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Oil, gas, and banking sanctions are ‘the real leverage’ against Russia, ASD fellow says

In this article:
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ASD Senior Fellow and illicit finance expert Josh Kirschenbaum joins Yahoo Finance Live to discuss strategies the U.S. and European allies could take in imposing additional sanctions on Russia.

Video Transcript

ALEXIS CHRISTOFOROUS: Welcome back, everyone. The European Union is promising more severe sanctions against Russia, as Ukrainian President Zelenskyy pleads for more and quickly. Joining me now to discuss is Josh Kirschenbaum, a senior fellow at ASD and illicit finance expert. Josh, thanks so much for being with us today.

I know that Zelenskyy is asking European Union leaders for very specific things. I just want to run through them briefly and then get your thoughts. He wants them to ban Russians from entering the EU, to cut Moscow off from the SWIFT banking system, and to impose an oil embargo on Russia. Could any of those or a combination of them be enough to make Putin turn around and out of Ukraine?

JOSH KIRSCHENBAUM: I don't think that the time horizon of any sanctions can force a withdrawal of a military force on the ground. They can impose costs that will compound over time and affect the Kremlin's decision-making, particularly if those were downed politically within Russia and caused a lot of dissent [INAUDIBLE] from the public, but even the most aggressive steps, like a full financial embargo and a full energy embargo, would take time to take a full effect.

ALEXIS CHRISTOFOROUS: Do you think that sanctioning Russia's oil exports is a realistic option for the US? Because I know the EU is closely looking at that and even admitting that it would cause them pain to do that, but they're saying they're willing to sacrifice that. Do you think it's something that's realistically on the table, or should it be for the US?

JOSH KIRSCHENBAUM: Yeah, my read of the situation is that there are probably two different analyses happening within the US government and then among European governments. So within the US, we are probably looking at American sanctions on Russian oil, whether that's exports of Russian oil, financing, investment. That's something we could certainly do and have a significant impact, particularly in the longer term, as their oil sector starts to feel the effects of lack of investment and support.

I suspect that the question that economists and intelligence people are looking at is what would be the global macroeconomic effects of taking Russian oil offline if you did that precipitously. I don't know the answer to that question. The big question for Europe is how much and how quickly they're willing to reduce gas purchases. Russia has a lot of leverage over Europe there, and Europe has a lot of leverage over Russia. And to some extent, it's a game of who's willing to suffer more economic pain quickly.

And the more that Europe-- in particular, Germany, but others-- the more that they're willing to reduce or eliminate Russian gas purchases and the quicker they're willing to do that, the more enhanced the effects of sanctions would be on Russia. Those are the real pain points, combined with a financial embargo. All the other stuff about designating senior officials in the government is mostly symbolic. The real leverage comes with oil and especially gas, as well as banking restrictions.

ALEXIS CHRISTOFOROUS: You know, another sanction being bandied about is freezing Putin's assets, his personal assets and those around him. The EU is looking at doing this. I believe the UK as well. What impact at the end of the day would that really have? And does it come too late? Have they now given Putin too much time to sort of circumvent any freezing of his assets?

JOSH KIRSCHENBAUM: I doubt that designating Vladimir Putin's personal capacity, which it says the EU-- the news headlines of the EU is he has done that or is about to do that. I doubt that would have any major operational or economic effects or financial effects for him personally. There are many ways around that. They're using cutouts. And anyway, at the end of the day, he doesn't need to access assets in Europe. I'm sure it's unpleasant if he does have them there.

Sanctioning elites, wealthy Russian members of the government, business class, billionaires, that can absolutely have political effects because as they lose access to things that they value and enjoy in Europe and the United States, they could become unhappy, and there could be some feedback. That's going to take time to really have a political effect. So none of these things, unfortunately, have an immediate political impact. They all have time lags. And again, the real leverage comes with gas purchases and a banking cutoff, where you have major macroeconomic effects that are going to be faster.

I certainly think that politically, Russia has influence over Western members of the business or financial class, to some extent, because of the reliance on money from Russia. So longer term, if you disentangle Russian elites' money from London or New York or elsewhere, there is a political impact, but I would say that's secondary and longer term, compared to banking restrictions on oil and gas.

ALEXIS CHRISTOFOROUS: You know, Josh, when you-- in recent history, when you look back, when have sanctions worked the way we wanted them to? When were they successfully implemented? And what could we learn from that?

JOSH KIRSCHENBAUM: I think if we look at, at least the last 10 or 15 years, we've seen a lot of sanctions programs that have only had marginal effects on their target countries and a few sanctions programs that have had significant effects and probably affect their decision-making. First and foremost, Iran, where the sanctions with other tools, including the threat of military strikes, yielded an agreement to roll back Iran's nuclear program in 2015. It has been argued and is arguable that sanctions had an impact on the decision-making of the military dictatorship in Myanmar to give up power, and then later staged a coup.

And I think that the examples show that they take time, and they need to be very, very aggressive. So in terms of the current situation with Russia and Ukraine, I would certainly advocate for more aggressive sanctions than the United States and Europe have thus far imposed. But the lessons are they need to be very, very far reaching, and they are going to take time to have an effect. They're absolutely not an answer to the ongoing military assault on Ukraine. They're a tool that can add financial and economic pressure over time.

ALEXIS CHRISTOFOROUS: A magical wand they are not. And even President Biden said they will take time. Josh Kirschenbaum, senior fellow at ASD, thanks for your insights today. Appreciate it.