International sanctions during the Russian invasion of Ukraine

Based on Wikipedia: International sanctions during the Russian invasion of Ukraine

One trillion dollars. That's how much Russian wealth the West managed to freeze within the first five days of Vladimir Putin's invasion of Ukraine. To put that figure in perspective, it's roughly the entire annual economic output of the Netherlands, immobilized with the stroke of pens in Washington, Brussels, and London.

The sanctions campaign launched against Russia in February 2022 represents the most ambitious attempt in history to use economic weapons against a major world power. It has been called a "financial nuclear bomb" by Sergei Aleksashenko, Russia's former deputy finance minister. Whether it has worked as intended is another question entirely.

The Opening Salvo

The economic war actually began three days before the tanks rolled across the border. On February 21, 2022, Putin delivered a rambling, historically revisionist speech recognizing the independence of two puppet states he had carved out of eastern Ukraine years earlier: the so-called Donetsk and Luhansk People's Republics. The recognition was a transparent pretext for invasion, and Western governments responded immediately with the first wave of sanctions.

But these initial measures were restrained, almost tentative. The real hammer fell on February 24, when Russian forces launched their assault from multiple directions. Within hours, the European Commission president Ursula von der Leyen announced "massive" sanctions. Josep Borrell, the European Union's foreign policy chief, promised "unprecedented isolation" and "the harshest package of sanctions we have ever implemented." He added, with evident gravity, "These are among the darkest hours of Europe since the Second World War."

The sanctions were sweeping in their scope. They targeted individuals—from Putin himself down to hundreds of members of the State Duma, Russia's parliament. They froze the assets of oligarchs, those billionaires who had grown fabulously wealthy through their proximity to the Kremlin. They cut off Russian banks from the Society for Worldwide Interbank Financial Telecommunication, better known as SWIFT—the messaging network that enables most international bank transfers. Getting kicked off SWIFT is roughly the financial equivalent of having your phone service disconnected in 1995: you can still communicate, but suddenly everything becomes much harder.

The Central Bank Shock

The most devastating blow came against Russia's Central Bank. Over years of anticipating possible Western retaliation for various aggressions, Moscow had accumulated a war chest of $630 billion in foreign currency reserves. This was supposed to be the cushion that would allow Russia to weather any economic storm. The reserves were held in various currencies and locations around the world—dollars in New York, euros in Frankfurt, pounds in London.

On February 28, the West froze roughly half of it.

This was genuinely unprecedented. Central bank reserves had long been considered untouchable, a sacrosanct pillar of the international financial system. Countries—even hostile ones—were supposed to be able to trust that their reserves held abroad would remain accessible. By seizing Russia's reserves, the West essentially told every other country on earth: if you cross us badly enough, your savings aren't safe either.

The immediate effect on Russia was chaos. The ruble collapsed, losing nearly half its value against the dollar within days. Interest rates spiked to 20 percent. Russians queued at ATMs, desperate to withdraw cash before their savings evaporated. Foreign companies began a frantic exodus.

The Corporate Stampede

What happened next surprised many observers. Beyond the official government sanctions, hundreds of private companies decided independently to abandon Russia. Apple stopped selling iPhones there. IKEA shuttered its stores. McDonald's closed its restaurants—a particularly symbolic departure, since the opening of the first McDonald's in Moscow in 1990 had been a landmark moment signaling the end of the Cold War.

ExxonMobil walked away from a massive oil project on Sakhalin Island that had taken decades to develop. Shell announced it would exit all Russian hydrocarbons. General Motors, Ford, Boeing, Airbus, Nike, Adidas, Visa, Mastercard, Netflix—the list grew longer by the day. By some counts, over a thousand Western companies either suspended operations or withdrew entirely.

Some of these departures were legally required by sanctions. Many were not. Companies fled for a mixture of reasons: moral outrage, fear of reputational damage, concern about future sanctions, logistical impossibility of operating in an isolated economy, and simple uncertainty about whether their Russian assets might be seized. Ukrainian officials, along with American and European governments, actively pressured companies to leave, and named and shamed those that hesitated.

