Marko Djurica / Courtesy Reuters Russian President Vladimir Putin attends a military parade in Belgrade, October 16, 2014.

Don't Mistake Russia for Iran

Why the Same Sanctions Strategy Won't Work

With sanctions beginning to bite, Russia is starting to play a new economic game. To alleviate the pain of Western restrictions on its financial and energy sectors, Russia is turning for help to non-Western partners. Last week alone, Russia and China signed over 40 agreements that provide Russian firms with lines of credit worth billions of dollars and establish strategic partnerships in the energy sector.

The United States, in turn, is looking to step up its own game. Policymakers are considering giving global companies a choice: stop providing long-term financing and energy assistance to major Russian companies or be kicked out of the U.S. financial system. Such measures resemble the sanctions the United States placed on Iran a couple of years ago. But Iran was a different problem. And treating Russia the same way would be a mistake.

Sanctions can be an effective tool for forcing engagement and negotiation. But the pace and implementation must be tailored to the target. In the case of Iran, the United States was able to tighten the screws by pressuring foreign firms to stop dealing with the country. That move created some angry blowback, but it generally worked. And partially as a result, Tehran is at the negotiating table. When it comes to Russia, though, the political pushback that would come from blacklisting dealings with the strategic Russian energy and banking sectors would be much more severe because Russia is a more important market. Further, more companies would likely be willing to forego access to U.S. markets in order to continue working with the Russians. And that would undermine the sanctions’ effectiveness.

More generally, policymakers in the United States should be wary of continually relying on sanctions that penalize foreign firms by preventing their access to U.S. markets. Ultimately, such a strategy could backfire. At some point, foreign companies may decide that doing business in U.S. markets -- and being subject to U.S. sanctions policies -- is simply not worth it.

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