When Russia began the process of withdrawing its forces and accompanying equipment from the border and returning them to their home bases, it left the impression that this succession of markers had passed without an overt violation requiring a response. In some sense, then, the policy could be deemed to have been effective, at least insofar as it deterred the worst-case scenarios involving a Russian invasion of eastern Ukraine. It could also be argued that the threat of sectoral sanctions was not a determining factor in President Putin’s decision to withdraw Russian forces from the border. While the spring campaign evidenced rapid rollout of preconceived plans and Spetsnaz-like tactical elements, it is likely that, in strategic terms, President Putin is contemplating a series of long-term moves, as in a lengthy game of chess.

In any event, the presidential election in Ukraine on May 25 was considered a limited success under the circumstances, but the situation on the ground in eastern Ukraine did not improve in the election’s immediate aftermath—if anything, the sporadic separatist clashes evolved into a coordinated, quasi-military conflict. Following a G-7 discussion in Brussels and a series of exchanges among heads of state in France in the first week of June, a window for peace talks and an accompanying ceasefire opened briefly.

Prior to June 10, momentum was building in Europe (and, to a lesser degree, in the U.S.) for recalibrating policy based on a fresh appraisal of the costs and benefits associated with a potential third round of sectoral sanctions. Officials and observers alike pointed to the absence of an overt cross-border incursion, Russian troop withdrawal from the border territories, and the inauguration of President Poroshenko and Russia’s subsequent recognition of him (including a brief meeting with President Putin).

The respite was short-lived. On June 11, a column of Russian tanks reportedly crossed the border into eastern Ukraine through a separatist-controlled checkpoint in the Luhansk region. Days later, on June 14, separatists downed a Ukrainian transport plane, killing all 49 servicemen aboard. On June 16, Gazprom announced the cutoff of gas supplies to Ukraine due to nonpayment issues. Amid sharp deterioration of the conditions on the ground, the United States announced new sanctions in mid-July, only to witness a new and tragic turn in the conflict with the downing of Malaysian Airlines Flight 17 in eastern Ukraine, apparently as the result of an accidental missile attack by separatist forces.

These developments and Russia’s deepening incursion in Ukraine prior to the recent cease-fire led to tougher sanctions to hold Russia accountable, and there is a growing bipartisan consensus in Congress in favor of the U.S. acting unilaterally, if necessary. Given this context, the following section of this paper examines core principles and objectives in sanctions policy.

U.S. Sanctions Policy

Of the several principles underpinning successful sanctions policy, two warrant particular discussion in this case: specific targeting, as opposed to a misdirected or blanket approach; and strong consensus behind a uniform multilateral policy, as opposed to mixed menus based on varying levels of commitment, or—worst of all—unilateral sanctions. Unilateral U.S. sanctions primarily penalize American companies and rarely achieve their intended effect.

The notion of “targeted” sanctions has a dual meaning. In the first, practical sense, it of course means levying a consequence on those responsible for the offense covered by the sanctions—the assumption being that the designated entities are clearly connected to what happened. In a more general sense, though, sanctions should also be tied to a reasonable likelihood of exerting influence, changing behavior, and fostering desirable outcomes (hence the importance of establishing clear goals at the outset rather than retrofitting the goals to sequential steps).

My purpose in writing this paper is not to analyze the specific entries on the sanctioned list; instead, I assume that the SDN lists to date are reasonably accurate. But for purposes of assessing effectiveness and informing policy choices going forward, the cause-and-effect linkage between action and reaction deserves further scrutiny.

While the sanctions implemented thus far will no doubt have more demonstrable results in the longer run, U.S. official statements as to their effect to date have seemed to make convenient use of Russia’s already-declining economic picture. It is true that Russian capital flight amounted to some $50 billion in the first quarter of 2014—equivalent to the annual total in 2013—but there are two important points to bear in mind. First, the sanctions framework was announced on March 6, with additional financial measures following in mid-March, which means the Q1 flight number was likely 75-85% derived by this stage. More notably, capital flight subsequently decreased in April (as sanctions intensified) and further slowed in May, leading some economists to predict net inflows to Russia in June. These data further support the second broader point, which is that Russian capital flight was well underway in Q1 due to investors’ sense of heightened risk brought about by Russia’s actions in Ukraine—not the U.S. policy response.

