin's decision-making could be several years, depending greatly on maintaining Western unity and addressing energy dependency within Europe. Ultimately the goal of reaching an indefinite armistice would hinge not only on sanctions but on fostering a sustainable dialogue that addresses the interests and concerns of all parties involved in the conflict. At the moment that dialogue is not happening, because the pressures being applied on Russia are not high enough.