Are the Sanctions Working on Russia? The Impact and Effectiveness of the European Union Sanctions

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Are the Sanctions on Russia Working?

The Impact and Effectiveness of the European Union Sanctions

August 2017

Zolboo Nemekhbayar Student ID: S1894196

Email: zolboo.nemekhbayar@gmail.com Supervisor: Dr. J.F. de Kort

Second reader: Dr. H. Mazepus Master Thesis Public Administration Economics and Governance

Faculty of Governance and Global Affairs Leiden University

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ABSTRACT

The research investigates if the European Union sanctions imposed against Russia for annexing Crimea and supporting pro-Russian separatists in eastern Ukraine are working. The research aims to answer the question: What are the impact and effectiveness of the EU sanctions? The results find that the sanctions had measurable short-term negative impact on Russia, and have been partially effective in constraining and signalling Russia by imposing economic costs and isolating it from the international community. However, the sanctions have not been effective in coercing Russia to change its policies and behaviour towards Ukraine.

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Introduction

When Russia annexed the Ukrainian territory of Crimea and the city of Sevastopol in March 2014, the European Union (EU) responded with individual sanctions: diplomatic restrictions, travel bans and asset freezes against the people involved in actions and events that undermined Ukraine’s territorial integrity and sovereignty. Moreover, the first round of sanctions targeted some of the most powerful Russians, including President Vladimir Putin’s closest advisors and friends. The United States, Australia and Canada took similar measures in response in this first round of international sanctions on Russia.

After it became evident in April 2014 that Russia was also supporting pro-Russian separatists in the Donbass region of eastern Ukraine, the international community responded in a tougher manner to curb Russia’s aggression. However, deciding and agreeing on an international collective response has not been easy. This changed after the events of 17 July 2014, when a Malaysian Airlines flight MH17 was shot-down by a surface-to-air missile by pro-Russian separatists in eastern Ukraine and killed 298 people, mainly Europeans. After this event, the EU agreed to punish Russia for shooting down a civilian plane and impose sanctions for deliberately interfering with Ukraine’s territorial integrity and sovereignty.

In the second round of sanctions, the EU imposed economic sanctions against Russia on 31 July 2014, followed by a third round of sanctions toughening the previous sanctions on 12 September 2014. Since then, the EU economic sanctions have been extended and revised several times and are currently in force until 31 January 2018. The first round of sanctions targeted individual persons but the second and third rounds were aimed at Russia’s key economic sectors: energy, finance and defence. A number of countries including the U.S., Australia, Canada, Japan and Norway also joined these economic sanctions against Russia.

Russia on the other hand denies that it had illegally intervened in its neighbour and claims that Crimea wilfully joined the Russian Federation after a referendum that is unrecognized by the international community. In response to the western sanctions, it imposed countersanctions against western countries by banning their agricultural export products in August 2014. Since then, the crisis situation in Ukraine has slowly turned into a frozen, stalemate conflict with a high risk of conflagration. Since the start of the conflict in November 2013 over 10,000 people have perished

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of which almost 3000 were civilians. Moreover, 1.7 million people have been displaced.1 In 2017, the United Nations High Commissioner for Human Rights reported that Ukraine’s East remained volatile with a possibility of further deterioration and violations of ceasefire agreements that have been in place since September 2014 and February 2015: the so-called Minsk Agreements. The Minsk Agreements are two protocols that were signed by the parties involved in the conflict, namely Ukraine, Russia, Donetsk People’s Republic and Lugansk People’s Republic in order to end the conflict. Minsk I 2 and Minsk II 3 were brokered by Germany and France with the Organization for Security and Co-operation in Europe (OSCE) monitoring its implementation processes. As to date the Minsk Agreements have not been fully implemented by the signatories: the ceasefire is regularly violated and heavy weaponry and militants remain in the area. The EU remains of the position that the sanctions against Russia will not be lifted unless the Minsk Agreements are fully implemented.

It has been over three years since the EU responded to the Ukrainian crisis by imposing sanctions against Russia, but Russia remains firmly in control of Crimea and continues to support the two separatist regions Donetsk and Luhansk in eastern Ukraine. A pertinent question to ask is: Are the sanctions working?

Economic sanctions have become an increasingly important foreign policy tool since World War II for countries and international organizations to use against other countries or organizations, that are violating internationally accepted norms and behaviour. For example, the United Nations imposed and extended the sanctions against Iran, Iraq and North Korea multiple times over the years. The main purposes of imposing economic sanctions are to coerce the country that is receiving the sanctions to change its policies and behaviour, constrain the illegal or unwanted actions and activities, and signal and shame it for breaking the rules.

The EU vs. Russia is a major sanctions case of which the impacts and effects have not been analysed extensively. The purpose of this research is to answer the question: What are the impact and effectiveness of the EU sanctions against Russia? The number of countries imposing the sanctions, the types of sanctions, and the future implications of the case requires an in-depth analysis. Most studies on economic sanctions are conducted retrospectively, however this specific

1_{Estimates as of 15 May 2017 by the Office of the United Nations High Commissioner} 2_{See Appendix I for the English text}

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episode of sanctions provides an interesting opportunity to explore and analyse the effectiveness of sanctions as a foreign policy tool in action.

