SYLVIE DOUGLIS, BYLINE: NPR.
(SOUNDBITE OF DROP ELECTRIC SONG, "WAKING UP TO THE FIRE")
PADDY HIRSCH, HOST:
This is THE INDICATOR FROM PLANET MONEY. I'm Paddy Hirsch.
ADRIAN MA, HOST:
And I'm Adrian Ma. Russia has been the target of sanctions for more than four months, ever since it started invading Ukraine back in February. And in fact, this past week, the G-7 just slapped a new sanction on Russia banning all imports of gold from the country.
HIRSCH: But how successful are all of these sanctions? Russia's still fighting in Ukraine. It's still making heaps of money selling oil and gas. And its currency, the ruble, which President Biden once said would be reduced to rubble, is somehow resurgent.
MA: On the other hand, the sanctions do seem to be having an impact in other areas. Russia's economy is predicted to shrink by 10% this year, and the country just defaulted on its foreign debt. But let's not lose sight of the fact that these sanctions are aimed at trying to get Russia out of Ukraine. And so how do you actually measure whether the sanctions are effective for that? So we're going to score the sanctions, as we do on THE INDICATOR, with some numbers.
HIRSCH: That's coming up after the break.
(SOUNDBITE OF MUSIC)
MA: The sanctions against Russia fall into three main areas. There are sanctions against Russia's financial and banking sector, sanctions on business and trade, and sanctions on individuals.
HIRSCH: We asked Rachel Ziemba to score these sanctions for us.
RACHEL ZIEMBA: Sure, sure. We can give it a try. Yeah.
HIRSCH: She's an economic and political risk specialist at the Center for a New American Security. She graded a number of sanctions between one and 10 - one being who cares and 10 being, yikes, this is so painful that maybe we should actually think about pulling our troops out of Ukraine because that, after all, is the end goal of these sanctions.
MA: So we started with the sanctions on Russia's finance and banking sectors. Those sanctions denied Russia access to billions of dollars in foreign reserves outside of Russia, and it also locked certain banks out of the SWIFT system. That's the system that allows banks to move money around the world.
HIRSCH: These sanctions also sanction individual banks and bar investors from buying Russian sovereign debt. Rachel gave these measures an overall score of about 5 out of 10.
ZIEMBA: The central bank sanctions and the associated ones on major Russian banks had an initial sizable shock and impact that was greater than Russia and many actors thought, and it was amplified by the fact that Russians wanted to get their money out of the country any way they could. However, that tail effect of those measures has faded.
MA: Rachel says one big factor bringing down the score of these sanctions is that certain key parts of Russia's finance and banking sector have managed to avoid them.
ZIEMBA: There still are some important banks, particularly the Gazprombank, that is not sanctioned. And then there are other banks for which there are some loopholes.
HIRSCH: Loopholes - they're like gaps in a poorly stitched fishing net, full of openings that let certain institutions and people slip through. There are often good reasons for the loopholes. For example, Gazprombank got its pass because it processes payments for Russian gas, which Europe relies on.
MA: So that's the finance and banking sanctions. The next broad area that sanctions were aimed at is business and trade. So these sanctions include bans or partial bans on buying Russian goods - think everything from oil and gas to caviar and vodka. It also includes bans on the use of Russian airspace, which effectively stops the movements of any goods to and from Russia by the air.
HIRSCH: Rachel says she would grade the effectiveness of these sanctions at, again, about 5 out of 10. One of the biggest issues, she says, is that it's been hard to ban purchases of Russia's most important commodities - oil and gas.
ZIEMBA: That's probably been the weak spot, right? And that's a function that it's one of Russia's strong spots.
MA: It's been easy for the U.S. and Canada to stop buying Russian oil and gas. I mean, we hardly bought any of it in the first place. But it's been a lot harder for European countries who depend on Russian gas to quit the stuff. So while Russia may be selling less oil and gas to countries that have signed on to sanctions, other countries are coming in to fill that gap.
HIRSCH: Yeah. China and India have both become big buyers of Russian oil, which is selling at about a 25% discount to most of the crude on the market. And this means that Russia's still able to make pots of money from oil and gas, even though it's actually cut its crude oil output by more than 7% since the start of the war. And by the way, that 7% may not sound like a lot, but that reduction in global supply has meant an increase in crude oil prices for the rest of us.
