A Western sanctions counteroffensive to match Ukraine’s military counteroffensive: Benjamin L. Schmitt for Inside Policy

By Benjamin L. Schmitt, June 20, 2023

(This article is adapted from testimony offered to the House of Commons Standing Committee on Foreign Affairs and International Development, June 8, 2023.)

Early in June yet another unthinkable act of terror was unleashed by Putin’s Kremlin against the Ukrainian people – the destruction of the Nova Kakhovka dam and hydroelectric power plant in Russian-occupied Kherson – an act that unleashed widespread energy and water insecurity, ecological disaster, and sharply exacerbated the Russia-fabricated humanitarian nightmare facing Ukraine today.

Although shocking, Moscow’s latest attack on Ukrainian critical infrastructure shouldn’t take us by surprise: it is just the most recent example in its campaign of kinetic strikes against Ukrainian energy facilities over the past 16 months.  And a clear extension of Russia’s years-long state policy of weaponizing energy supplies against European democracies.

We are nearing a historic inflection point during Russia’s war in Ukraine. A moment in which heroic Ukrainian defenders are in the opening stages of a highly anticipated military counteroffensive aimed at ending Russian military occupation within Ukraine’s internationally recognized, sovereign territory.

The success of the counteroffensive will not just come down to the unparalleled bravery of Ukrainian service personnel: military hardware and material that has been supplied by global democracies will play a decisive role as well. This is why countries like Canada must continue to rapidly improve the pace of supply and scope of the military systems it is sending to Ukraine and ensure that increasing Canada’s technical capacity for defence manufacturing and procurement is prioritized in Ottawa’s highly anticipated defence policy update.

And while supporting Ukraine’s military counteroffensive is essential, global democracies supporting Kyiv have the duty to lead a counteroffensive of their own: a sanctions counteroffensive.  A Western sanctions counteroffensive targeting Putin’s Kremlin will further rachet up economic and supply chain pressure to degrade Russia’s capability to wage war against its democratic neighbor.

With this in mind, we need to look back at three critical lessons of Russia sanctions over the past year:

First, the answer to the perennial question of “are Russia sanctions working?” is “Yes.” But given the wide range of measures deployed, we need to also consider the proper timescales required for these various classes of sanctions to have their desired impact.

For example, while banking restrictions and energy sanctions might take longer to result in broad macroeconomic failures in the Russian economy, technology export controls on component and system-level military and dual use hardware have resulted in more immediate impediments to Russia’s military industrial capacity, forcing it to seek equipment from countries like Iran.

Regardless, both sanctions tracks must be strengthened and held in place for the long term, to live up to the Transatlantic pledge of increasing costs on Putin’s Kremlin in support of Ukrainian victory.

Second, the Transatlantic community can never again be fooled by dubious Kremlin schemes and disinformation campaigns to waive existing, prudent sanctions measures.

Both during the run-up to the Kremlin’s large-scale invasion of Ukraine, and during its first year, sanctions that were either already enforced – or were on the books to be – were waived, avoided, or otherwise unutilized.

This includes the Biden Administration’s July 2021 decision to waive sanctions on the Kremlin-backed Nord Stream 2 pipeline – sanctions that were legally mandated by an overwhelming bipartisan majority in both chambers of U.S. Congress for years.

It also includes the decision later in 2021 by the Biden Administration to avoid sanctioning a vessel – called the Blue Ship. This vessel was engaging in sanctionable activities in the construction of Nord Stream 2, but sanctions were waived, citing the ship’s ownership by an entity that was quasi-owned by the German state government of Mecklenburg-Vorpommern, though principally funded by the Gazprom-owned Nord Stream 2 consortium – an entity cynically named “Klima und Umweltschutz MV (Climate and Environmental Foundation MV)” The ship and its owner remain unsanctioned today.