This research aims to contribute to the wider debate on economic sanctions by (1) utilising a different approach to assess the impact and effectiveness of targeted economic sanctions; (2) measure the impact of the EU sanctions on Russia’s economy and the targeted sectors; and (3) analyse the effectiveness of the sanctions in achieving EU’s foreign policy goals and objectives towards Russia. This research builds on the existing sanctions literature, and uses EU and Russian official documentation, and official trade and economic statistics.

The research specifically investigates the impact and effectiveness of EU’s “targeted” economic sanctions imposed on Russian individuals and Russia’s energy, finance and defence sectors. The EU with its 28 member states is the biggest group of sanctions “senders” against the “target” Russia. The research does not address the broader historical and geopolitical circumstances that led to the crisis and is therefore outside the scope of this paper. Furthermore, this paper does not address the question whether economic sanctions were the right tool to employ in this case or not. Nor does the paper evaluate the use of alternative tools, such as military intervention. Another limitation in this paper is that it focusses solely on EU sanctions, although it would be useful to study the combined effectiveness of all the western sanctions imposed on Russia. Due to time and resource limitations, the research will focus on the EU sanctions only. Geopolitically and economically, the EU and Russia are closer and more interdependent on each other. The EU is Russia’s biggest trading partner and its biggest investor. On the other side Russia is an important neighbour and trade partner for the EU, in particular as a major supplier of its oil and gas needs. For these reasons, sanctions from the EU should have more impact on Russia compared to the sanctions from the U.S. or other “sender” countries.

Finally, it is important to stress that each time sanctions are applied to a country, the circumstances are unique and will need to be analysed separately on a case-by-case basis. The Russia case under investigation is unique, taking into account current world politics, the number of countries participating in the sanctions and the specific goals and objectives of the sanctions. The conclusions derived from this research will likely not be directly applicable or useful to other sanctions cases, but it contributes to the overall sanctions literature by systematically applying parts of the sanctions theories and popular knowledge on a major case.

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Chapter 1 provides an overview of the literature on economic sanctions. It summarizes how the sanctions literature evolved from focusing on general economic sanctions to “targeted” and “smart” sanctions. It also explains different types of sanctions and how they are evaluated in terms of their effectiveness and success. Chapter 2 describes a 4-step assessment methodology to evaluate the impact and effectiveness sanctions. Chapter 3 gives a detailed overview of the EU sanctions against Russia and analyses their impact and effectiveness by applying the 4-step methodology. The conclusion discusses the results, implications of the research and suggestions for future research in the field.

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Chapter 1 Literature Review and Theoretical Framework

Chapter 1 builds a theoretical framework to analyse the EU sanctions from the existing literature. The first and second sections look into the evolution of the sanctions literature from “economic sanctions” to “smart” and “targeted” sanctions. The third section describes the three most commonly used types of smart and targeted sanctions: arms embargoes, financial sanctions and travel bans. These three types of sanctions are being used by the EU against Russia. The final section explores how past sanctions have been assessed in terms of their success and effectiveness.

1.1 Economic sanctions

Scholars were generally pessimistic on the effectiveness of economic sanctions in the 1960s and 1970s when countries started using them more often over military power to coerce or punish other countries. Although pessimistic, economic sanctions was politically a promising peaceful tool to settle international disputes without resorting to military force. Johan Galtung (1967) describes economic sanctions as:

“actions initiated by one or more international actors (the ‘senders’) against one or more others (the ‘receivers’) with either or both the two purposes: to punish the receivers by depriving them of some value and/or make the receivers comply with certain norms the senders deem important.”

Richard Olson (1979) changed “coercion” into “sanctions”, and “receiver” into “target”. It is common in the sanctions literature to refer to sanctions senders and sanctions targets. The utility of economic sanctions was defined and explored as an alternative to force, a tool to deter international actors from wrongdoing and punish them if deterrence fails (Doxey, 1971). There are a few cases of economic sanctions during this time, the most notables being the League of Nations vs. Italy in 1935, the United States vs. Cuba since 1960, and the United Nations vs. Rhodesia in 1965. Rhodesia was an unrecognized state in southern Africa from 1965 to 1979 which its racist regime declared independence. When scholars studied these cases, they concluded that economic

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sanctions were ineffective and did not work in coercing the targets to comply with the senders’ demands.

George Baer (1973) studied the League of Nations vs. Italy case and found out that sanctions helped Mussolini to consolidate his personal rule, and caused the Italian government to rapidly intensify economic and political nationalism. Anna Schreiber (1973) argued that the American economic embargo against Cuba helped Fidel Castro divert attention from his domestic problems and made him “look like a hero, standing up to the North American giant”. Donald Losman (1979) studied the cases of Cuba, Israel and Rhodesia and concluded that “sanctions have thus far been unsuccessful in each of the cases studied, despite the target economies being relatively small and highly vulnerable”. Losman argued that the sanctions were not potent enough when the senders’ objectives in the cases were extreme, demanding “unconditional surrender terms” from the targets. Galtung (1967) analysed the effectiveness of sanctions in the UN vs. Rhodesia “generally, negative” because nations overestimate the sanctions effect and underestimate the target’s ability to adapt.