The Technology Chokehold

Perhaps the most innovative sanctions targeted technology. The United States imposed sweeping export controls on semiconductors, the tiny chips that power everything from smartphones to guided missiles. The rules were crafted with extraterritorial reach: any chip made anywhere in the world using American equipment or intellectual property—which means virtually all advanced chips—required a license for export to Russia. That license would, by default, be denied.

This was a significant evolution in sanctions thinking. Rather than just freezing assets or blocking transactions, the United States was attempting to deny Russia access to the fundamental building blocks of modern technology. Semiconductors are essential for precision weapons, for communications equipment, for the computers that run modern economies. They are also fiendishly difficult to manufacture. There are only a handful of facilities on earth capable of producing advanced chips, and Russia has none of them.

The export controls extended beyond semiconductors to include encryption software, lasers, sensors, and a broad range of equipment useful for defense industries. The enforcement mechanism was elegant: any company violating the rules would itself become subject to American sanctions, potentially cut off from the U.S. financial system and from purchasing American technology. For most global companies, that was an unacceptable risk.

The Neutrals Join In

One of the most remarkable aspects of the sanctions campaign was how many traditionally neutral countries participated. Switzerland, which had maintained its neutrality through two world wars and prided itself on banking secrecy, agreed to freeze Russian assets. This was a profound departure from centuries of Swiss policy.

Singapore, a small city-state that carefully cultivates relationships with all major powers and rarely takes sides in geopolitical disputes, imposed banking sanctions on Russia—the first country in Southeast Asia to do so. South Korea and Taiwan, neither of which had participated in previous sanctions against Russia, joined the effort. Even Japan, which has territorial disputes with Russia dating back to World War II and typically treads carefully, imposed substantial sanctions.

The coalition was not universal, however. Notable holdouts included China, India, Turkey, and the United Arab Emirates. These countries continued trading with Russia, providing crucial economic lifelines and, in some cases, helping Russia circumvent sanctions. Brazil, Mexico, and Serbia explicitly announced they would not participate in sanctions at all.

Germany's Transformation

No country underwent a more dramatic policy reversal than Germany. For decades, German foreign policy had been built on the premise that economic interdependence with Russia would moderate Moscow's behavior and make conflict unthinkable. Germany had become deeply dependent on Russian natural gas, which heated homes, powered factories, and generated electricity. The Nord Stream pipelines running under the Baltic Sea were the physical embodiment of this strategy.

Within days of the invasion, that policy lay in ruins. Chancellor Olaf Scholz suspended the recently completed Nord Stream 2 pipeline, an $11 billion project that had never delivered a single cubic meter of gas. He announced Germany would pursue energy independence from Russia. Most startlingly, he committed to sending weapons to Ukraine—the first time Germany had provided arms to a country at war since 1945.

Scholz also announced a €100 billion special fund for defense spending, a dramatic increase for a country that had long been criticized by NATO allies for under-investing in its military. The speech in which he announced these measures, delivered to the Bundestag just three days after the invasion began, became known as the Zeitenwende—the "turning point" or "watershed moment." It marked the end of an era in German foreign policy.

Putin's Response

Moscow did not accept these economic attacks passively. On February 27, Putin responded to the sanctions and what he called "aggressive statements" by Western governments with a chilling announcement: he was ordering Russia's "deterrence forces" to be placed on a "special regime of combat duty."

The phrase was novel and somewhat ambiguous, but its meaning was clear enough. Russia's deterrence forces include its nuclear arsenal. Putin was reminding the world that Russia possessed the ultimate weapon, and that the West's economic warfare was not without risk. American officials described the move as "escalatory," though the practical changes to Russia's nuclear posture remained unclear.

Beyond nuclear saber-rattling, Russia retaliated economically. It demanded that "unfriendly countries" pay for Russian gas in rubles, a requirement designed to force buyers to interact with Russian banks and prop up the currency. It restricted exports of certain commodities. It seized the assets of Western companies that had departed. It defaulted on its foreign debt—not because it lacked money, but because sanctions made it technically impossible to transfer payments to foreign bondholders.