ZIEMBA: A couple of things have happened. One is that the global economy has reopened after the pandemic, and so our demand for oil and gas is greater. The other is people don't know if they can get fuel from Russia, so they're actually hoarding non-Russian supplies, right? And then oil is a driver of and a recipient of some of the inflationary pressures we're seeing elsewhere.
HIRSCH: OK. So sanctions against buying stuff from Russia haven't scored so well. But Rachel says the sanctions on selling to Russia have been highly effective.
ZIEMBA: What we've seen has actually been a very sharp drop-off in Russia's imports over the last several months. So this is restrictions on imports of semiconductors and many technology products. The type of export controls used actually meant that even Chinese entities and other entities were reluctant to sell these goods because they could be subject to fines. So there are some loopholes. But I would say, so far, I would sort of give a 9 out of 10 on this.
MA: OK. So sanctions on selling to Russia - pretty effective, according to Rachel. But is it going to continue with the last raft of sanctions that we're talking about - sanctions on private individuals, primarily oligarchs, who run a lot of Russia's industry, and people close to Vladimir Putin? These measures include things like freezing their assets and making it illegal to do business with them.
ZIEMBA: They've had a meaningful impact, but I think there's a lot of evidence that the oligarchs don't have the degree of sway that the West and others hoped in influencing Putin to pull back. I would give it a grade around 4 out of 10 because I'm grading both on economic impact but on what's likely to sway the Russian government to change their military approach.
HIRSCH: We ran a list of 10 sanctions in total past Rachel, and the impression we came away with was that while some sanctions are working well, most are only doing a so-so job of putting pressure on Russia to get out of Ukraine or even to sue for peace.
If I told you that your scoring of the sanctions overall was about 5 1/2 out of 10, how would you - what would you think about that?
ZIEMBA: You know, it's probably a little bit lower than what I would have given them, but not a lot because there are two challenges, right? We're at a phase where there's a real need to close loopholes, engage in more enforcement actions and where there's a lot of costs to sanctioning entities as well as to Russia in this war and in this conflict.
MA: Rachel says the mixed effectiveness of sanctions are why we're also getting mixed messages on the health of Russia's economy. One day, we hear Russia defaulted on its debt. The next, we hear the ruble is higher against the dollar than it was before the invasion. Sanctions have had impacts in some areas, but not on others.
HIRSCH: But what's not in doubt, Rachel says, is the effect of sanctions on Russia's economy. The currency may be doing well because the central bank did a good job exercising capital controls to prop it up, she says. But the economy and the people that live and work in it have been left to their own devices.
ZIEMBA: Behind the scenes long term, things are really tough and are going to be getting tougher. Russia has lost a lot of not only foreign capital, but foreign expertise. European and American companies and Japanese companies that are withdrawing or not going to be going back any time soon, and so they're going to be relying on a lower level of technology. And so it's going to be a smaller, more insular country.
MA: This could actually end up working to Vladimir Putin's advantage 'cause it would make the country more easy to control - you know, North Korea-style. And it can also cause big problems with the West down the line.
HIRSCH: And sanctions are not a precision instrument. They often have unforeseen consequences and can easily backfire. The sanctions against Russia are contributing to economic hardship, not just in Russia, but also around the world, creating tensions that could lead to political instability. Worst of all, they don't seem to have persuaded the Russians to even consider withdrawing from Ukraine.
MA: Paddy, I think the score that you are giving the sanctions is even lower than Rachel's.
HIRSCH: Well, I can only really tell you what she told me, Adrian. The sanctions are part of a long game, and they go hand-in-hand with a diplomatic process. So I think the answer to the question, are sanctions working, is not yet.
MA: This episode was produced by Jamila Huxtable and engineered by Gilly Moon. It was fact-checked by Catherine Yang (ph). Viet Le is our senior producer. Kate Concannon edits the show. And THE INDICATOR is a production of NPR.
Copyright © 2022 NPR. All rights reserved. Visit our website terms of use and permissions pages at www.npr.org for further information.
NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.