Despite the bad track record of success, in the 1980s a consensus formed in the literature that sanctions rarely work but they are still a preferred choice over military force. In the 1980s, sanctions scholars had more cases to analyse and found other useful effects aside from coercing the target. Daoudi and Dajani (1983) suggested that there was a “bull’s-eye-fallacy, the erroneous idea that unless economic sanctions succeed in achieving their publicly stated initial demands, they [the sanctions] have failed”. The authors concluded that economic sanctions may not be tough enough to change governments or achieve major foreign policy goals, but they are actually effective in sending a strong message and can impose a heavy penalty on the target’s economy. Kaempfer and Lowenberg (1988) used a public choice approach to suggest that sanctions are not only “instrumental” in bringing policy change in the target country, they may serve different goals that are not officially “stated” by the senders, such as communicating signals or threats and serve the interests of pressure groups within the sanctioning country.

One of the most influential works in the economic sanctions literature is the 1985 evaluation of 83 cases since World War I by Gary Hufbauer, Jeffrey Schott and Kimberly Ann Elliot. Hufbauer et al. is considered the first comprehensive study of economic sanctions and has been cited numerous times. Its recommendations have been influencing the sanctions policy discussions, particularly in the United States. The authors concluded that out of the 83 sanctions

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cases, a surprising 40 percent was successful according to their evaluation. The study changed the traditional negative view towards sanctions and provided recommendations and policy guidance on how to make them more effective. The same authors published a revised edition of the study in 2007 with 174 cases. The success rate in this study was 34 percent.

In the 1990s, sanctions literature moved away from debating whether sanctions “work” or not, and started looking into “when” they work, and what factors and conditions make them effective. The economic cost to the target dominates the discussion of sanctions effectiveness. The logic is pretty straightforward, “the greater the costs of sanctions to the target, the greater the likelihood they will succeed” (Drury, 1998). Hufbauer et al. considers cost to the target as one of the main explanatory variables in the sanctions outcome. The study finds that when the target is economically more dependent on the sender, it bears the most cost from the sanctions as a result of the lost trade with the sender. But in the global interdependent economy, targets have various ways to minimize the costs from sanctions by diverting trade and increasing domestic production for import substitution. Sanctions create a void in the target’s economy that is eagerly filled with other opportunistic profit-making countries and companies. “Black knights” or third-party assistance to the target either through aid or trade can significantly undermine the sanctions effectiveness (Naylor 2001; Early 2009). Morgan and Schwebach (1997) argue that it is difficult to devise sanctions that severely hurt the target while hurting the sender little, but even though the target is severely hurt, “fools suffer gladly”.

The political power structure and regime type of the target are important conditions affecting sanctions success (Bolks and Al-Sowayel, 2000). When the target is an authoritarian regime (which is usually the case), it creates a “rally around the flag” effect that encourages nationalist sentiment and increases public support for the target government or leader. This effect enables the government in power to seek rent and gives further incentives to continue the unwanted behaviours (Lektzian and Souva, 2003). In every country, there is a political elite group that makes the most political decisions including the actions that caused the sanctions. For an authoritarian leader, the key constituency is the political elite group; as long as that group is satisfied, the leader faces few difficulties in remaining in power (Lektzian and Souva, 2007).

The role of international cooperation is examined and recognized as another important factor for sanctions to be effective. Some scholars argue that the presence of cooperation from third party countries and international organizations increases the legitimacy of the sanctions and

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its impacts (McLean and Whang, 2010). On the other hand, some assert that “more is not merrier” and could even undermine the sanctions impact when there are too many players that create confusion and compliance problems (Hufbauer et el, 2007).

1.2 “Smart” and “targeted” sanctions

In the late 1990s, both the sanctions literature and policy makers started criticizing economic sanctions applied to the general economy because of its negative side effects such as humanitarian costs and hurting innocent populations in the target country. In the article “Why economic sanctions do not work”, Pape (1997) states that economic sanctions often inflict significant human costs on the population of the target states regardless of whether they ultimately succeed or fail. The Iraq case was the biggest turning point from imposing economic sanctions on the whole county to targeting the main perpetrators in the target state and the sectors that directly finance those perpetrators. As cited in Pape (1997) a study by the U.S. Bureau of the Census estimated that over 500,000 Iraqi children may have died because of economic sanctions imposed by the UN Security Council. In 1996, U.S. Secretary of State Madeleine Albright was heavily criticized when she answered in a 60 Minutes television interview if the deaths of the Iraqi children caused by sanctions were worth it, “This is a very hard choice, but the price, we think the price is worth it.” Then-UN Secretary General Kofi Annan stated in a speech in 2000 that “we recognize the importance of sanctions as a way of compelling compliance with the will of the international community, we also recognize that sanctions remain a blunt instrument, which hurt large numbers of people who are not their primary targets”.

After the Iraq case, “targeted” sanctions replaced the UN comprehensive sanctions. Since 1998, the UN has not imposed comprehensive broad sanctions with the exception of Libya in 2011; otherwise, the UN has only imposed targeted sanctions for almost 20 years. The UN established sanctions committees and created procedures for listing individuals, states, and commodities on the sanctions list and created enforcement authorities (UN website on sanctions). Some individual governments also held meetings and conferences on making sanctions smarter. Switzerland started the “Interlaken Process” convening sanctions experts, which was followed by similar initiatives in Germany, Sweden and the United States.

