Andrii Klymenko: The Global Sanctions Policy Must be Viewed as a Powerful Instrument of International Security

Below is the text of the presentation by the Head of the BSN-BSISS Monitoring group Andrii Klymenko at the Crimean Expert Platform Conference, June 24, 2024, Kyiv

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I won’t repeat here the common assessment of the global sanctions policy that by now, has become a truism. Instead, I’d like to share what I believe is strategically important to understand: the global sanctions policy must be viewed as a powerful instrument of international security.

I believe, our 10 years of experience in both of those areas give me the right to say that current global sanctions policy remains hostage to the perceptions of early 2022, when Ukraine was expected to quickly disappear from the world map, leaving the West forced to negotiate with Russia. In view of that, naturally, there could be no sanctions strategy at the time. Two years into the war, there is also none to speak of now, but the process seems to at least have begun. And we all need to really speed it up because for Ukraine, every hour means more victims and destruction by Russian missiles.

The "targeted" and selective nature of sanctions clearly shows that the Western world still has a distorted perception of the nature of the Russian regime.

To start with, the very philosophy of sanctions must change: from naively counting that a demonstrative effect of sanctions would somehow change Russia's policy to understanding that sanctions are a crucial element in the economic war against Russian and global neoimperialism and totalitarianism.

What that requires is economic isolation of the "new axis of evil" from civilization and the global economy, and that new reality has to be consistently and diligently shaped.

Over the past two years, the Western sanctions policy has been based on the following principles:

• not to harm its own economy and population well-being
• coordinate sanctions with allies in advance
• cause a deferred future damage to Russia's high-tech industries
• announcing all upcoming sanctions in advance.

About the only truly systemic sanctions adopted in February 2022 were a ban on borrowing and investment of Russian entities in the Western financial markets and a blocking of Russian reserves totaling approximately $300 billion. The next systemic step was a December 2023 US presidential decree on secondary sanctions and sanctions circumvention via banks.

The remaining sanctions of early 2022 concerned only a few large banks and oligarchs.

At the time, those were presented as "hellish sanctions”.

I quote: "These are powerful sanctions. They will break the Russian economy immediately. We can say that the Russian economy ended on February 28, 2022. It doesn't matter now which Western sanctions we're talking about, because it's simply immoral to trade with Russia any longer. Russia is now paying in rubles when it should be paying in dollars. The default will come very quickly, and by the end of 2022, the Russian economy will lose about 20%."

Everything however, has turned out differently:

Ukraine was not occupied in a few days and thanks to the the courage of our people and the help of our friends and partners, that we are eternally grateful for, continues to resist Russia continues its aggression. The Russian economy has not collapsed, but instead, has found ways to circumvent sanctions, mostly through China, while the "immorality of trading with Russia" has begun to reflect on practice only after two years of war.

The West has not dared to completely disconnect Russian banks from SWIFT, which gave Russia the opportunity to create its own "SWIFT" with the BRICS countries.

Since the EU and G7 embargo on Russian oil and petroleum products had been announced 6 and 8 months, respectively, before it was to take effect, world oil prices rose, allowing Russia to earn the amount equivalent to that of its blocked assets — about $300 billion. Meanwhile, during the "transition period," it successfully reoriented its maritime exports to Eastern and African countries, actually increasing its total export volumes.

As we had warned, the “price cap,” i.e., the price ceiling on maritime oil exports from Russia, turned out to be out of touch with reality. Since February 2023, a decree of the Russian dictator has been expressly prohibiting the use of not only price cap prices in contracts, but even any mention of it.

At the beginning of the Great War, most of the thousands of Western companies operating in Russia were looking for opportunities to sit out the war without leaving the Russian market. So, they have become the de-facto accomplices in the aggression since up to 30% of the taxes they pay to the Russian federal budget may be used for military spending.

Estimated at 18-20 billion dollars a year, the total amount of taxes of the western firms remaining in Russia is enough to finance two months of war in Ukraine.

In the current circumstances, assessing Russia's economic capacity to continue the war under sanctions is a difficult task, as Russia has banned publication of the key statistical indicators.

But given the intelligence background of Russia's leaders and their professional habits, it is likely that even the indicators that continue to be officially published are completely falsified.

Under these conditions, such classical indicators of economic health as GDP, inflation, exchange rate and so on lose their value, thus making any analysis of the Russian economy based on official sources almost entirely useless.

Therefore, we now need to create a completely new methodology for assessing the economic situation in Russia as a major threat to the Western world.

During the current war time for Ukraine and Russia and pre-war time for the West, the only assessment system worth having is the one that can answer the key question:

how long will Russia be able to wage war in Europe? So far, we do not have even the vaguest answer, which pretty much devalues all present political forecasts.

The authors of the "hellish sanctions" had not taken into account that in the global economy, Western dual-use goods one way or another would continue to find their way to Russia where they would be used for weapons production. The fact that a new logistics makes them more expensive is not critical for now.

In other words, Russia will be able to produce weapons and military equipment as long as it has export currency earnings, i.e., until it’s completely isolated from the global economy, which so far, alas, still looks unattainable.

In fact, sanctions against Russia have already divided the global economy into three parts:

1. countries that have imposed sanctions;
2. countries of the "new axis of evil" that will never impose them, and
3. a new reincarnation of the "non-aligned" countries, i.e., those that have not imposed and will not impose sanctions and will trade with Russia, fueling its capacity to continue aggression.

