Are the economic sanctions against Russia effective?

Understanding the Russia & Ukraine Conflict

Generally, sanctions are a penalty placed due to a country breaking a certain rule or law. Specifically, the sanctions countries are enacting against Russia in retaliation to the invasion of Ukraine are economic sanctions. Though they vary slightly depending on the financial system involved, economic sanctions prevent entities or individuals from conducting business with the county who imposed the sanction at hand and may freeze the entity’s assets under the country’s jurisdiction. However, these do not only affect the economic relationship between the entity and the country imposing the sanctions, but may also restrict the entity’s involvement in the international financial system.

This is a quick look at the major sanctions introduced against Russia by location:

(Click on the red markers to get started)

One of the strongest sanctions the world seen imposed on Russia is the cutting of some Russian banks from SWIFT, the Society for Worldwide Interbank Financial Telecommunication. The SWIFT system, managed by the National Bank of Belgium, helps enable and manage financial transactions between more than 11,000 financial institutions in around 200 different countries. Removing Russian banks from the system effectively removes these corporations from most international business transactions. Before being removed from the system, around 40% of Russia’s revenue came from international sales of its oil and gas production; Russia used SWIFT to secure profits from these sales.

The sanction packages introduced by various countries seem to be effective in stunting Russia’s economy as the country has come face-to-face with a financial meltdown. The ruble, Russia’s currency, has dropped to a record low against the U.S. dollar, the Russian stock market froze, the Russian central bank has more than doubled its interest rates and citizens have been rushing to withdraw their deposits from Russia’s biggest banks. This has driven its European subsidiary to the brink of collapse.

The Russian government has been preparing for sanctions over the past eight years by building up $630 billion in international reserves, but freezing certain Russian reserves has been included in the economic sanctions, leaving some of this “rainy day fund” inaccessible to the country.

The West does not know for sure that the assault on Russia’s economy will encourage or cause Putin to de-escalate the conflict. Putin has referred to the sanctions as “illegitimate,” but some political analysts warn that the economic instability of Russia will provoke Putin into escalating the conflict with the West. Citizens in Western countries are not the only ones uncertain; Russian citizens are facing the ruin of their currency and savings. Much is unclear – the effect these sanctions will have on Putin’s decisions, who Russian citizens will blame for the economic crisis, how exactly these sanctions will affect the economy of other countries, but one thing is clear: the West’s strategy currently revolves around these sanctions.

Our strategy, to put it simply, is to make sure that the Russian economy goes backward as long as President Putin decides to go forward with his invasion of Ukraine,”

— a senior US administration official