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The terms “targeted” and “smart” are used interchangeably in the sanctions literature. Sanctions are smart and targeted if they are designed to “target the political elites espousing policies and committing actions deemed reprehensible by the international community, and protect vulnerable groups from collateral damage” (Tostensen and Bull, 2002). Smart sanctions such as asset freezes, arms embargoes, travel restrictions, and financial sanctions are more likely to hurt a few key individuals and companies in the target country rather than causing a collateral damage in the rest of the population (Drezner, 2011). The main causal mechanism for targeted sanctions is the same as general economic sanctions: when the targeted individuals and businesses experience enough economic pain, the target country government may be forced to change its policies. The focus is however shifted from the economic costs to the whole country to costs on those intentionally aimed at. In the old sanctions literature, sanctions would hurt the whole economy, which pressures the population to kick-out the regime or coerce the regime to change its policies to stay in power. In the smart sanctions literature, the target regime and its key supporters are directly hit, and if incurred enough cost, the target would change its policies.

There is a consensus in the sanctions literature that smart sanctions are sometimes a better policy tool compared to comprehensive economic sanctions, even though they are even less effective. Drezner (2011) argues that there is moderate evidence that smart sanctions are more humanitarian, faster and easier to initiate, agree upon, and implement in an international setting with multiple senders. The downside of smart sanctions is that they are even less effective as compared to comprehensive economic sanctions or military actions in coercing the target to concede or make policy changes (Cortright and Lopez, 2002). Major and McGann (2005) points out the sanctions paradox that they are actually more effective in coercing the target when they hurt “innocent bystanders” rather than the government or the leader. If the target country knows the sender’s preference for smart/targeted sanctions instead of comprehensive sanctions, it is more likely to violate international norms because the repercussions are smaller (Hovi, Huseby and Sprinz, 2005). If the target regime and its key supporters shifts the cost to the general public, or find alternative sources for the lost income, then smart sanctions are not effective (Tostensen and Bull, 2002).

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1.3 Different types of smart sanctions

Smart sanctions can take different forms, but the most commonly used types are arms embargoes, financial sanctions and travel bans.

Arms embargoes

Arms embargoes are smart in that they are intended only to ban arms and military equipment sales instead of goods and products that are used by the civilian population. When there is a civil war or an armed conflict, the first natural response is to try to cut-off the flow of arms and weapons into the conflict zone. Arms embargoes are the most commonly used targeted UN sanction, especially in Africa. The purpose of arms embargoes is to deny the target’s access to weapons, military technology and dual-use materials used in the production of weapons and prevent and reduce the number of civilian deaths. The effects of arms embargoes are limited though. Arms embargoes reduce the total number of weapons available which in itself a “laudable result”, but if the target has domestic production capability, they are not effective in ending conflicts (Tierney, 2005). Trafficking in arms significantly undermines the effects of arms embargoes, and illicit traders gain high profits during arms embargoes (Hufbauer, et al. 2007). Arms embargoes are often imposed too late when the conflict zone is already overflown with weapons and when the target has enough supply in storage to continue the conflict (Tostensen and Bull, 2002).

Financial sanctions

The purpose of financial sanctions is to reduce the target country’s income derived from foreign investments and international markets and pressure it to change its policies. Financial sanctions can take different forms such as asset freeze, investment ban, and cutting off loans and official development grants. Asset freeze is considered the most precise tool to target the key elites by freezing their personal and company bank accounts, stocks and shares, etc. Real estate properties in the sender’s territory also cannot be sold or rented. Banning foreign direct investment and cutting off loans particularly hit the right individuals who own companies and corporations that financially support the target’s government. The underlying rationale is that when those individuals and companies are economically hurt from the sanctions, they would pressure the regime to change its policies to comply with the sender’s demands. Cutting off development grants and ceasing low-interest loans by international banks and organizations such as the World Bank,

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and the International Monetary Fund (IMF) are not as precise as asset freezes but tend to pressure the political elites who are responsible for the target nation’s federal budgets and finances. Hufbauer et al. (2007) finds that financial sanctions are more effective when used against corrupt regimes, because corrupt leaders and governments are more dependent on companies and corporations that support them to stay in power. If the targeted individuals and companies do not find alternative finance sources, it becomes more difficult for them to support the corrupt regime.

The success of financial sanctions depends on the availability of other finance sources. In the globalized economy, it is possible to find alternative investments from other sources that are eager to take over the sender’s market position in the target’s economy. Loans and grants are also available although the conditions and interest rates could be less favourable. When the target country has rich natural resources, financial sanctions are less effective in hurting the target to produce policy changes.

Travel bans

Travel restrictions can be imposed on the air flights going in and out the target country, or imposed as visa bans on individuals. Air flight bans could hurt the sender’s aviation companies and travellers so are not used so often. Visa bans are used more often, but they mostly serve symbolic purposes to shame the target’s politicians, military officials and businessmen. The problem with visa bans is that it is almost impossible to ban the top high-level politicians for political and diplomatic reasons. Sanctions senders often grant exemptions to travel bans when there are international meetings like a UN conference or peace negotiations that would require participation of the sanctioned persons.