Between 2013-2021, energy exports accounted for an average of 60% of Russia’s export earnings, in some years — even up to 68%. Up to 75% of those were comprised by oil and petroleum products*.

Between 2022-2024, Russian sea exports of crude oil has had an annual growth trend of up to 9-10%, while exports of petroleum products — of up to 20%.

Here are the results of our own monitoring of maritime oil exports from the Baltic and Black Seas in May 2024: 11.5 + 3.5 = 15 million tons of crude oil. 2.5 + 3.5 = 6 million tons of petroleum products. A total of 21 million tons, or 153 million barrels. That translates into up to $11 billion monthly, or $130 billion annually, which is comparable to the total amount of financial and military assistance to Ukraine from our friends, allies and partners.

We must put an end to that. Rethinking of the sanctions policy has already begun in both the United States (Daniel Fried) and Europe (Nigel Gould-Davies). The policy must become part of the West’s overall strategy of victory, not one of containment or management of the largest military conflict in Europe since 1945.

The only way for our strategy to win, though, is to be on a consistent joint offensive. As the world has already learned, when Ukraine has a goal, with the help of friends, it always achieves it — from Javelins to Abrams to F-16s and the participation of the entire civilized world at the Peace Summit.

So, here are our Ukrainian expert suggestions:

1. The main goal of the sanctions must change from merely sending signals to Russia that the West can take measures if Russia's policy does not change instead to:
1.1. Radically reducing Russia's ability to earn foreign currency from raw materials exports,
1.2. Maximally deprive Russia of the ability to import machines, equipment, precision instruments, microchips, and other items used for war.
So without any ambiguity, we need to clearly state that what is needed to that end is:
1.3. Maximum possible economic isolation of the RF from the civilized world - that is, from the modern global high-tech economy - even if that leads to a certain split of the world economy into those supporting the sanctions or not.

2. Prevent Russia from receiving foreign currency earnings from maritime exports of oil and oil products the world must:
2.1. Ban western tanker fleets from transporting any Russian oil and oil products, regardless of whether or not they comply with the “price ceiling,” because the latter is merely a form of deceit. That would put about 30-35% of tankers, mostly of Greek companies, out of business which means only 50-55 ships per month in the Baltic Sea, and 32-33 in the Black Sea.
2.2. Ban tankers of the “sanctions coalition” states from carrying anything from Russian ports. When, a tanker carries, let’s say, some ridiculous amount of mineral fertilizers from Russian to US ports it creates more shame than business.
2.3. Include ALL tankers transporting Russian oil and oil products around the world in the US and EU sanctions lists, so that they aren’t able to use the services of pilots, tugs, bunkers, and pay channel fees in the Baltic, British, French, and even Turkish and Egyptian straits.
2.4. Ban ALL “sanctions coalition” ports from accepting tankers from the raid transshipment areas, namely: 

(1) ) in the Gulf by Cadiz (Spain),
(2,3) near the North coast of Morocco in the Mediterranean,
(4) South of the Laconian Gulf by the Kýthira island (Greece),
(5) off the coast of Malta,
(6) at the entrance to the Strait of Suez,
(7) near Haifa (Israel),
(8) near Constanta in the Black Sea on the border of the territorial sea of ​​Romania.

2.5. Warn Turkey that if it does not stop re-exporting “repackaged” Russian oil and petroleum products to the EU, the same restrictions would be applied to Turkish ports.

3. Ban exports to Russia of ALL Western-made goods and products containing microcircuits, optical and electronic components and precision mechanics.

4. Warn banks and logistics companies of ALL states that servicing export-import operations with the goods listed above would result in a ban on the use of USD and Euro.

5. Extend the sanctions to ALL Russian banks and financial companies - currently, only 62 out of Russia's 320 banks are under sanctions.

6. Make public a categorical requirement for all EU and US companies that have subsidiaries, branches, etc. in Russia - currently numbering in the thousands - to completely freeze their activities there within a few months

7. Synchronize the sanctions lists of the US, EU, Ukraine and other countries. That is, each of the states has to unconditionally accept investigations of sanctions violators by other states, and act on it.

8. Ban all technical support for foreign equipment, including specialized software, already used at Russian enterprises.

9. Create a European analog of the US financial intelligence agency OFAC and an official mechanism that would make it impossible for individual EU states' to block the enactment of any specific sanctions.

Table 1. Transportation of Crude Oil from Russian ports in the Baltic Sea in May 2024 by Country of the Shipowner’s Registration,
number of tankers by shipowner / deadweight, t / %

Baltic Sea				Black Sea
Greece	29	3 456 555	30,55 %	5	443 111	12,67 %
UAE-Russia	17	1 880 378	16,62 %	1	156 572	4,48 %
FOC countries	12	1 314 366	11,62 %	10	1 444 658	41,30 %
China	11	1 255 920	11,10 %	5	566 025	16,18 %
India	7	819 630	7,24 %	1	115 915	3,31 %
Vietnam	6	654 290	5,78 %
Turkey	6	611 771	5,41 %	5	516 986	14,78 %
Moldova	5	536 535	4,74 %
Azerbaijan	3	326 211	2,88 %
Kazakhstan	2	232 902	2,06 %
Singapore	1	113 226	1,00 %
Kuwait	1	112 147	0,99 %
Cyprus				1	149 995	4,29 %
Indonesia				1	104 875	3,00 %
Total	100	11 313 931	100 %	29	3 498 137	100 %

 

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This report was created with the support of the Europe and the World program of the International Renaissance Foundation. The position of the International Renaissance Foundation may not coincide with the opinion of the authors