Ukraine's allies keep hitting Russia with more sanctions — and Russia keeps finding ways around them

Author: Editors Desk, Nick Logan Source: CBC News:
February 28, 2024 at 05:45
New measures may close loopholes that have limited effectiveness of previous penalties, experts say.
kremlin moscow russia february 2024
G7 countries, including Canada, along with the European Union and Australia, have imposed sanctions on more than 16,500 individuals and entities linked to Russia's war on Ukraine since the Russian invasion began in February 2022. But some experts say they haven't had the intended effect of choking off support for the conflict. (Alexander Nemenov/AFP/Getty Images)

Ukraine's allies, including the U.S. and Canada, recently slapped new sanctions on Russia. The latest round of punitive measures in response to the Russian invasion of Ukraine come just days after Western leaders blamed Russian President Vladimir Putin for the death of opposition leader Alexei Navalny.

Previous sanctions have targeted Russian financial institutions, the country's lucrative oil and gas exports, members of Putin's inner circle and the extremely wealthy oligarchs who support him. 

But round after round of sanctions have not changed the course of the conflict, nor do they appear to have weakened Putin's resolve. And they certainly have not brought the country's economy to its knees, as experts say Russia has not only managed to work around the sanctions, but is bolstering its economy with domestic spending on the war. 

"Many of us are learning how difficult it is to use sanctions as part of the overall effort to achieve our strategic effect," said Ben Hodges, a former commanding general of the U.S. Army in Europe, in an interview on CBC News Network. 

"We have not closed the ring tight enough to change behaviour," he said from Vilnius, Lithuania.

WATCH | Ukraine's Zelenskyy hints at planned offensive, urges allies for more support: 

As Kyiv marks two years since Russia's invasion, President Volodymyr Zelenskyy has revealed 31,000 Ukrainian soldiers have died fighting. He also hinted at a planned offensive while urging allies for more support.

Russia willing to forego economic growth

The U.S. Treasury Department announced new sanctions last Friday against more than 500 entities and individuals associated with the Russian war effort — including defence manufacturing, aerospace and logistics companies — as well as prison leaders allegedly connected to Navalny's death.

Canada announced its own sanctions last week, on 10 individuals and 153 entities, as did Britain and the European Union. 

Sanctions have, to some extent, "achieved an economic shock to Russia," said Rachel Ziemba, an adjunct fellow at the Centre for New American Security who tracks the impacts of financial sanctions. 

"The problem is that Russia is quite willing to jettison long-term economic growth," she said in an interview from New York. 

In January, the International Monetary Fund (IMF) revised its Russian GDP growth projection to 2.6 per cent, up from its October 2023 prediction of 1.1 per cent, though the economy remains weaker than it was before the war and the IMF predicts growth will shrink next year. 

Ziemba says the measures unveiled last week may be more incremental than policymakers are trying to make them out to be, but they're a necessary step in attempting to prevent Russia from circumventing previously implemented measures. 

The U.S. and its allies also appear to be signaling that they will start putting greater pressure on countries and foreign entities helping Russia evade sanctions and import/export bans, said Florian Gassner, an associate professor at the University of British Columbia. 

On Friday, the U.S. sanctioned several companies and individuals that allegedly supply or support Russia's military industrial base.

War economy and oil price caps

Russia did not enter the war with a great deal of domestic or external debt, said Ziemba, and it had more than $600 billion US in foreign currency and gold reserves — approximately half of which has been frozen by the West.

Although its war chest has dwindled as the conflict enters it third year, domestic defence spending is actually helping to keep the country afloat — and it's a major reason the IMF revised its economic forecast for Russia this year. 

"They've really reoriented their economy around a war economy," Ziemba said. "Even automakers, suddenly, were making military tanks."

Some critics believe sanctions won't have a huge effect until the West takes a harder swing at Russia's oil and gas industry.

WATCH | Canada commits $300 million in new aid to Ukraine as U.S. support stalls:

Canada is committing over $300 million in new aid for Ukraine as it battles on with dwindling arms and resources. NATO has promised over a million drones but admits other pledged weapons won’t arrive in time as a $60 billion U.S. aid package remains stuck in Congress.

G7 nations and the European Union implemented an oil price cap of $60 US per barrel on Russian crude in December 2022. Its aim was to slash Russia's ability to use oil revenues to fund the war without driving up global prices.

But the cap has "effectively stopped working," said Maria Snegovaya, a senior fellow at the Centre for Strategic and International Studies. 

"One way or another, they will have to eventually address Russia's oil revenues and have to consider an oil embargo," Snegovaya told The Associated Press. 

Russia has turned to new markets for its oil in Asia and Africa, and has found ways to get around the sanctions to keep bringing in revenue. As of Monday, a barrel of Russian crude was trading well above the cap at more than $77 US.

Ziemba said it will be interesting to see if new U.S. sanctions on Russian shipping company Sovcomflot will change anything. 

State-owned Sovcomflot, she says, is "very involved" with what is referred to as Russia's dark fleet or ghost fleet — hundreds of vessels with shadowy ownership that keep Russia's oil moving under the radar and carry out ship-to-ship oil transfers in international waters.

WATCH | Experts expect impact of new Russia sanctions to be minimal:

The day before Ukraine marks two years since Russia invaded, the U.S., Canada and the European Union are issuing new sanctions against Russia. But experts say their impact will be minimal, especially when compared to the potential impact of $60 billion in U.S. military aid, which has yet to be delivered.

Personal sanctions a measure of inconvenience

Pressure on Russian billionaires by freezing and seizing their personal assets — including bank accounts, mansions, private aircraft and luxury yachts — has done little to curb support for the war among the country's influential oligarchs

"The idea was if you take the people who have a modicum of power in the Russian Federation and lead them to be disaffected, then they might be in a position to … if not stage an insurrection, then at least move the needle in the government," said Gassner. 

Instead, he said, it's become more of an inconvenience and few have actually turned on Putin. 

At the same time, The Associated Press reported in December that of an estimated $58 billion US in frozen and seized assets, just $5.4 million US has been redirected to support Ukraine.

A large, white yacht docked in front of tall buildings.
The $300-million yacht Amadea, owned by sanctioned Russian Oligarch Suleiman Kerimov, seen in Honolulu Harbour on June 16, 2022, after it was seized by Fiji's government at the request of the U.S. (Eugene Tanner/AFP/Getty Images)

Sanctions on the personal assets of the Russian president, whose wealth is rumoured to be in the tens of billions, are essentially futile.

"Officially, Putin doesn't own anything," said Gassner, explaining that his material assets are located in Russia, out of international reach, and are hidden behind a network of friends, family members and shell companies.

"The West can't just, you know, use its thumb to say, 'Well, we'll target these things because we believe it's Putin's, even though we have no proof.' " 

WATCH | Breaking down the state of Ukraine's defence, impact of sanctions: 

CBC’s Margaret Evans and Briar Stewart break down the state of Ukraine’s defence against Russia, what it needs going forward and whether sanctions against Russia are having any impact.
You did not use the site, Click here to remain logged. Timeout: 60 second