The Energy Weapon

Energy became the central battleground of the economic war. Europe had allowed itself to become dangerously dependent on Russian hydrocarbons. Germany got roughly 55 percent of its natural gas from Russia, along with about a third of its oil and half its coal. Other European countries were similarly exposed. Russia supplied about 40 percent of Europe's total natural gas consumption.

This dependency gave Russia enormous leverage—but it was a weapon that could only be used once. In the summer of 2022, Russia began restricting gas flows through Nord Stream 1, citing dubious technical problems. In September, mysterious explosions—widely attributed to sabotage, though responsibility has never been definitively established—destroyed both Nord Stream pipelines. Russian gas deliveries to Europe dropped to a trickle.

The result was an energy crisis that sent prices soaring. European governments spent hundreds of billions of euros on emergency measures: subsidizing household energy bills, bailing out utilities, filling gas storage facilities with expensive liquefied natural gas shipped from the United States and Qatar. There were genuine fears that Europe might face blackouts and freezing homes during the winter of 2022-2023.

Those fears proved overblown. A mild winter helped, as did aggressive conservation measures and the rapid deployment of renewable energy. Europe managed to wean itself off Russian gas far faster than almost anyone had thought possible. By 2023, Russian gas made up less than 15 percent of European imports, down from 40 percent before the war. The European Commission announced plans to eliminate Russian fossil fuel imports entirely by 2027.

The Oil Price Cap

Oil presented a different challenge than gas. While gas pipelines create fixed dependencies that are hard to break quickly, oil is a globally traded commodity that moves by tanker. Russia could simply redirect its oil exports to countries willing to buy, particularly China and India.

This created a dilemma for Western policymakers. They wanted to deprive Russia of revenue, but they didn't want to remove Russian oil from global markets entirely, which would spike prices and hurt their own economies. The solution was a novel mechanism: a price cap.

In December 2022, the Group of Seven major economies, along with the European Union and Australia, agreed to cap the price of Russian oil transported by sea at $60 per barrel. The enforcement mechanism relied on Western dominance of the global shipping and insurance industries. Ships carrying Russian oil could only use Western insurance and maritime services if the oil was sold at or below the cap price.

The price cap was designed to thread a needle: keep Russian oil flowing to maintain global supply, but reduce the price Russia received for it. Whether it succeeded is debated. Russia found ways to evade the cap using a "shadow fleet" of aging tankers with non-Western insurance. By August 2023, Russian oil was selling above the cap at over $73 per barrel. Yet Russia was clearly receiving less revenue than it would have in a normal market, and its budget was under strain.

The Sanctions Treadmill

As months turned into years, the sanctions campaign became an ongoing exercise in escalation and counter-escalation. The European Union alone passed eleven rounds of sanctions between 2014 and mid-2023. Each round attempted to close loopholes exploited by the previous one, target new sectors, and add new individuals and entities to the sanctions lists.

The eleventh round, adopted in June 2023, focused on "dual-use" items—products with both civilian and military applications—such as computer chips that might end up in Russian weapons. It also attempted to crack down on ship-to-ship transfers, a technique Russia used to obscure the origin of sanctioned goods. And it suspended more Russian broadcasting licenses in Europe, part of an information war that accompanied the economic one.

But there were limits to what sanctions could achieve. As a Belgian government spokesperson acknowledged in December 2022, "It is becoming increasingly difficult to impose sanctions that hit Russia hard enough, without excessive collateral damage to the EU." Every sanction that hurt Russia also imposed costs on Western businesses and consumers. There was a finite appetite for self-inflicted pain.

The Circumvention Game

Russia, meanwhile, proved more resilient than many had expected. The initial predictions of economic collapse gave way to a grimmer reality: Russia's economy contracted, but it did not implode. The International Monetary Fund estimated Russia's GDP fell by only about 2 percent in 2022—painful, but far from catastrophic.