And of course, it also includes last year’s decision by the Canadian government to waive Russia technology export controls measures on a set of Siemens gas turbines that the Putin regime erroneously claimed was technically needed to end it’s politically-motivated cut of the Nord Stream 1 gas pipeline to Europe. Thankfully, the Trudeau government ultimately reversed this decision.

Strategic errors like these, along with many further examples, only serve to embolden Putin’s Kremlin to set up schemes to undermine Western sanctions consensus.  And, if left uncorrected, could cause grave harm to broader counter-threat financing programs developed by global democracies to counter autocratic threats.

Third, simply announcing strong sanctions measures without equally strong tracking and enforcement actions against would-be sanctions evaders won’t get the job done.

The wide array of Russia sanctions and export controls measures that have been announced by the G7, European Union, and beyond over the past 16 months are commendable, but must be rigorously increased and enforced until the Kremlin relents in its war of choice against Ukraine.

It is no exaggeration that the scale and scope of sanctions already in place against the Russian Federation represent perhaps the largest single sanctions regime ever undertaken, in part due to the sheer size of Russia’s landmass, economic activity, and global connections.

But this means that Western governments should build capacity on sanctions tracking and enforcement within existing or new federal entities. Governments of the sanctions coalition should also encourage private space sector actors operating multiwavelength geospatial imaging satellites to rapidly provide data sets publicly, to build additional capacity among civil society actors, NGOs, academic institutions, think tanks, and investigative media to help identify sanctions evasion and illicit technology transfers on land and sea.

There are many additional sanctions measures that need immediate rollout, including some that I coauthored with colleagues in the Stanford University International Working Group on Russia Sanctions (Strengthening Sanctions Against the Russian Federation Action Plan 2.0.)

Let me leave you with a short menu of our sanctions recommendations to get the discussion going:

1. Canada, along with its G7 and EU partners should move to immediately reduce the current price cap on Russian Urals grade crude oil from $60/barrel to near the marginal cost of production, estimated at roughly $30/barrel.
2. Permanent blocking sanctions should be placed on all Russian energy export pipelines to Europe, including Nord Stream 1 and 2, Yamal, and TurkStream Line 2, while also imposing import taxation on any remaining Russian energy product imports, with proceeds going to Ukrainian reconstruction.
3. We must impose sanctions against Russian hydrocarbon companies, as well as Gazprombank, while developing sanctions to encourage full divestment of Western energy technology service providers still operating in the Russian Federation.
4. In the financial sector, we must impose full sanctions against Russia’s ten largest banks, while setting deadlines for the divestment of foreign banks from their remaining Russian operations.
5. Technology export controls restrictions for component and systems-level hardware, and a wide range of technology development software including CAD/CAM/BIM platforms should be tightened – especially on those that could directly be used or repurposed for use by the Russian military, with the aim to significantly degrade the Russian military, aerospace, and space technology sectors going forward.
6. Finally, the Russian Federation should at long last be labeled what it is – a State Sponsor of Terrorism. Furthermore, we must transfer the roughly $300 billion in frozen Russian central bank assets held by the West to support the Ukrainian military effort, as well as future Ukrainian reconstruction.

It is appropriate and necessary that assets from Putin’s Russia be used to support Ukraine, since the burden should fall on the instigator of the war, not solely on taxpayers from Western democracies. Plainly stated: the perpetrator of the crime, needs to pay for the crime.

In closing, the biggest lesson that we should have learned over the past 16 months is that the cycle of incrementalist measures to support Ukraine, whether it be on the supply of weapons systems urgently needed by Kyiv, or on sanctions measures, needs to be broken. The time for incrementalism is over.

A Western sanctions counteroffensive with stronger and wider restrictions on the Russian Federation can and must be deployed immediately.

Global democracies must do this not only to support the future resiliency of a free Ukraine, but also to make it abundantly clear to the realist, “it’s just a commercial deal” policy bloc, that there cannot be a “return to business as usual” with Putin’s Kremlin. It’s a vital message that authoritarian regimes around the globe need to hear as well.