International sanctions have grown year on year – but are they working?

Sanctions activity against a range of organisations and nations increased sharply in the first half 2024, with Russia still bearing the brunt of sanctions levied by the four key global agencies.

The new figures, released this week by LexisNexis Risk Solutions, reveal a 14 per cent increase year on year in the number of entities added to various sanctions lists kept by the United Nations and the European Union, as well as those maintained by the United Kingdom’s Office of Financial Sanctions Implementation (OFSI) and the United States’ Office of Foreign Assets Control (OFAC).

Additionally, the number of updates to the UN, EU, OFSI, and OFAC lists grew by 10 per cent year on year.

In raw numbers, that’s a total of 146 sanctions list updates – more than one each day – and 2,340 net additions to those lists.

While the UN’s focus has largely been on terrorist organisations and nations in Africa and North Korea, the bulk of new sanctions activity continues to be driven by the war in Ukraine and has largely targeted Russia and Russian entities.

For instance, 78 per cent of the EU’s new additions targeted Russia, while 80 per cent of OFAC’s new additions were Russian. Both the EU and OFAC also targeted entities and nations aiding Russia in sanctions evasion.

“On top of implementing extended sanctioning authorities on foreign financial institutions EO14114 in December 2023,” LexisNexis said of US sanctions activity, “OFAC consistently targeted sanctions evasion networks and parties engaging in transactions with the Russian defence sector throughout H1 2024.”

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Both the EU and the US targeted Iran for its support in providing Russia with UAVs, for instance, while the EU sanctioned North Korea for its role in supporting Russian military activities.

As LexisNexis observed: “The pace of updates and number of designations exceeded those recorded for the same period last year.”

“The earlier ‘storm’ of sanctions activity has settled into a new level of normal that is expected to continue through the end of 2024.”

Of course, sanctions from all four sources have targeted entities and nations linked to other conflicts, from the Middle East to Africa, but it feels useful to focus – for now – on the real-world impacts of ongoing sanctions on Russia, and its capacity to prosecute a war that shows no signs of being won any time soon.

The Russian in the street

Economic sanctions have certainly had an impact on standards of living inside Russia. Retail sales dropped by nearly 10 per cent after the initial round of sanctions in 2022, thanks to follow-on effects on inflation and exchange rates. Nearly a year later, consumer trade was still down by almost 8 per cent in February 2023, and in the same year, sales of locally produced motor vehicles made by Lada were eclipsed by cars made in China.

Writing for Economics Observatory, Finnish economist Iikka Korhonen noted in June 2023 that car manufacturing has been hit particularly hard.

“In the first quarter of 2023, car production is less than 25 per cent of the pre-invasion level. All Western brands have exited the market: of the remaining 14 car brands in Russia, three are Russian and 11 are Chinese,” Korhonen said.

“The experience of car manufacturing is not unique. Similar drops in production were experienced in electronics and machinery. For example, Russia produces far fewer railway cars, televisions, lifts and fibre optic cables than before. At the same time, imports of Chinese vehicles have ballooned.”

Similarly, restrictions on travel into EU countries have left many Russians locked out of their favoured holiday destinations.

Sure, it’s not as easy to make a jaunt from St Petersburg into Europe any more, but what about exporting enough oil and other resources so that Russia can still make money from its vast resource reserves and actually continue in its efforts to invade a sovereign nation?

The oil in the (shadow) fleet

As the scale of sanctions against Iran and North Korea shows, the West is clearly trying to shut down anyone even trying to assist Russia.

Those sanctions, however, while restrictive, have also driven Russia, Iran, and North Korea into ever closer cooperation. Shahed-136 and 131 still fly into Ukrainian airspace to target critical infrastructure, particularly Ukrainian energy infrastructure.

As for North Korea, President Vladimir Putin and North Korea’s Kim Jong Un met in June 2024, Putin’s first visit to the pariah state since 2000. As part of that meeting, the two leaders expressed a desire to sidestep Western sanctions and develop new avenues of economic and cultural cooperation.

However, perhaps the greatest example of Russia’s disdain for Western sanctions is how it has adapted its oil trade.

A shade more than two years ago, in September 2022, G7 nations, along with their allies – including Australia – enacted an Oil Price Cap Coalition to limit the Russian oil profits and thus inhibit its ability to finance the war in Ukraine. Russia is a major oil and gas exporter, producing 540 million tonnes of crude (or 4,030 million barrels) in 2021.

About 1,100 million of those barrels were exported by ship. Russia’s revenue for that year was US$343 billion in total, with oil and gas exports adding up to US$127 billion.

There’s no doubt that Russian carrying capacity has been impacted, but it is still getting its oil out to buyers around the world.

According to the Carnegie Endowment’s Carnegie Politika outlet, Russia is now relying on a diverse – and aging – “shadow fleet” of tankers flagged to nations more than willing to operate outside of international norms. Politika has tracked almost 3,000 vessels serving in some capacity in Russia’s oil trade, shipping an estimated average of 48 million barrels of oil each day.

These vessels are not only aiding Russia in circumventing Western sanctions – and turning quite a profit in the process – but are also a threat to international shipping in and of themselves. In July, a shadow fleet vessel running under an altered transponder and immobilised due to a technical failure was struck by another vessel in Malaysian waters, resulting in a considerable maritime emergency.

And that is not an isolated incident. Aging – and uninsured – shadow fleet vessels have already contributed to several oil spills in various ports of call.

Russian industry adapts

All the while, Russia continues to ramp up its war economy and press its claims to Ukrainian territory, forcing Ukraine and its allies to expend vast amounts of blood and treasure.

Russia’s even managing to retool production lines for some of its big-ticket items, such as Rostec’s Sukhoi Superjet passenger craft. Prior to the current sanctions regime, the jetliner used parts from several foreign countries, but Rostec revealed in 2023 that it had been able to spin up new production lines for new, locally mode components.

Even US Defense Secretary Lloyd Austin admitted as recently as April that sanctions are not biting as hard as may have been hoped.

“So the Russians have increased their production of artillery munitions and other things. But they’re also being propped up by the likes of North Korea and Iran. And they had to go that direction because of the damage – to the chairman’s point, the damage that the Ukrainians had inflicted on the land forces there,” Austin said to reporters during a meeting of the Ukraine Defense Contact Group at the Pentagon on 26 April 2024.

“All of their defence industry really answers directly to the state, so it’s a bit – it – it’s easier for them to do that a bit quicker. But the reason that they’re where they are right now is because they’ve relied on the likes of North Korea and Iran to prop them up, and without that, they’d be in a much worse position.”

US Army General Christopher G. Cavoli, Commander of US European Command and Supreme Allied Commander Europe, put things in even more stark terms.

“The overall message I would give you is they’ve grown back to what they were before,” GEN Cavoli said at the same meeting.

“They’ve got some gaps that have been produced by this war, but their overall capacity is very significant still. And they intend to make it go higher.”

However, with the West still largely looking to de-escalate the conflict, sanctions remain one of the few tools available that might dent Russian production capacity.

It’s just not a particularly sharp one.