Similar points can be made with respect to ruble depreciation, as the Russian currency’s value declined by more than 5% against the dollar earlier this year, forcing the Central Bank of Russia to spend tens of billions in reserves (including more than $10 billion in a single day) and to raise interest rates twice, up to 7.5%. However, it is also the case that the ruble has risen by roughly 3.5% since the sanctions were announced in early March.

And finally, U.S. officials frequently cite the decline in Russian stock markets as evidence that the sanctions are having a direct impact on company shares. With a few exceptions, however, the primary sanctions targets thus far have been individuals and not companies, and most of these companies are not publicly-traded. While the two indexes in the Moscow Exchange, the MICEX and RTS, suffered steep declines in February as the crisis took hold, the RTS has risen some 15% since the sanctions announcement, and the MICEX rallied 10% in May alone, enjoying its best month in two-and-a-half years. Russian stocks are now up 20% since mid-March, and in the last week of May alone, investors poured $105 million in new money into the Russian markets.

Thus, in terms of short-term economic impact, the cause-effect policy linkages are tenuous, at best. Put simply, capital flight and currency pressures are primarily a function of risk perception and a reaction to instability—investors did and do flee temporarily. This is a cost to Russia, but one that Russia imposed on itself.

Second, concerning coordinated action among allies, broad multilateral support was difficult to achieve at the outset, though the U.S. administration did an admirable job of cultivating and solidifying European support (particularly British and German) in the face of initial opposition. Also, as concerns spread among American companies that Asian competitors might stand to gain from the evolving sanctions policy, Japan subsequently signed on to the effort, though in more limited form.

As a statement in principle, U.S. and European leaders reaffirmed the possibility of further sanctions during G-7 discussions and D-Day commemorative meetings in France in the first week of June. The trigger most recently identified is a failure by Russia to cease support for ongoing subversive activities on Ukrainian soil. While this is potentially a blurred “red line,” subsequent developments have clarified that line for many in the U.S. and some in Europe, leading to new sanctions in late July. Now the question is the extent to which it will rally support for European shared sacrifice, such that U.S. policy can avoid the quandary of unilateral sectoral sanctions. Without European support, a further series of steps could include the imposition of secondary sanctions on those European countries continuing their economic relationships with Russia in ways that undermine the U.S. effort (as was the case with the Iran-Libya Sanctions Act in the mid-1990s).  Some U.S. Senators have already proposed this in draft legislation.[3]

Given the substitution effect of Russian partners transferring their business to Asian/European competitors, the cost to American business of a go-it-alone approach would be substantial in the near term and staggering over decades to come, and not simply in terms of shareholder profits but also in export-oriented jobs, just as the U.S. regains the jobs lost during the Great Recession.

The stakes in the energy realm are rather obvious; even if the targets are limited to state companies Gazprom and Rosneft, one need only analyze the long-run significance of one project, the Exxon-Rosneft Arctic venture, to advise against the tradeoff. Meanwhile, less attention is paid to potential costs in other identified sectors such as financial services, one that is expected to experience some of the most rapid growth and greatest market-opening opportunity as a result of from Russia’s WTO accession. And the importance of Russian corporate clients to London’s financial community has been a principal concern influencing UK policymakers.

Beyond lost market share, another unintended consequences could be an acceleration of Russia’s version of the “Asia pivot” in its foreign policy orientation. As noted above, Japanese firms acted quickly in March in seeking to exploit opportunities presented by U.S. sanctions policy. And while the groundbreaking $400 billion Russia-China gas deal was the result of negotiations, it is also safe to say that it received new impetus as a strategic priority this spring to solidify a 30-year hedge for Russian exports.