Russia has to be constantly on its guard, says an expert: Western countries “clearly have better cards”

Senior advisor at the Bank of Finland Laura Solanko assesses that Western countries have been successful in sanctions against Russia so far, but there is room for improvement.

He reminds that the occupation of Crimea and military operations in eastern Ukraine in 2014 led to the first clear diplomatic and economic countermeasures. After that, Russia’s large-scale invasion of Ukraine in February 2022 quickly led to exceptionally extensive anti-Russian sanctions.

“Sanctions against an economy the size of Russia are inevitably an ever-changing game. When deciding on sanctions, it is known that Russia tries in every way to circumvent them. But every new detour route and new intermediary developed by Russia is more difficult to organize and more expensive than before”, Solanko comment on his blog.

According to Solango, the latest EU sanctions package announced in June contains both genuinely new measures and clarifications and extensions of previously made decisions.

Among other things, the 14th sanctions package prohibits the import of Russian liquefied natural gas (LNG) to terminals that are not connected to the natural gas network. In addition, the export of LNG to third countries is prohibited and the sanctions preventing circumvention of the oil price ceiling mechanism are tightened

“In board games, the starting situation is usually fairly even, but in this game the Western industrialized countries clearly have better cards in their hands. As a result of each new round of sanctions, Russia has to adapt and change its previous trade practices,” says Solanko.

For example, he will raise Russia’s foreign trade fees. If they previously passed through one middleman, now numerous new, perhaps even greedier, intermediaries must be included in the chain.

The biggest problem is the fragmentation of the EU

Actual Russian countermeasures aimed at destabilizing the economy of EU countries or the United States have not been seen, and Solanko does not expect such.

“Russia’s economic resources and role in world trade are very small compared to EU countries – not to mention the entire Western coalition. On the other hand, it is possible for Western countries to keep some of their cards hidden and introduce new sanction measures only with deliberation. This way, Russia has to be constantly on guard.”

Solanko still warns against thinking that sanctions would be a sufficient tool to support Ukraine. He emphasizes that even widely and internationally implemented sanctions do not easily crumble an autocratic regime.

Therefore, in terms of the outcome of the war, supporting Ukraine financially and with weapons is key. According to Solango, the position of Western countries is good in this game as well.

“If we imagine that the direct and indirect military expenditures of the Russian state would be at the top of 10 percent of the gross domestic product, Russian military expenditures would only correspond to about one percent of the combined gross domestic product of the EU countries. Support is not dependent on the sufficiency of financial resources, and support has indeed been given.”

The EU’s biggest problem is fragmentation. Each decision requires the unanimity of 27 countries, and in addition, the implementation and control of the decisions is fully the responsibility of the member countries.

Solanko points out that each new penalty round is more difficult for everyone than before, because the easiest game moves have been made first.

“Still, the EU has already reached an agreement on a total of 14 sanctions packages in 28 months. Although there is always room for improvement, this should be considered a good achievement. As a result of the sanctions, Russia’s import of key sanctioned goods is about half of what it was before the full-scale attack,” he says.