Economic Sanctions are Insufficient to Stop the War

by Volodymyr Kulikov, visiting scholar at The University of Texas at Austin

A year ago, Russia invaded Ukraine, catching many of us unprepared despite clear signs of impending conflict. The assumption that a European nation would conquer another in the 21st century appeared far-fetched. When the worst scenario happened, experts doubted Ukraine’s ability to hold its ground for more than a few weeks. However, more than 50 weeks later, the country keeps resisting. The economic domain, along with warfare and geopolitics, presents many examples of events that did not turn out the way it was expected. This op-ed highlights three selected points about economic sanctions, corporate self-sanction, and energy wars.

1. Economic sanctions have limited potential. They are insufficient to stop the war and cannot replace military support.

Western leaders warned Russia of the severe consequences of invading Ukraine and imposed unprecedented sanctions on the 11th world economy. The sanctions were supposed to weaken Russia’s economy and hinder its “special military operation.” Moreover, the Russian population, deprived of Western commodities and services, was expected to put pressure on its government to stop the war. In March 2022, US President Joe Biden predicted that the Russian economy would be cut in half. Meanwhile, Russian experts projected an 8-12% decline in GDP and annual inflation of over 20%.

None of these predictions materialized. Russia’s prosperity decreased by about 6% over the year, far less than anticipated. On 21st February 2023, Russian President Vladimir Putin boasted that the West’s economic front had achieved nothing, and Russia’s GDP had only decreased by 2.1%. He expressed confidence that the country would recover and reach new heights in the nearest future.

The resilience of the Russian economy in the face of sanctions can be attributed to several factors. The government implemented harsh measures early on, such as restricting cash withdrawals and mandating that exporting firms sell a significant portion of their foreign currency earnings, though most of these regulations were lifted by June 2022. Foreign holders of Russian securities, however, still face selling restrictions. The Russian government had prepared its economy for the war. Additionally, the Russian economy appeared to be stable due to a trade surplus and a budget surplus, driven in part by high energy prices. The low unemployment rate can be explained by the fact that many enterprises did not lay off the workers but moved them to part-time jobs, reducing salaries. It did not help that many countries have been unwilling to enforce the sanctions, referring to concerns about coercive “Western foreign policy.”

Russia has continued to enjoy economic partnerships with several nations, including China, India, and Türkiye.

Nevertheless, this outcome should not be surprising in a historical context.

Economic sanctions gained popularity in the 20th century, though one can find some examples of their use in earlier periods. However, the efficacy and ethical implications of economic sanctions remain a subject of contentious debate among scholars and policymakers. Nicholas Mulder, in his book examining the history of economic sanctions, demonstrates that according to the historical record, most economic sanctions have failed. Mulder argues that only a third of sanctions during the 20th century could be classified as “at least partially successful.” Nevertheless, despite their limited effectiveness, the frequency of economic sanctions has surged while their odds of success have plummeted for various global economic and geopolitical reasons. The popularity of the sanctions may be due to the limited options available between “words and military actions.”

Despite the slow progress, it would be premature to suggest that sanctions against Russia are futile. The World Bank Group predicts a contraction in the Russian economy in 2023, with medium to long-term growth expected to remain minimal due to a loss of key sources of productivity. The obstinacy of Russian officials in denying the effectiveness of sanctions only convinces their potential impact.

The year 2022 taught us that autocracies are good at absorbing the initial blow of sanctions because they can marshal resources. We also learned that sanctions exert their damaging impact over longer stretches of time.


while sanctions primarily impact economics, they also serve to communicate political, social, and cultural values. However, while economic sanctions have been effective to a certain extent, they cannot serve as a substitute for military and financial support of Ukraine.

2. Public pressure rarely determines corporate self-sanctions (disinvestment), but it can have an effect in combination with other measures.

In addition to the economic sanctions imposed by the governments, many Ukrainian politicians, academicians, and public activists called companies to withdraw from Russia or to set “self-sanction voluntarily.” They used a variety of forms to put pressure on the companies, including nudging, shaming, boycotting, and protesting in front of the headquarters.

While many corporations have publicly expressed support for Ukraine and condemned the invasion, the majority continue to operate in Russia. The Kyiv School of Economics found that out of 3,025 companies analyzed, only 201 had fully withdrawn from Russia. Meanwhile, 1,197 had scaled back operations, 502 had reduced current operations and halted new investments, and 1,125 continued operations as usual. Another study by Simon J. Evenett and Niccolò Pisani found that by the end of November 2022, only 8.5% of EU and G7 companies had divested from at least one of their Russian subsidiaries. As Evenett and Pisani concluded, the majority of these companies have chosen to remain in Russia.

Despite public pressure and reputational risks, most companies have opted to continue operating in Russia, citing contractual obligations, employee responsibilities, and a desire to avoid punishing ordinary citizens.

