Some thoughts on sanctions effectiveness on the World

I shared some thoughts with the radio program the World and its host Marco Werman. Listen to the interview here or read some of the summary below. I touch on the moderate measures so far (though more are likely coming in the upcoming hours, the shift from deterrence to new triggers and whether there is scope to limit impact on the Russian population.

The US and allies have said they want to avoid directly targeting the Russian population. Is that possible? I mean, can economic sanctions be that surgical?

what we have seen so far is that the sort of targets that have been chosen in Russia are financing vehicles for the government. They’re financing vehicles for the military. The US did not choose to target banks that have a lot of lending to individuals or to small businesses or even medium-sized businesses to the extent that there is escalation and targeting new measures that will be harder to do. We saw even, in the last few days, when the US government targeted Donetsk and Luhansk, these breakaway regions, that the US government right away, when they impose the sanctions, did have what are called general licenses that allow remittances, transfers to individuals and also, theoretically, facilitate humanitarian trade. But those are harder to implement in practice when you have a jurisdiction that is facing very extensive, almost maximum pressure sanctions. But it is something that this administration is trying to do.

generally, those sanctions from the 2014 Crimea annexation by Russia, it made it harder for Russia to get bank loans and work with Western companies, but they don’t seem to have accomplished much. Is anything different now?

the time, they were more painful. We have to also remember that this was a time when oil prices were falling, and so, Russia had the double-whammy of sanctions and some financing restrictions, not as big as the financing restrictions we’re putting in place now. Russia was able to weather that and if anything, there the economic policy framework is more resilient now. The administration has characterized the measures of the last 24 hours as very strong. I’d probably say they’re more moderate choices. The next phase, which could be triggered if there is further territorial expansion, that could include things like export control restrictions. So, basically limitations on Russian imports of microelectronics and chips that have US inputs. It also could target some larger banks. The challenge is that just as the US and allies have economic leverage on Russia, so too does Russia on the West. Russia is a big provider of oil and gas, and to really hurt Russia, we might end up hurting the global economy; not just US consumers, but those around the world. And so, that calibration and balancing act is a difficult one. And, of course, we don’t know to what extent whether Russia would be willing to break contracts and reduce exports of a whole range of critical commodities, not just oil and gas, but also wheat and fertilizer. And we know that food prices are going up around the world, in part because of the pandemic and because of climate change. This adds to a difficult balancing act

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