1.4 Assessing smart sanctions effectiveness

The implementation and study of smart sanctions are relatively new compared to the traditional economic sanctions. As evidenced in the literature mentioned in previous sections, smart sanctions are less effective in coercing the targets compared to comprehensive economic sanctions. The smart sanctions literature is still evolving and is debating on how to evaluate and assess smart sanctions compared to comprehensive economic sanctions. In general, smart sanctions are assessed the same way as economy-wide sanctions, based on their coercive effects and the target’s

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compliance. However, while recognizing the ineffectiveness of sanctions coercive elements, it seems that scholars are going into the direction to assess their effectiveness based more on their constraining and signalling elements instead. Lopez (2012) argues that smart sanctions success lies in constraining the target. Hufbauer et al. (2007) suggests that smart sanctions work better as a signalling devise than as a coercive measure. Drezner (2011) argues that there are two ways to evaluate smart sanctions: First, if they have ameliorated humanitarian costs; second, if they have improved the target state’s compliance. Cortright and Lopez (2002) suggests three criteria for determining smart sanctions success: First, do the sanctions improve target’s compliance; second, do they lead to a negotiated settlement; third, do they limit target’s military potential. The literature seems to be shifting in assessing smart sanctions based on how much they contribute to target’s compliance, rather than if they actually coerce the target to change its behaviour.

Hufbauer et al. (2007) analyses 174 sanctions cases including both economic and targeted sanctions using an assessment criteria focusing on the policy result and the sanctions contribution to the result. The study measures sanctions success against their policy goals indicated by their policy result and their contribution to that outcome ranged from 1 (complete failure) to 4 (extensive success). The study identifies five foreign policy objectives that senders try to achieve with sanctions (1) modest changes in target state behaviour; (2) destabilization of the target government; (3) disruption of a minor military adventure; (4) impairing the military potential of the target; and (5) major changes in the target’s policies. The results show that economic sanctions were not effective in high policy goals such as a major change in policy by the target, or impairing the target’s military potential. Economic sanctions were effective in those cases where the senders’ goals were to make a modest change in the target policy or destabilizing the target regime.

The most comprehensive study on smart/targeted sanctions cases is the “Targeted Sanctions Consortium” research (TSC) published in 2013. The TSC was conducted to analyse the UN targeted sanctions in an effort to make them more effective. The TSC was the first, systematic in-depth and comparative assessment of the design and effectiveness of UN targeted sanctions. Like Hufbauer et al. (2007), the TSC measures sanctions success based on the policy outcome and the contribution to that outcome. The UN Security Council accepted TSC’s definition of targeted sanctions success and stated in a 2013 report that “The UN sanctions have evolved from comprehensive sanctions to targeted sanctions over the years and their success are assessed not only based on the measures of efficiency and compliance, but also how they contribute to the

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sanctions’ strategic goals”. The innovative aspect of the TSC is that it differentiated between the different purposes of sanctions: “to coerce” the target to change its policies, “to constrain” target’s proscribed activities, and to “signal and stigmatize” the target. Each targeted sanction episode is assessed based on its main purpose, although sanctions usually serve all of the three purposes simultaneously. The TSC analysed 62 targeted sanctions episodes and found that about 22% were successful in general. The study further found that targeted sanctions were only successful 11% percent of the time when the purpose was to coerce the target to change its behaviour. On the other hand, targeted sanctions were effective in constraining 28% of the time, and effective in signalling 27% of the time.

Besides the UN, the EU has become the biggest sanctions sending organization. However, there is no comparative study that systematically assesses all of the EU sanctions yet. There are a few studies commissioned by member states and analyses by independent think tanks on the effectiveness of EU sanctions. One study in particular is standing out: a 2013 study commissioned by Lithuania on “The effectiveness of EU sanctions” analysing the EU sanctions in Iran, Belarus, Syria and Myanmar. The study moves away from the traditional approach to analyse sanctions solely based on their success in coercing the target to make policy changes. Like the UN targeted sanctions study, the authors of the study Giumelli and Ivan (2013) assesses the EU sanctions success in terms of their coercive, constraining and signalling purposes. Giumelli and Ivan (2013) uses a broader approach and looks into the role of sanctions in an overall foreign policy strategy by understanding what they are supposed to achieve, the impact and the costs incurred, and their comparative utility. The study results show that the EU sanctions had some success in all of the four cases, but it concludes that understanding the conditions and contexts of the cases will help build realistic expectations of the sanctions effectiveness. The author argues that in all four cases, the problems could not be solved by sanctions alone, so it was unrealistic to blame sanctions for the unsatisfactory policy outcomes.

