In January, U.S. President Joe Biden announced the U.S. would provide Ukraine with 31 M1 Abrams tanks. (Alex Kraus/Bloomberg )
National security adviser Jake Sullivan's West Wing office was crammed with sleep-deprived staffers on the morning of Feb. 26, 2022. Clad in jeans and button-down shirts, clutching coffees or cold pizza, they were waiting for President Joe Biden to join on a secure line. Russia had invaded Ukraine two days earlier. The burning question of the day: How to stop a war.
The U.S. had been warning of a looming invasion for weeks. Sullivan's team had a plan, one they'd kept closely held out of fear it would be discovered by Russian intelligence. It involved freezing some $300 billion of Russian central bank assets held abroad. That would generate enough shock and awe, the authors figured, to bring President Vladimir Putin's war to a halt - or at the very least, severely hamper his ability to fight it.
The measure, seen at the time as the economic equivalent of a nuclear weapon, was announced at 5 p.m. in Washington that Saturday. In the days that followed, as Russia's currency tanked, prices soared, and people lined up at banks to pull out whatever cash they could, some Biden aides briefly worried that they'd gone too far. They didn't want to completely crater the Russian economy, out of fear the damage would spread to Europe and beyond.
With a year's hindsight, it's clear that the economic punishment imposed on Russia by the U.S. and allies didn't overshoot in that way. Sanctions have inflicted damage, but they haven't induced Putin to stop the war - raising wider questions about a tool that's become increasingly central to U.S. foreign policy.
"If the sanctioning coalition was much stronger than expected, then so was the target," says Nicholas Mulder, a Cornell professor who's written a book about sanctions as a weapon of statecraft.
Russia's economy shrank by far less than the double-digit slump once predicted and is forecast to return to growth this year. If Russia has lost important markets for its exports, and suppliers of key goods, it's also found new ones. Sanctions advocates have now scaled back their ambitions, Mulder reckons. "They've given up the expectation that this will change Russian decision-making," he says. "Instead they see it as an economic war of attrition."
The U.S. is still broadening that campaign. Early Friday, the Treasury announced new sanctions on banks - including one with ties to the United Arab Emirates, a sign that Russia's trade partners may now face more pressure - as well as the energy and technology industries, while the White House said it will impose tariffs on more than 100 Russian metals, minerals and chemical products.
The question is how the time scale for this economic attrition matches up with developments in the actual war, where Russian forces have been advancing - albeit slowly - in eastern Ukraine.
"News of the death of the Russian economy is still exaggerated," says Elina Ribakova, deputy chief economist at the Institute of International Finance. "At this pace, we're not going to get there fast enough."
Long-run sanctions regimes of the past, imposed on countries like Cuba or Venezuela, have made adversaries weaker but haven't always induced them to change policies. That's even harder in the case of a large economy like Russia with capable technocrats, powerful friends and lots of products that the world wants.
Foreign currency exchange rates at a bank in Moscow, Russia, on Feb. 28, 2022. Sanctions pushed the ruble to a record low. (Andrey Rudakov/Bloomberg)
Russia's control over vital natural resources meant that sanctions-enforcers had to tread carefully to avoid blowback at home - they spared oil from early penalties, for example - and face a battle persuading nonaligned countries to sacrifice trade that helps their economies grow.
And Russia's deep diplomatic networks helped make its economy more resilient. When crude sales to Europe slumped, India - a longtime Moscow ally - stepped in as a buyer. As sales of semiconductors from the U.S.-led bloc dried up, Russia's imports from China and Hong Kong soared.
This account of the past year's sanctions - largely as seen from Washington, where the coalition waging economic war on Russia is headquartered - is based on interviews with current and former government members as well as financial professionals, legal advisers and outside experts.
U.S. officials say the sanctions are taking a steady toll on Russia's ability to restock its military machine. They outline year-two plans to tighten the screws by squeezing countries that are trying to keep a foot in both camps, in an increasingly polarized global economy - by doing business with Russia as well as its adversaries. And they point to the diminished economic standing of Russia on the world stage.
"The Russian economy you see today is nothing like the Russian economy you saw before the invasion," Treasury Deputy Secretary Wally Adeyemo told an audience in Washington this week. Bloomberg Economics calculates that by 2026, Russia's economy will be 8% - or $190 billion - smaller than it would otherwise have been, as a result of war and sanctions.
People who were in Sullivan's room that day say they're still convinced that the penalties will eventually inflict enough economic pain that Putin will be forced to give up the war to stay in power.
"We're betting on the proposition that even an autocrat like Putin has a social contract with his people," says Daleep Singh, who as deputy national security adviser was one of the principal architects of the central bank sanctions. "If all he's producing is instability and insecurity, then ultimately it's not in his self-interest to carry on with failure."
Back at the outset, when Sullivan and his team were delivering their shock-and-awe measures, there were fears that Kyiv might fall imminently. Instead, Ukraine's forces won early victories, while the U.S. and allies ramped up sanctions on individual Russians, businesses, and industries.
