The Costs and Benefits of Sanctioning Russia

Within the last weeks, few news headlines have been as heart-wrenching as the loss of 298 lives on the Malaysian Airlines commercial flight that has been suspected of being destroyed by a missile fired by pro-Russian separatists in Ukraine. Stemming from the Russian government's support of this group, many countries, including the United States and members of the European Union, have proposed increasing sanctions on Vladimir Putin's government. These sanctions would include banning people in the U.S. from banking with three Russian banks, as well as sanctions targeting the oil sector, defense equipment, and sensitive technologies.

The aim of these sanctions is clear: end Russia's support for the militant group by nearly crippling its fragile economy. A few weeks ago, I wrote a post describing Russia's vulnerability due to its dependence on its defense export markets. Although I am not sure whether or not government policy-making officials are following my posts, this market, Russia's economic lifeline, is exactly what the U.S. and EU sanctions are targeting. Existing sanctions have already taken its toll on Russia, including its central bank needing to spend tens of billions of dollars in order to defend the ruble.

Russia's economy will be pushed to the brink should these sanctions pass, and although this poses a serious threat to the economic interests of other countries connected to Russian markets, many countries have decided it is a blow worth taking. Germany, for example, sold about 36 billion euros of goods to Russia last year, almost one-third of the EU's total. With the current tensions, however, further decline in the economic relationship could endanger 25,000 jobs in Germany. Yet, according to German Finance Minister Wolfgang Schaeuble, "an erosion of peace and stability would, by the way, be the biggest danger to economic developments." Fifty-two percent of Germans stated that they supported tougher sanctions, despite knowing that it would take a toll on the German economy. The United States is also in a fragile relationship with Russia with regards to finding solutions to political interests in Iran and Syria, yet imposing these sanctions has also been deemed as necessary.

Politics and economics in the international system are greatly intertwined, yet oddly enough they often seem to conflict with one another. Russia's unique place in the global economics and politics provides a clear example of this: grave mistakes made in the political sphere, such as providing top-tier weapons to a militant group, can have severe economic consequences that not only affect residents of the sanctioned country, but also international interests invested in that economy. In a globalized business world, nobody wants to sanction or isolate a nation's economy. As the Germany example shows, there are economic losses on all sides of international borders. In spite of this, some sacrifices are worth making for a more secure and peaceful world, which will ultimately lay the ground for the transparency and security needed for successful trade and political relations to grow.