Overall, the sanctions literature shows that there is a general consensus among scholars that economic sanctions are preferred over force, and smart/targeted sanctions are preferred over economy-wide sanctions. However, there is no consensus on when sanctions could be considered successful and effective. Although there is substantive literature written on sanctions, there is no overall model or criteria available to assess the effectiveness of sanctions. Scholars continue to devise their own theoretical model and criteria to evaluate sanctions episodes according to their

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own concept of success. The literature review suggests that there could be many different approaches to assess the impact and effectiveness of the EU targeted sanctions against Russia. The overall conclusion from the literature is that smart sanctions are not as effective as economic sanctions in coercing the target but they could be more effective in other aspects. In addition, smart sanctions specifically aim to inflict cost on the targeted individuals and sectors while minimizing the cost on the general population. Any assessment of targeted sanctions should evaluate if the sanctions actually impact those individuals and sectors intended to be sanctioned.

This research builds upon to the sanctions literature to employ and test some of the conventional wisdoms on economic sanctions to evaluate the impact and effectiveness of EU smart sanctions against Russia. The international community responded to Russia’s annexation of Crimea and its further involvement in the conflict in eastern Ukraine by imposing smart sanctions against its elites and key sectors instead of using force. This suggests that future high-level international conflicts may be also attempted to be resolved in a similar manner using economic tools rather than military tools. The next chapter describes the assessment framework and methodology of the EU smart sanctions based on the current literature.

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Chapter 2 An assessment methodology to evaluate the impact and

effectiveness of sanctions

This chapter will describe how the impact and effectiveness of the EU sanctions on Russia can be assessed, building further on the existing literature and theories on sanctions. The assessment methodology will be based mainly on the Hufbauer et al. (2007), the UN Targeted Sanctions Consortium Research (2013), and Giumelli and Ivan (2013). This paper adopts a four-step assessment methodology that combines the insights from these three studies and evaluates sanctions based on the case-specific contexts. For any policy tool, there is a clear need to be assessed on impact and effectiveness. Otherwise it is impossible to claim whether the policy tool is working or not, or whether it should be replaced with a different policy, or that the same tools could be employed in the future.

The first step defines the sender’s foreign policy goals and objectives and sanctions role in achieving those goals. The second step defines the purpose of the sanctions in terms of coercion, constraining and signalling. The third step identifies other factors that potentially influence the sanctions effectiveness. The first three steps help the researcher to analyse the case from different angles and look at sanctions from a bigger perspective. Such a “bird-eye” view is necessary to make sound judgments about the sanctions effectiveness. The fourth step is the most important step that answers our main research question: What are the impact and effectiveness of the EU sanctions? This methodology could be used to assess other smart sanctions cases with modifications tailored to the specific cases being analysed.

Step 1: Define the sender’s foreign policy goals and objectives, and sanctions role

In the first step, overall foreign policy goals need to be defined. In foreign policy and in politics in general, policy makers always have explicit and implicit goals to achieve. Some goals and objectives are explicit and stated in official documents and statements. In addition to the explicit goals, the implicit goals and objectives are important to identify and take into account as well.

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The limited or extensive presence of companion policies indicate the role of sanctions in achieving the sender’s overall goals and objectives. Companion policies work in conjunction to the sanctions to achieve the same or similar goals and objectives. Sanctions are never imposed as a single policy instrument. None of the sanctions cases analysed by Hufbauer et al. (2007) and the UN targeted sanctions cases were applied without other policy instruments. These other instruments would seek to achieve similar goals and objectives such as ending a conflict, changing a target’s regime or preventing a nuclear weapons build-up. Other policy instruments could be, but are not limited to diplomatic measures, military interventions, peacekeeping operations, covert actions, cyber-sabotage and targeted assassinations. Because such a wide range of policy options are available, it is crucial to understand how much weight the sanctions have in comparison to other companion policies and what role the sanctions are intended to play in this case. If sanctions are intended to be just a minor part in the overall strategy, they should not be expected to achieve bigger goals and objectives just on their own. If sanctions indeed play a major role in the overall strategy, the expectation of the sanctions contribution to achieving the bigger goals could be high.

Step 2: Define the purposes of the sanctions

This step separates the sender’s bigger foreign policy goals and objectives apart from what the sanctions can actually do to help achieve those goals and objectives. It is important to clarify here that sanctions are not means to an end, they are tools to help achieve the sender’s bigger foreign policy goals and objectives. In other words, the sender’s main goal is not to sanction the target; the sender uses sanctions to have impact on the target and achieve its bigger long-term goals. To put it in simpler terms, sanctions serve their own purposes. Here, to avoid confusion, this paper will use the term “sanctions purposes” to differentiate between the sanctions’ purposes from the sender’s bigger foreign policy goals and objectives. Once the sender’s bigger foreign policy goals, specific objectives and the role of the sanctions are defined, the next step is to define the sanctions’ purposes.

In this step, this paper adopts the UN Targeted Sanctions Research method of differentiating between the sanctions’ multiple purposes: “to coerce” the target to change its behaviour, “to constrain” the target to limit its behaviour, and “to signal and stigmatize” the target to send a message and shame it. It is necessary to identify which purpose is more important in the

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specific sanctions episode. The coercing, constraining and signalling purposes may be all used at the same time, or used in different orders, or one purpose given more importance.

