War in Ukraine: are sanctions working?

The West has implemented unprecedented economic warfare targeting Russia's war financing capabilities, centered on three primary sanction categories:

• Financial Sanctions: Multiple Russian banks have been excluded from the SWIFT cross-border payment messaging system; secondary trading of Russian sovereign debt is restricted; and direct access to Western financial markets for Russian entities has been cut.
• Sovereign Asset Freezing: The most severe measure involves a potential freeze on $630 billion in central bank assets held overseas, removing the safety net underpinning Russia's entire economy.
• Targeted Individual Measures: Asset freezes and travel bans have been imposed on Vladimir Putin, his inner circle, and oligarchs identified as supportive of the Kremlin.

The immediate economic impact on Russia mirrors a "heart attack" within its financial system, characterized by:

• The ruble sinking to record lows due to capital flight concerns and the loss of foreign assets needed to defend the currency.
• A collapse in share prices for Russian firms and banks traded in Moscow and offshore markets.
• A generalized loss of confidence leading to public rushes on bank branches across Russia.
• Inflation spiking to an estimated 70% on an annual basis, severely impacting ordinary citizens.
• The failure of the decade-old "Fortress Russia" strategy, which aimed to insulate the economy from sanctions, revealing it to be a non-functional structure.

Energy and trade dynamics have shifted despite nominal exclusions from the sanctions regime:

• Complexities in transacting for Russian oil and gas have deterred buyers, driving the global oil price to approximately $110.
• Russia's energy exports remain a theoretical pressure point for potential economic retaliation against the West.

Russia's current response has been described as an improvised, "off the cuff" playbook with no single solution to the financial crisis:

• Official economic retaliation so far has been muted, limited primarily to a reciprocal ban on commercial aircraft from several nations using Russian airspace.
• Future escalation risks include curtailment of gas exports to Europe, disruption of global supply chains via specialist metals exports, or cyber attacks on Western economic infrastructure.
• Potential leverage exists regarding Ukraine's supply of rare gases essential for semiconductor manufacturing, should Russia gain full control of the territory.

Strategic assessments regarding the efficacy of sanctions in halting the invasion present contrasting outlooks:

• Short-term leverage: Sanctions create incentives for the Russian leadership to scale back violence in Ukraine in exchange for reciprocal sanctions relief.
• Long-term degradation: If military action continues, the primary function of sanctions is to significantly weaken Russia's economic and, subsequently, its military capabilities over time.
• Deterrence failure: Western officials acknowledge the strategy did not and likely will not successfully deter the initial invasion or force an immediate Russian retreat.