\n\n“Why is it so difficult to convert America\u2019s economic heft into geopolitical power? When it comes to sanctioning Russia, the U.S. faces three recurring challenges: The sanctions tend to be imposed gradually; they are negotiated with reluctant allies; and the most impactful ones would also be economically costly to the West. As a result, the Russia sanctions in place today are a watered-down compromise, designed to placate allies and minimize domestic costs.<\/p>\n\n\n\n
Bending Russia\u2019s macroeconomic fortunes \u2014 and Putin\u2019s calculus \u2014 will require targeting the country\u2019s financial system as well as key exports such as oil. Such sanctions would have significant effects on Russia\u2019s economy and perhaps on the global financial system, which is why U.S. officials have been hesitant to go this far. But averting a war is a tall order and, unfortunately, won\u2019t be cost-free. \u201cSmart\u201d or \u201ctargeted\u201d sanctions won\u2019t work. To really impose pain on Russia, the U.S. and Europe will have to bear some burden, too \u2014 although, fortunately, there are ways to minimize the fallout for Western economies.”<\/p>\n\n\n\n
…<\/p>\n\n\n\n
“There are two main categories of sanction<\/strong>s that stand a chance of actually changing Putin\u2019s mind \u2014 and each comes with downsides that the U.S. needs to consider seriously. First, the United States could threaten to cut off major Russian banks from the U.S. financial system. Blacklisting a major Russian bank, such as Sberbank, VTB or Gazprombank, would make it difficult \u2014 if not impossible \u2014 for anyone in the world to transact with it.<\/p>\n\n\n\n The Treasury Department has deep experience imposing sanctions on foreign banks, having done so repeatedly against Iran. The largest Russian banks are much bigger than their Iranian peers, which has given U.S. officials pause about sanctioning them in the past. Indeed, this would cause substantial financial distress in Russia. Full-blocking sanctions on Sberbank would be particularly impactful, since most Russians have an account there. Russia\u2019s government would have to step in to bail out the bank and would struggle to prevent a domestic financial crisis. Companies would slash investment. The ruble would fall sharply against the dollar, but it would become riskier to hold dollars in Russian banks. Russian inflation would spike higher and real incomes would fall.<\/p>\n\n\n\n The impact would also be felt internationally. Many Western investment funds own Sberbank stocks and bonds, the value of which would slump.”<\/p>\n\n\n\n …<\/p>\n\n\n\n “Second, the U.S. could substantially reduce Russia\u2019s export revenues. Russia\u2019s biggest export is oil (around 45 percent of exports), and other exports the U.S. could sanction include gas, coal and various iron and steel products. With Iran, the United States drastically cut the country\u2019s oil exports<\/a> by allowing Iran\u2019s customers to gradually wind down purchases over time. A similar campaign is possible against Russia, though since Russia exports more oil than Iran, global oil prices would take a bigger hit. (Other countries would eventually increase production to make up for the shortage, but there would be a time lag during which oil prices would remain high.)<\/p>\n\n\n\n The United States could also sanction Russia\u2019s natural gas exports, though this carries even greater tradeoffs. The world \u2014 especially Europe \u2014 already faces natural gas shortages this year. Energy-intensive European industries, notably in Germany, could face shutdowns if Russian gas supplies were halted. Given the Biden administration\u2019s struggle with spiking energy prices<\/a> and worsening inflation<\/a>, it\u2019s not hard to see why Washington may be reticent to impose such sanctions.” <\/p>\n\n\n\n …<\/p>\n\n\n\n “Russia may have the advantage on the battlefield in Ukraine, but the West has vast power over Russia\u2019s economy. It should be prepared to use it \u2014 and also be prepared for the costs.”<\/p>\n\n\n\n