Several factors explained this resilience. High energy prices in 2022, driven partly by the war itself, initially offset some of the sanctions' impact. Russia redirected trade toward countries that declined to participate in sanctions, particularly China and India. These countries were happy to buy Russian oil at discounted prices. Turkey became a crucial intermediary, and there were suggestions that Russian gas might be "whitewashed"—blended with Turkish production and relabeled before being sold to European buyers.

Russia also exploited the complexity of global supply chains. Sanctioned goods found their way into Russia through third countries. Consumer electronics, which face fewer export restrictions than military equipment, could be repurposed for military uses. Semiconductors flowed through intermediaries in Central Asia and the Caucasus. The global economy was simply too interconnected for sanctions to create a perfect seal.

The Costs of Economic War

The sanctions imposed costs on everyone involved. Russia suffered most directly: its economy isolated, its access to technology constrained, its wealthiest citizens unable to enjoy their London mansions and Mediterranean yachts. But the costs rippled outward.

European consumers faced higher energy bills and inflation. Eastern European farmers found themselves undercut by cheap Ukrainian grain that flooded their markets when Black Sea export routes were disrupted. Countries like Hungary and Poland, which had close economic ties with Russia before the war, suffered disproportionately. The global food system was stressed, with wheat prices spiking and fears of famine in import-dependent developing countries.

There were also subtler, longer-term costs. The seizure of Russian central bank reserves sent a message to every country in the world: dollar and euro assets held abroad could be weaponized. China, in particular, took note. The sanctions may have accelerated efforts by China and others to develop alternative payment systems and reduce dependence on Western financial infrastructure. The long-term consequence could be a more fragmented global financial system.

The Question of Effectiveness

Did the sanctions work? The answer depends on what one expected them to achieve.

If the goal was to force Russia to immediately withdraw from Ukraine, they clearly failed. The war continued, and continued, and continued. Russian forces adapted, Russian factories increased production of weapons, and the Russian economy, while diminished, kept functioning.

If the goal was to impose severe costs on Russia and constrain its ability to wage war, the results were more ambiguous. Russia's military faced genuine equipment shortages, partly due to sanctions on technology. Its economy was smaller than it would otherwise have been. Its international isolation was real, even if not complete. But whether these costs were sufficient to change Russian calculations remained unclear.

If the goal was to signal Western resolve and unity, sanctions succeeded beyond most expectations. The breadth of the coalition, the speed of implementation, and the willingness of countries to accept economic costs themselves were genuinely impressive. The sanctions demonstrated that the international community could, when sufficiently provoked, act decisively against aggression.

The debate over sanctions effectiveness will continue long after the war ends. What is already clear is that the sanctions campaign against Russia represents a new chapter in the history of economic statecraft—an experiment whose full consequences are still unfolding.

Looking Ahead

By 2024, the sanctions regime had become a permanent feature of the international landscape. The European Union was proposing new measures targeting Chinese companies that supplied Russia's war machine. The United States continued to add names to its sanctions lists. The price cap on Russian oil remained in place, however imperfectly enforced.

The question of what to do with the frozen Russian assets—that roughly $300 billion in central bank reserves held abroad—remained unresolved. Some argued the money should be confiscated and used to rebuild Ukraine. Others warned that seizing sovereign assets would set a dangerous precedent and further undermine the international financial system. As of early 2024, the assets remained frozen but not seized, generating interest income that some proposed using for Ukraine's benefit.

The Yermak-McFaul Expert Group, a team of sanctions specialists convened by Ukrainian presidential advisor Andriy Yermak and Stanford professor Michael McFaul, continued publishing recommendations for strengthening the sanctions regime. Their work highlighted both the ambition of the sanctions campaign and its limitations—the constant need to adapt, to close loopholes, to maintain coalition unity in the face of fatigue and competing interests.

The sanctions against Russia have not ended the war. They have not brought Putin to his knees. But they have imposed real costs, demonstrated real solidarity, and changed the calculus of aggression in ways that will shape international relations for decades to come. Whether that is enough depends on questions that remain to be answered—questions about the future of Ukraine, the resilience of Western alliances, and the ultimate price of peace.