Not Even a Recession Will Change Putin's Course in Ukraine | Opinion

When he made the decision to invade Ukraine, Russian President Vladimir Putin likely didn't expect the West to levy such a strong, coordinated, and unified economic sanctions regime against his country. But the West likely didn't anticipate Russia would be able to hold on economically to the extent that it has. Four months into the most strenuous sanctions program against a major economy since World War II, one can make a reasonable case that the results have been a wash.

On its face, the United States and the European Union (EU) have taken extraordinary measures to ensure the Russian government is feeling the pain for invading a neighbor. The sanctions are partly designed to be an accountability mechanism, a message to Putin and other would-be provokers that an unjustified war of aggression will have political and economic consequences. But the penalties are also crafted to make it more difficult for the Kremlin to finance its military campaign. At best, they would persuade Putin himself to reassess his war strategy to the point of calling it quits and withdrawing his forces.

You can't blame the Russian government for being surprised about the length to which the West has cracked down on its finances. If you asked Putin whether he thought the U.S., in conjunction with the European Union and Japan, would sanction Russia's Central Bank and freeze around half of Russia's $643 billion foreign exchange reserves, he may have dismissed it as a low probability event. Russian Foreign Minister Sergey Lavrov was certainly surprised. Putin might also have underestimated the ability of the EU, a 27-country bloc that has been divided on Russia policy in the past, to ban all imports of Russian crude oil by the end of the year (albeit with a carve-out for Hungary).

The list of sanctions against Russia is long, and will likely grow longer as the war continues. Several large Russian banks have been kicked off the SWIFT payment system. The U.S. Treasury Department is no longer allowing Russia to use its own money in U.S. accounts to pay down debt. Businesses that would normally be operating in the Russian market are self-sanctioning out of an abundance of caution, while others are pulling up stakes to avoid the risk of harming their reputations. According to the Yale School of Management, 1,000 companies have left Russia or are scaling down their activity. Goods are getting more expensive for the average Russian, with the Consumer Price Index reporting a 17 percent increase over the last 12 months.

The U.S. and its allies, however, are learning that sanctions take a long time to work—if they work at all. Imposing sanctions on a country will undoubtedly impact the targeted country's bottom-line. But those countries don't stand still and take it on the chin. Instead, they adapt and try to skirt the sanctions, mitigating the impact.

This is precisely what Russia is doing. In response to supply chain disruptions and U.S. export restrictions, Moscow is attempting to replace foreign-made goods with domestic products. Such import substitution measures have a mixed record of success, and the quality of the products will be far shoddier compared to the goods that are normally available. But short-term band-aid fixes like this will buy Putin a few years to cope and allow him to limit some of the frustration on the street.

Moscow is also reorienting its trade patterns in response to the West's sanctions. Crude oil, its most lucrative commodity, is being rerouted from Europe to Asia, where buyers have no issue purchasing Russian fossil fuels if the terms are appealing. With Russia offering discounts of $30 to $35 dollars a barrel, Russian oil is considerably cheaper than the benchmark price of around $120 a barrel (because the price of oil is so high, Russia still makes a hefty profit, even at a discount). For energy-hungry countries like India and China, cheaper Russian crude is far better than the alternative. And it shows; India purchased more than eight times as much Russian crude in May as it did in February.

The high global prices are also severely undercutting what the West hopes to achieve with sanctions. While Russian crude shipments may be declining, the high price of oil means Moscow is netting even higher returns. Russian oil exports have earned it nearly $100 billion during the first 100 days of the war in Ukraine. If oil prices remain fairly constant and Moscow is able to sustain its export rate, the Institute of International Finance estimates that Russia could receive more than $300 billion this year from energy sales.

For Washington, this poses an obvious problem. But the solution isn't as clear cut as one might think. The U.S. could place secondary sanctions on the Russian oil industry as it did with Iran, giving countries a choice of either continuing to buy Russian crude or retaining access to the U.S. financial system. But such a scheme would have significant diplomatic consequences and would compromise other foreign policy priorities the Biden administration hopes to accomplish. Is the U.S. willing to sanction India for importing Russian oil, even if it meant undermining a strategic relationship multiple U.S. presidents have cultivated since the turn for the century? Is crushing the Russian economy more important to U.S. policymakers than executing its Indo-Pacific strategy, which depends on partners like India to assist U.S. efforts to compete with China? Or is the U.S. willing to undermine a central plank of that strategy in order to turn the economic screws against Moscow?

Whether U.S. and European sanctions will have their desired effect depends on one man: Vladimir Putin. Judging by his actions to date, the Russian strongman seems as open to enduring the costs of a recession if it means achieving his military objectives in Ukraine.

Daniel R. DePetris is a fellow at Defense Priorities and a foreign affairs columnist at Newsweek.

The views expressed in this article are the writer's own.