Russia Thinks America Is Bluffing

By Chris Miller, Assistant Professor of International History at The Fletcher School of Law and Diplomacy at Tufts University

As talks between U.S. and Russian diplomats begin in Geneva over the fate of Ukraine, Europe stands on the brink of war. The U.S. strategy is to negotiate with Russia while threatening “devastating” sanctions if Russian President Vladimir Putin decides to invade his country’s eastern neighbor. Biden administration officials have outlined a range of sanctions they could impose on the Kremlin, from targeting Russia’s financial system to restricting its ability to import technology.

But the West’s threat of economic sanctions can work only if the proposed measures would make Russian military action against Ukraine expensive enough to alter the Kremlin’s cost-benefit calculus. Putin, however, sees Ukraine as crucial to Russia’s great-power status and to his own personal legacy. So for sanctions to work, they have to be costlier than the vast benefit Putin perceives in controlling Ukraine.

That doesn’t appear to be in the offing: notably, after Biden administration officials escalated their threats, the Russian stock market and its currency barely budged. The markets’ collective shrug mirrors the Kremlin’s view that the United States will not follow through on the harsh sanctions it has discussed. Russian policymakers know that many of the tactics that could seriously hurt Russia—such as curbing Russian commodity exports or blacklisting Russian banks—would be costly to the West, too, making it uncertain if the Biden administration would follow through on those threats. Finally, economically tough sanctions will require Chinese acquiescence, and that could create a host of other problems for the United States.

THE SANCTIONS MUST BITE

In the past, Putin has demonstrated that he’s willing to endure moderately costly sanctions in pursuit of reestablishing Russia’s dominance of its former satellite states. After Russia seized Crimea and occupied part of the Donbas region of Ukraine in 2014, the United States and Europe imposed restrictions on several big Russian firms, denying them access to international capital markets, which according to the International Monetary Fund reduced Russia’s GDP by somewhere between 1.0 and 1.5 percent. The United States also banned companies from doing business in Crimea and prohibited the export of certain oil-drilling technologies, which has reduced Russian oil output, but not by a huge amount. The Kremlin concluded this was a fair price to pay for Crimea and the Donbas and has no plans to give either territory back, no matter how long these sanctions remain in place.

This time, Russia has set its goals even higher. Rather than trying to grab two chunks of Ukrainian territory, it wants to force the entire country back into its own sphere of control. To do so, Russia has assembled a vast invasion force on Ukraine’s border, one capable of driving through Ukrainian defenses all the way to Kyiv. Meanwhile, Russia maintains the ability to launch missile attacks and airstrikes on targets across Ukraine. If the Kremlin thought one percent of its own GDP was a fair price for Crimea and the Donbas, it would surely be willing to pay more to acquire the rest of the country.

Washington’s promise to work with allies on sanctions, meanwhile, may be seen as a sign of weakness, not strength. Deference to allies—in particular, Germany—is what led Biden to decline to sanction the Nord Stream 2 pipeline (which transports gas from Russia to Germany) earlier this year. Now, Germany and France are resisting a European Union effort to specify which sanctions they’d impose if Putin in fact invades Ukraine. The new German chancellor, Olaf Scholz, started his premiership with a call for dialogue with Moscow, which in German diplomatic parlance too often means “concessions.” The Western allies are sending dangerously contradictory messages about their willingness to impose anything beyond a financial slap on the wrist.

Meanwhile, within the United States, Congress has focused on sanctions without serious economic bite. Some members of Congress are fixated on canceling the Nord Stream 2 gas pipeline, a measure that would impose close to zero economic cost on Russia. If Nord Stream 2 gets canceled, Russia will simply keep shipping gas to Europe via existing routes. There is already a surplus of pipeline capacity, so the volume of Russian gas sales to Europe would be unchanged. The Kremlin may see the focus on Nord Stream 2 as evidence that the United States is not serious about imposing costs.

Sanctioning Russian oligarchs and Putin’s cronies, another measure that has strong Congressional support, is equally unlikely to change the Kremlin’s calculus. There is good reason to prevent them from laundering money through Western financial systems, but doing so would have little impact on the Kremlin’s foreign policy. Russia’s business elite would prefer to continue traveling to the West and keep their foreign bank accounts. But they don’t decide Russia’s foreign policy: Putin does, with advice from a small circle of security service chiefs, most of whom are already under sanction.

Given that U.S. domestic debate focuses on low-cost measures, and given that Europe is divided over whether to back costly sanctions, Putin may think the United States is bluffing when it threatens tough sanctions. Washington has powerful sanctions in its arsenal, such as blacklisting Russian banks. It has applied these kinds of measures in the past against Iran and North Korea. There’s no doubt the United States could obliterate Russia’s connections with the global financial system: U.S. officials have discussed blacklisting major Russian banks, preventing banks from converting rubles into dollars, and disconnecting Russia from the SWIFT interbank communication network. But implementing any of these measures would be costly to allies in Europe. It would also directly affect China, the largest consumer of Russian commodities. And that could bring about complications the Biden administration would prefer to avoid.

Biden says he’s ready to impose “devastating” economic costs if Russia invades. His administration has threatened a “high-impact, quick-action response” on sanctions, one official recently told the New York Times. But even the most detailed statements from administration officials have focused on steps the United States might take, rather than those it will commit to. U.S. officials have discussed severe measures such as cutting Russia off from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), but this would require European support and may therefore be challenging to implement, though some European leaders have signaled they are open to considering such measures.