Sanctions are coercive when they pressure the target to change its policy and behaviour and fulfil (in part or completely) a specific demand from the sender. Sanctions are constraining when they are intended to slow down the target’s implementation plans, and to increase the costs of continuing and implementing the actions and behaviour that caused the sanctions. The sender does not necessarily demand a behaviour change, the sanctions should inflict direct economic cost on the target by constraining its access to essential resources such as finance, arms, goods and technology. Finally, sanctions always serve a “signalling” and “stigmatizing” purposes as well. Sanctions send a message to different groups: target’s top decision makers in the government; the general population of both the sender and the target state; and other countries not involved in the dispute. The stigmatizing effect isolates the target from the international community and may shame the target for violating for example international norms and conventions.

Hufbauer et al. (2007) shows that when the target’s objective has a high importance and meaning, it is usually willing to sacrifice a lot and coercion could be nearly impossible. When there is a lot at stake and coercion does not work, the sender’s main purpose could be to constrain the target’s behaviour and make it difficult and expensive for the target to reach its objectives. If the constraining purpose is effective enough, it could prolong the target’s process in achieving its objectives and may even inflict enough pain to eventually coerce it to change its policy. When the issue at hand is not so severe, for example, at the early stage of a conflict, the sender may choose to put more emphasis in signalling the target and send a strong message of disapproval rather than opting for coercive and constraining sanctions.

Step 3: Identify other factors influencing sanctions effectiveness

There are several factors and conditions that influence sanctions’ success and effectiveness. Any assessment of sanctions’ success will have to take into account these factors before jumping to conclusions. If the conditions and factors were not favourable for effective economic sanctions, the sanctions cannot be blamed for the failure of the sender’s objectives and goals. The literature identifies three main factors and conditions that need to be considered: international cooperation with the sender; international cooperation with the target; and the power structure and political

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stability of the target. An overview of these factors and conditions will help give a realistic expectation on the sanctions success and could explain why the sanctions are working or not.

Step 4: Assess the sanctions impact and effectiveness

The biggest challenge and also the main purpose of the research is the final step to measure the sanctions impact and assess their effectiveness. Impact and effectiveness are different concepts in this research. Impact means the direct and indirect negative costs experienced by both the sender and the target as a result of the imposed sanctions. Effectiveness means the results and achievements produced by the sanctions through their impacts.

Sanctions Impact

One of the main economic sanctions theories is that the greater the costs of the sanctions on the target, the greater the likelihood of effectiveness of the sanctions. However, the sanctions literature has also revealed that huge costs from sanctions do not necessarily translate to success or effectiveness. A 1% decline in GDP as a result of sanctions maybe a huge enough impact for Target A to concede to the sender’s demands and change its policy and behaviour. But a 3% decline in GDP as a result of sanctions may not be enough for Target B to change its policy and behaviour. A clear example is North Korea, which has been under sanctions for decades and has a GDP of 1/50th from its neighbour in the South. The sanctions continue to stifle economic development. However, the sanctions have not been effective in changing North Korea’s policies and behaviour. Therefore, it is methodologically incorrect to immediately assume that greater negative impact means greater effectiveness. This is why this paper differentiates between impact and effectiveness as separate concepts: big impact is not always sufficient for effective sanctions.

The sanctions impact is measured by the negative costs on the economy and the targeted sectors and individuals. The measurement of impact of sanctions on the target’s economy requires complicated methodological techniques such as the gravity model used by Hufbauer et al. (2007), the partial equilibrium model, and the general equilibrium model. Employing these kinds of economic models to assess the impact of EU sanctions on Russian economy is beyond the researcher’s capacity and resources. Therefore, the researcher will rely on sources such as the IMF and World Bank that have already calculated the western sanctions impact on Russia’s economy by indicators such as changes in GDP, trade flows, and currency depreciation.

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The impact on the finance sector will be measured by indicators such as changes in capital flow and restriction to access to finance and loans. The impact on the defence sector will be measured by the negative changes in military and defence potential. The impact on the energy sector will be measured by the level of energy production. The impact on the targeted individuals will be measured by the changes in personal assets and income.

Although the EU sanctions are designed to impact Russia, the impacts on EU must be included in the cost calculations as well. Sanctions are a double-edged sword – they hurt both the target, and the sender. High costs to the target, and low costs to the sender increases the effectiveness (Morgan and Schwebach, 1997). The sanctions impact on EU will be measured by the sanctions direct and indirect cost on EU’s economy, and the cost it bears from Russia’s countersanctions.

Sanctions Effectiveness

The sanctions effectiveness is measured by how much the sanctions have coerced, constrained or signalled the target. In an ongoing sanctions regime, the end result is unknown and cannot be predicted, so the outcome in June 2017 will be the main indicator for the sanctions effectiveness so far. The effectiveness will be semi-subjectively categorized as ineffective, partially effective and effective for each of the sanctions purposes to coerce, constrain and signal the target:

Coercion: Effective, partially effective, and ineffective Constrain: Effective, partially effective, and ineffective Signalling: Effective, partially effective, and ineffective

An effective coercion is an outcome that shows that the target has fully conceded to the sender’s demands and changed its policy and behaviour. The target should change its policy and behaviour according to the sender’s demands, and most of it should be attributed to the sanctions. For example, an official statement or document by the target’s government showing policy changes favourable to the sender is an indicator of effective coercion. In conflict situations, effective coercion would also mean an end of the conflict, or ceasefires and withdrawal of military and troops by the target.

