Russia and the effectiveness of economic sanctions between big players

Barbara Oegg, Kimberly A. Elliott, 8 October 2008

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In early August 2008, hostilities broke out between Georgia and Russia over the breakaway region of South Ossetia. Russian troops quickly defeated Georgian forces in South Ossetia and marched far into Georgian territory, drawing widespread criticism from the international community. Russia eventually agreed to a French-brokered cease fire agreement and withdrawal of its forces from Georgian territory to pre-conflict positions by mid-October (troops will remain in South Ossetia and Abkhazia). But the Russian government also defied the West and unilaterally recognised the independence of South Ossetia and another breakaway region, Abkhazia.

Russia had earlier used economic sanctions in an effort to bend Georgia to its will, as it had against many of the former Soviet republics after the fall of the Berlin Wall.1 The outbreak of hostilities was the culmination of years of deteriorating relations between the two countries following the 2004 election of pro-Western president Mikheil Saakashvili in Georgia. In 2006, Russia imposed economic sanctions but failed to dissuade Saakashvili from seeking NATO accession or trying to exert control over the Russia-supported regions of Abkhazia and South Ossetia.

Clearly the prospect of economic sanctions was no more successful in deterring Russian action against Georgia and, in the end, the US and European responses have been limited to minor and largely symbolic actions. The White House froze the civilian nuclear act with Russia2 and the EU, its members deeply divided over how to respond, suspended talks on a Partnership and Co-operation Agreement. Russian and NATO military co-operation has been halted, and Russia’s accession to the WTO is in jeopardy. Calls for tougher economic sanctions, however, were rejected.

The history of sanctions in the 20th century offers lessons about the conditions under which economic sanctions are most likely to be effective that can be useful in examining this case. We briefly summarise the overall results of our major study (with Gary Hufbauer and Jeffrey Schott) on the use of economic sanctions as a foreign policy tool and then apply the lessons from that analysis to the Russia-Georgia situation.3

The overall effectiveness of economic sanctions as a foreign policy goal

The bottom line of our research is that sanctions contributed to at least partial success in about one-third of the 204 episodes we studied. Not surprisingly, economic sanctions tend to be most successful in achieving relatively modest policy goals – attaining the release of a particular political prisoner is easier than achieving broad improvements in human rights. At the simplest level, economic sanctions succeed when the political and economic costs to the target country of defying the sanctioner’s demands are greater than the costs of complying. And in cases involving core national interests, economic pain rarely translates into political gain.

The sanctioning country’s potential economic leverage over the target is important, but in instances where a sanctioner feels less intensely about the stakes involved than the target, or where the potential costs to itself are high, the sanctioner may choose not to fully use that leverage. From the target’s perspective, if vital interests are at stake, the costs of compliance with a sanctioner’s demands may be higher than that of any sanction. Thus, while we find that one in three cases, on average, results in at least partial success, the success rate is one in two when more modest objectives are at stake. The probability of success declines to just one in five when the goal involves disrupting “military adventures” involving third parties but not the sanctioning country itself. The latter group of cases typically entail lower costs for target countries, while the cost of complying with the sanctioning country’s demands are relatively high and the target is typically more intensely interested in the outcome than the sanctioner.

Further complicating matters, it is hard to bully a bully with economic measures. The evidence from our case studies suggests that autocratic regimes are less susceptible to economic pressure than democracies. Our research also shows that economic sanctions are more successful when imposed against former allies and close trading partners than adversaries. Countries that are friendly with one another are more likely to have extensive trade and financial relations with one another than adversaries, and they also have incentives to compromise on specific issues to maintain the overall relationship. Finally, international cooperation with the lead sanctioner is often neither needed nor sought when goals are modest. But multilateral cooperation was significantly higher in successes than in failures when the goals were particularly difficult and, in those cases, cooperation has become increasingly important in a global economy where few countries have sufficient unilateral leverage to impose significant costs.

