The impact of economic sanctions on Russia

 
Russian banknotes The Russian stock market and rouble have fallen

The US and EU have imposed economic sanctions on Russia over its annexation of Crimea from Ukraine.

The Russian stock market and rouble have fallen and two of the major ratings companies have downgraded Russia's credit outlook and growth forecasts for the year.

Do sanctions work?

A long-term study published by the Petersen Institute finds that economic sanctions are partially successful about one-third of the time.

Of the 174 cases that they examined dating from World War One, the most successful cases were when the goal was modest, such as the release of a political prisoner, where there was 50% success.

When the aim was more ambitious, such as changing a major policy, the success rate drops to about 30%.

For instance, US economic sanctions against Cuba since the 1960s were largely judged as a failure as the embargo hurt the living standards of the people in that country with no discernible effect on regime change.

But more recently, the sanctions against Iran - that included blockades of oil and overseas bank accounts - helped push the Iranians towards the negotiating table to agree to inspections of their nuclear programme.

The Iranian economy had suffered from the sanctions imposed in 2012. GDP fell by nearly 6% last year and inflation hit double digits, averaging some 39%.

The sanctions imposed on Russia are targeted at freezing assets and imposing travel bans on key Putin allies. Russia is imposing like-for-like sanctions in return.

The next question is whether there will be large-scale economic sanctions against Russia?

Some investors are not waiting to find out. The ratings company S&P estimates that $60bn (£36bn) left the country in the first three months of the year, which is nearly as much as the entire outflow from last year.

The other thing about such economic sanctions is that they will often harm those who impose them.

In the Iranian case, oil prices rose in the aftermath of the 2012 embargo, topping $110 per barrel.

It forced European refiners, who imported about half a million barrels a day, to seek alternatives, for instance.

As I have written about before, given that Russia is the largest energy supplier to Europe and is also one of the top three oil producers in the world, there will be broader economic consequences and not just for Russia.

As President Obama has signed an order to impose sanctions on sectors of the Russian economy, it looks like the next step may well be escalating sanctions.

The US and EU will want this to be one of those one-in-three times when such actions work.

 
Linda Yueh Article written by Linda Yueh Linda Yueh Chief business correspondent

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  • rate this
    +1

    Comment number 603.

    Last time there was a global market downturn we're told WWII lead us out of it!


    Hope this isn't round three!


    I just booked a holiday...

  • rate this
    +1

    Comment number 602.

    Many times in many ways divided by wars, subject like all in USSR to the terror of Stalin, reunited by Soviet:German carve-up of Poland, subject to more horror in German occupation, those now 'Ukrainian' just have to rise above that history, to find their future in real democracy, the security in equal partnership of all. Who is to say not more likely in Russia than in corporate EU, despite Putin?

  • rate this
    0

    Comment number 601.

    Answers to #595 --thanks.

    Now ´liars´do not need a good memory.

    For international contributors having problems.

    http://www.bbc.co.uk/news/blogs-the-editors-26609678

    --here is why !

    --a total screw-up.

  • rate this
    0

    Comment number 600.

    @550.Argent Pur
    Russia, with China, hold tons of American treasuries. They can .. destroy the $.

    Actually they don't, Ireland is only one behind Russia on the list of holders, UK is higher & used to hold a lot more. China is biggest foreign holder but only 8%, the US Govt & Fed holds about 39% & the US as a whole 66% & the US, as a currency issuing State, can always afford to buy its own debt

  • rate this
    -1

    Comment number 599.

    We risk making matters worse. Britain, an island with a formidable Dad's Army tradition, can send its forces on dubious exercises far away; and given our proven strength off-the-ropes (in two World Wars and the Falklands gamble), we can even think of troop run-down at home, air-reservists on flightless carriers. But the Ukraine, without the spirit and cogency of a Captain Mainwaring? Go quietly.

 

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