The White House was soon taking calls from chief executives of Fortune 500 companies fretting over whether they should leave Russia. It was a surprising element of the campaign - the so-called self-sanctioning of Russia by private businesses, often going beyond government-imposed rules - that would eventually see thousands of companies cut their ties.
This caused problems of its own for Biden's team. By June, for example, they were quietly encouraging shipping companies to carry more Russian fertilizer, as a global food-price spike hit poor countries especially hard and Putin sought to pin the blame on sanctions.
The bigger and more complicated question was what to do about Russian energy. That topic was front and center at June's G-7 summit in Schloss-Elmau, a castle in the Bavarian Alps. The European Union had recently announced a ban on insurance for Russian seaborne oil, to go into effect later that year, with similar measures against refined products to follow.
Again, Biden's advisers fretted that things were going too far. They thought the embargo could knock Russian oil exports offline and send the price of Brent crude skyrocketing. That would exacerbate already-high inflation all over the world, not least in the U.S., where Americans were getting ready to hit the road for summer vacations, and midterm elections were just a few months off.
Administration officials began circulating a Barclays research report that showed the price of oil going as high as $200 a barrel. The U.S. had a plan that would keep Russian oil flowing while limiting Moscow's revenue by capping the per-barrel price.
Biden worked the rooms at the Schloss to underscore the risks of more drastic measures, and Treasury Secretary Janet Yellen worked the phones from Washington. Soon, there were so many administration officials flying around the world to promote the idea that it became hard to avoid exposure to the coronavirus. Treasury staffers dubbed it "price-cap Covid."
Market participants had doubted that the plan would work, but it went into effect in early December with the cap set at $60 per barrel. There are early signs that it's dented Russian revenue - the federal budget posted big deficits in December and January - though some analysts say that the cap has yet to be truly tested because global oil benchmarks haven't been high enough.
What's coming next from the American-led camp is a drive to pressure more countries that haven't signed up to the sanctions campaign to pare back their economic ties with Russia. It will encompass U.S. allies - Treasury officials have visited Turkey and the United Arab Emirates in recent weeks - and adversaries, above all China, where some of the most difficult conversations will likely take place.
The outreach is expected to focus on individual companies, especially those that do business with the U.S. Elizabeth Rosenberg, assistant secretary at the Treasury, cites the "sophisticated" conversations she's had in the past with Chinese entities about compliance with U.S. penalties on Iran.
"Even where a political leader might be keen to, as a policy matter, try and find something that feels like a neutral or a balanced political stance, that's not a thing for a bank or a company," Rosenberg says. "The choice is much more clear-cut for private firms in these jurisdictions. And it's part of our project to help clarify the choice."
U.S. officials say Russia is increasingly dependent on China for the technology it needs to prosecute the war in Ukraine. They see a chance to drive a wedge between the two nations - whose leaders famously declared a "no-limits" friendship shortly before Russia invaded Ukraine.
That looks like a tall order.
The broad hostility to China in Washington means there are limits to the inducements that the Biden administration can offer to America's chief geopolitical rival. What's more, China is itself subject to U.S. economic penalties, like the recent curbs on semiconductor exports - and could be the target of maximal Russia-type sanctions in the event of an invasion of Taiwan.
Even though tensions over the island have eased in recent months, companies are already running simulations to figure out what to do in that scenario, says Daniel Tannebaum, a former Treasury official who now works to help companies understand their sanctions exposure. They're coming to various conclusions about the risk of staying - but overall, "no one is backing away from China en masse," he says. "It's just too key of a market."
That points to a wider risk of the with-us-or-against-us U.S. strategy: Previous sanctions targets weren't plausible leaders of a rival economic bloc in the way that the Russia-China axis could be. Measures that were intended to corral countries back into Washington's rules-based order could end up spurring them to draft their own set of rules instead.
Agathe Demarais, a former French Treasury official, argues that the U.S. has gradually lost leverage over the ever-growing roster of nations subject to sanctions. Countries such as Iran, Cuba, Syria, Myanmar, North Korea and Venezuela - and now increasingly Russia and China too, with their large economies and deep global trading networks - "have come to assume that sanctions will remain in place forever." And they're deciding that "they are better off adapting to sanctions, and reorienting their trade to other countries," she says, "than making efforts to try to get the sanctions lifted."
In Ukraine the U.S. and its allies have other ways to throw their weight behind Kyiv's forces, above all the massive amount of military aid and intelligence support they're providing. Economic sanctions are just part of that strategy, says Singh, the former White House official - a way to "put Ukraine in the best possible position it can be."
Still, in a rapidly changing world order with the U.S. facing great-power competition for the first time in decades, Mulder - the Cornell historian - says it's time to dial back expectations for what the tool can achieve.
"Sanctions are ultimately a sideshow in deciding the outcome of this war," he says.
Bloomberg's Nick Wadhams and Alex Isakov contributed to this report.
