John Jefferson
A character in the fascinating new book Punishing Putin: Inside the Global Economic War to Bring Down Russia by the Bloomberg journalist Stephanie Baker is introduced as “the most powerful guy you’ve never heard of.” A lot of people in this book are like that.
The man in question is Björn Seibert, formerly a German defense ministry official and currently head of cabinet to European Commission President Ursula von der Leyen. Daleep Singh, Wally Adeyemo—these are not household names, but together they have totally reshaped the use of global finance as a weapon of war.
The first thing to know about Western sanctions on Russia since February 2022 is that they are unprecedented. The second thing to know is that they haven’t worked.
To start with the first: The sanctions imposed by President Joe Biden’s administration on Russia after its invasion of Ukraine were a massive escalation from the comparatively mild sanctions imposed by Barack Obama in 2014 after the invasion of Crimea. For example, cutting off Russia from the global payment system SWIFT, which Baker calls “the Gmail of the global banking system,” was without parallel. Singh, deputy national security advisor for international economics, and Adeyemo, deputy secretary of the Treasury, among others, had to work overtime to get the Europeans to agree to it.
Even more extreme was the decision to freeze assets held in Western financial institutions by Russia’s central bank. “To do this to a fellow central bank involves breaking the assumption of sovereign equality and the common interest in upholding the rights to property,” wrote economic historian Adam Tooze at the time. The figures involved are staggering: more than $300 billion, compared to the $7 billion in Taliban assets that Biden froze after our withdrawal from Afghanistan.
Treasury Secretary Janet Yellen was a holdout against the asset freeze. She refused to agree to the plan when it was first proposed because she worried about its effects on currency markets. Mario Draghi, the Italian prime minister and former European Central Bank president, was dispatched to convince her, which he successfully did. “They spoke the same language, and I’m not talking about English,” an anonymous source tells Baker.
The world turns on such conversations. Another took place in July 2023 at the Aspen Security Forum, where National Security Adviser Jake Sullivan listened to former Treasury Secretary Larry Summers’s pitch for confiscating Russia’s frozen assets and giving the money to Ukraine for reconstruction.
Summers’s wingmen in his pitch were Robert Zoellick and Philip Zelikow, two Republicans. The three tell Baker that they teamed up in order to make their idea “transcend party politics.” In fact, it just drives home that our Russia policy is currently being set by the uniparty. Zoellick and Zelikow are both Bush-era neoconservatives. As for Summers, he was pushing for harsher sanctions on Russia back in the Yeltsin years, when he was serving under Robert Rubin in Bill Clinton’s Treasury Department.
Sanctioning Russia is not something these people had to be reluctantly brought around to. Many were raring to impose sanctions from the get go. Note that the first package of sanctions Biden imposed on Russia were in April 2021, before the invasion. According to Baker, that package was in response to “Moscow’s meddling in the U.S. elections, the poisoning of the late Russian opposition activist Alexei Navalny, and the Russian-backed cyber hack on the U.S. tech company SolarWinds Corp.”
Furthermore, “The Biden administration viewed the sanctions as an act of housekeeping, making up for Trump’s unwillingness to respond to Russia’s malign actions.” They imposed new sanctions because the last guy didn’t—a logic that only hardened attitudes in the Kremlin.
Two and a half years after the invasion, it is clear that sanctions have not had the devastating effect on Russia’s economy that the Biden administration expected. The ruble has not crashed. Russia’s economic growth is strong, projected to be higher than France’s or Germany’s this year.
The disappearance of McDonald’s from the Russian market is a symbolic blow, a reversal of the hopeful symbolism of 1990 when the Cold War ended, but the domestic replacement, Vkusno i Tochka, has picked up the slack serving Russia’s fast-food diners. That is the story for most sectors of domestic production that have been affected by sanctions, in part because Putin made it his goal after 2014 to make his country sanction-proof.
When de-SWIFTing was first floated in 2014, Russia moved to create its own alternative payment systems. The Mir card was launched domestically in 2016, which allowed Russian consumers to survive the withdrawal of Visa and Mastercard from the Russian market in 2022. Without that alternative in place, the Russian economy might indeed have crashed.
“Many Western leaders hoped that the sanctions would quickly kneecap Putin’s war machine,” Baker writes. She concedes, “That proved overly optimistic.” But that does not go far enough. These unprecedented sanctions have actually hurt America more than they have helped us, in at least three ways.
First, they have pushed Russia’s oligarchs closer to Putin. “Putin always told us the West hates us,” one tells Baker. “Now it’s a fact.” Second, they have sacrificed the neutrality that previously upheld America’s position as the global financial powerhouse. If other countries doubt our commitment to property rights and fiduciary neutrality, they will be reluctant to entrust us with financial power over them. The downsides of this loss of trust will not be apparent right away. They may take years to manifest, but they may well be the most important consequence of the war.
Third, it has shown China our whole hand. By going after Russia so aggressively, we have essentially shown China exactly what we would do if they invaded Taiwan and we decided to retaliate. This information has no doubt been priceless to Chinese war planners—as has been the example Russia is setting in how to circumvent us.
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