Sanctions and Russia

It is obvious that sanctions against Russia do not fit well with these lessons from history. Indeed, sanctions against large, powerful countries, even when imposed by similarly large and powerful countries, rarely do. In this case, the West’s objectives are ambitious and strongly resisted by Russia, and the US, without European cooperation, has little leverage on its own. Moreover, even if there were cooperation, Russia is sitting on the world’s third largest foreign exchange reserves, thanks to high oil prices, which give it substantial wherewithal to withstand sanctions. Table 1 summarises values for some of the key variables from our analysis as applied to Russia, with and without cooperation from the EU, and compares them to the averages in all successful cases.

Table 1. Comparing key variables for Russia to the average for all successful case

Political and economic variables

US vs. Russia
US, EU vs. Russia
Average for all successes

International cooperation with lead sanctioner, scaled from 1 (none) to 4 (significant)

1
3
2.1

Economic health and political stability of target, scaled from 1 (distressed) to 3 (strong)

3
3
1.9

Presanction relations between sender and target, scaled from 1 (antagonistic) to 3 (cordial) (2 is neutral)

1-2?
2-3?
2.3

Regime type of target, scaled from 1 (authoritarian) to 3 (democratic)

2
2
2
Cost of sanctions to target as percent of GDP
Small

Potentially large but realistically small

3.3

Trade linkage (percent of target’s total merchandise trade conducted with sanctioners)

4
60
33.2
Ratio of sanctioner’s GNP to target’s
16
44
1015

Cost to sender, scaled from 1 (net gain) to 4 (major loss)

Likely small to modest (2-3)

Potentially large (3-4) but likely small

1.9

Not only are the objectives in this case difficult, the outcome is far more important to the Russian leadership than to politicians in the West, except for President Saakashvili, and recent opinion polls indicate that the Russian public overwhelmingly supports the government’s policy in Georgia.4 Russia’s characteristics and its relationship with the would-be sanctioners do not bode well for sanctions either. Under Presidents Putin and, now, Medvedev, its autocratic tendencies have returned, and nationalist hardliners are once again gaining prominence. Trade between the US and Russia is small, and relations – if not quite hostile – are clearly deteriorating. Political relations between the EU and Russia are somewhat warmer and trade relations much more extensive. But the role of Russia as an energy supplier to Europe suggests that Russia has at least as much leverage.

Thus, the EU was never very likely to agree to economically significant sanctions and it took the lead in efforts to resolve the crisis diplomatically. The Bush administration, recognising the limits of its leverage, opted against stronger unilateral action. US policymakers have also had to weigh the response to Russia’s actions in Georgia against the need to secure Russian cooperation on a variety of other vital security issues, including curbing Iran’s and North Korea’s nuclear ambitions.

For sure, disruption of relations with the West would cost Moscow dearly. Russia already has paid a price for its actions in terms of international isolation and turmoil in its financial markets when international investors pulled out of the stock market in response to the crisis. However, there is little indication that Russia is willing to fundamentally change its course with respect to Georgia and President Saakashvili. As long as energy prices stay high, Russia is in a powerful position. In this case, the costs of defiance that the US and EU can realistically bring to bear are nowhere close to Russia’s perceived costs of complying with the West’s demands.

Footnotes

1 Daniel Drezner, The Sanctions Paradox: Economic Statecraft and International Relations. Cambridge: Cambridge University Press, 1999.

2 President Bush’s withdrawal of the agreement from Congress serves two purposes. It is meant as a punitive gesture, but it also preserves the deal for future consideration since Congress would likely reject it if brought to a vote now.

3 Gary Clyde Hufbauer, Jeffrey J, Schott, Kimberly Ann Elliott, and Barbara Oegg, Economic Sanctions Reconsidered. Third edition. Washington: Peterson Institute for International Economics, 2007. Most literature on economic sanctions focuses on the study of one or more episodes. See: Sanctions: a Bibliographic Manual, by Mikael Eriksson, Department of Peace and Conflict Research, Uppsala University. Last update April 2003. The Peterson Institute study attempt to draw conclusions of more general validity from the study of 174 cases (204 individual observations) from World War I until 2000.

4 Financial Times, 23 September 2008, p. 6

Topics: Politics and economics
Tags: economic sanctions, Georgia, Russia

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