Some firms express concerns that their assets may fall into the hands of socially irresponsible entities such as Chinese state-owned companies or associates of President Vladimir Putin.

The Russian government’s “partial mobilization” law  announced in September 2022 was a milestone, since it requires all companies operating in Russia to assist with military efforts and pay salaries to mobilized employees. This and a few other similar laws puts companies at risk of being complicit in war crimes and makes it impossible for them to remain apolitical.

Operating in Russia presents a serious challenge for multinational corporations. Navigating conflicting interests, including those between national branches, stakeholders, and stockholders poses a significant hurdle. The potential reputational costs and the pressure to meet quarterly and annual financial reports add to the complexity of the task. That is why the public pressure to stop doing business in Russia has had limited success. Still, from a historical perspective the fact that almost half of companies divested or significantly reduced their activities in Russia looks impressive.

Historic evidence regarding the impact of boycott campaigns on corporate financial performance is controversial. But rarely can they push a company from the market. Professor Maurice Schweitzer from the University of Pennsylvania noted that while possessing symbolic value, boycotts seldom yield substantial economic impact. He attributed the lack of success to broad-based support and short-term commitment among individuals. These observations align with the conclusions drawn by UCLA’s economics professor, Ivo Welch, who contends that boycotts “almost surely will never work.”

Still, they can be a decisive factor if companies feel insecure due to supply chain disruption, financial market volatility, or aggressive protectionist policy in Russia. Moreover, for many Ukrainians, participation in the boycott campaign via social media gave a feeling they could also contribute to the defense of their country and thus had a certain therapeutic function.

Just like state-imposed sanctions, pressuring multinational companies did not lead to immediate outcomes.

While public pressure alone typically does not prompt corporate disinvestment, it may contribute to an impact when used alongside other tools.

3. Using energy as a weapon in geopolitical conflicts is a double-edged sword, as brutal blackmailing of long-term business partners can sharply decrease opportunities for political coercion in the long run.

It’s no surprise that Russia has been using energy as a weapon, as it has done so in the past. Before the full-scale invasion of Ukraine, the EU imported 45% of its gas from Russia. In 2022, Russia reduced its gas exports during the season when Europe usually fills its gas storage, likely to pressure European governments to lift sanctions. However, the move backfired, as the EU invested in alternative sources of gas and implemented measures to reduce consumption by 15% through the “Save Gas for Safe Winter” campaign.

Russia’s energy war has dealt a severe blow to the European Union’s economy, with energy prices skyrocketing in several member states. Despite this, the bloc has managed to avert the direst outcomes of economic recession and political turmoil, which were seemingly part of Vladimir Putin’s grand scheme.

While the EU won the energy battle of 2022, it still needs a solution to fill reserves for winter 2023/24.

The war in Ukraine is likely to result in a big shift in the energy market. According to Daniel Yergin, vice chairman of S&P Global, Russia’s influence in the energy sector reached its peak in the summer of 2022, but it has since lost its status as an energy superpower due to a decline in market share. In other words, pursuing immediate gains will likely result in the erosion of strategic leverage over time for Russia.

In an attempt to force Ukraine and its Western partners to surrender, Russia resorted to military destruction of Ukraine’s energy infrastructure. Although the Russian army managed to damage roughly 50% of Ukraine’s power capacity, prompt actions of Ukrainian power engineers and Western support helped to mitigate the damage to some extent.

Western allies also decided to play the energy card. In September 2022, they imposed a cap on Russian oil. It was supposed to prevent Vladimir Putin from financing his war machine, but these oil sanctions have been underwhelming. The goal was to allow Russia to continue producing and selling oil to keep the market stable but to limit profits so that Putin could not finance the war. However, China, India, and other “neutral” countries offset the decline in Western imports of Russian oil.

Gas export volumes reduced to 37%, but higher energy prices made up for the drop, leading to milder-than-expected results. European companies continue to import Russian fuel by sea, although the top managers of many of them have condemned the war. They are helping Russia earn billions of euros. The shadow energy market increased, and the role of Russian oil may be underestimated, resulting in a more “dispersed, divided, and dangerous” global energy system. All this accelerated the transition to a fragmented, multipolar world.

Implications: too big to fail?

Depriving Putin of funds for war is a commonly stated goal as it sounds ethical. However, there is another more pragmatic objective that is just as crucial in the sanctions policy but not as frequently expressed. This objective is to prevent market crashes and ensure that multinational companies do not bear an excessive cost when divesting from Russia. So far, Western leaders and corporate executives have leaned towards the rather pragmatic approach of imposing sanctions, slowly reducing Russia’s economic potential without causing an acute crisis. Whether they would be willing to up the ante—as expected by many Ukrainians—is yet to be determined.

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