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A partially effective coercion means that the target has conceded and fulfilled some of the

sender’s demands but not all. A negotiated agreement that fulfils part of the sender’s original demands is an example of a partially effective coercion. In conflict situations, partially effective coercion would reduce fighting and withdrawal of some troops and arms by the target.

An ineffective coercion means that the situation has not improved, or has gotten worse and the target has not fulfilled any of the sender’s demands. Coercion is also ineffective when the target agrees to negotiated agreements and ceasefires on papers but completely ignores and does not fulfil any of the requirements.

Most sanctions assessments conclude with disappointing results when the targets do not change their policies or the change in behaviour is attributed to other policy instruments or events. I argue that focusing too much on the policy result tends to neglect the fact that sanctions are not the only tool used by the sender to achieve its goals and objectives. Although there is no substantive success in coercing the target, the sanctions may have been successful in constraining or signalling the target. Therefore, sanctions’ constraining and signalling purposes need to be assessed as much as the coercive purpose.

An effective constraining means that there are significant costs to the target as a result of the sanctions, in addition to acknowledgment and statements from the target’s government that it is experiencing significant costs, followed by noticeable changes to its activities and strategy due to the sanctions. In conflict situations, the conflict is restrained and limited due to the target’s inability to continue the conflict as before.

A partially effective constraining means that the target experiences some costs as a result

of the sanctions, and the costs are high enough to produce a delay or interruption in its activities due to the sanctions. There could be statements from the target government that it is experiencing some costs due to the sanctions but mechanisms such as trade diversion through third countries or import substitution are used to counterbalance the sanctions, and the target is still continuing its policies and activities. In conflict situations, the target experiences some difficulties such as delay in acquiring arms and equipment to continue the conflict but there is no significant interruption.

An ineffective constraining means that there are no measurable costs as a result of the sanctions and the target continues its policies and activities without pressure from the sanctions. Also, the sanctions are ineffective in constraining if the target successfully undermines the sanctions impact by trade diversion, import substitution or other mechanisms of evasion. In

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conflict situations, the conflict continues without delay or interruption and may even expand in scope.

The measurement for effective signalling/stigmatizing effect is shown by how well the intended audiences (the international community, EU constituencies, and Russian population in this case) received and responded to the sanctions. Daoudi and Dajani (1983) identified that sanctions serve multiple signalling purposes to: (1) Maintain the perception that sanctions are inflicting damage on the target; (2) Express morality and justice; (3) Signify disapproval or displeasure; (4) Satisfy the emotional needs of the sanctioners; (5) Maintain sanctioner’s positive image and reputation; (6) Relieve domestic pressure on the sanctioner; and (7) Inflict symbolic vengeance.

An effective signalling and stigmatizing means that the above-mentioned signalling

purposes are all fulfilled and the target is clearly isolated and stigmatized. The sanctions are

partially effective in signalling and stigmatizing if some of the signalling purposes are fulfilled

and some are not. In partially effective signalling/stigmatization, the target is isolated from the international community in some ways but it still has considerable number of partners to counterbalance the stigmatization. An ineffective signalling and stigmatizing means that there is almost no discernible evidence that the intended audiences received and responded to the sanctions. The target is not isolated from the international community, and there is no clear evidence of stigmatization.

The assessment needs to take into account the fact that targets have multiple ways to undermine the impact and effectiveness of sanctions. When countries are under sanctions, they do not just do nothing and allow the sanctions to perform their intended duties; they react and defend themselves. Russia reacted to the sanctions by imposing travel bans on western politicians and diplomats and banned western agricultural products. There are many ways for the target to undermine the sanctions effectiveness and decrease the costs associated with it. For example, the target can find alternative markets for finance and loans, reach out to other countries for political and economic support, or increase domestic production on banned imports and achieve self-dependence.

The time element is another dimension the assessment step should take into account. Sanctions episodes are not static, they also change and evolve according to the internal and external events. Both the sender and the target could get adjusted to living under sanctions environment

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over time. Targets get used to living under sanctions and sanctions regimes could last very long, as evidenced by the cases in Cuba, Iran, Iraq, and North Korea. The other aspect of time is that it works differently for different kinds of sanctions. Hufbauer et al. (2007) shows that while financial sanctions usually have almost immediate impact, trade boycotts and arms embargoes have mid-term and long-mid-term impacts. In the Russia case, the sanctions episode has lasted for three years, which is not long compared to the average 16 years of sanctions length, so we can only see the impact and effectiveness in the short-term, three-year episode from 2014 to 2017.

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Chapter 3 The case of Russia: Annexation of a neighbouring country territory

This chapter will provide a structured and in-depth analyses of the EU - Russia case. The chapter will start with an overview of the sanctions. The overview will describe the reasons for the EU imposing sanctions and which smart sanctions are currently in place on Russia. The overview is followed by a methodological application of the 4-step assessment to the Russia case. The first step defines EU’s foreign policy goals and objectives in Russia and Ukraine, and sanctions’ role in achieving those goals and objectives. The second step defines the purposes of the EU sanctions: coercion, constraining, and signalling/stigmatizing. The third step identifies other factors that potentially influence the effectiveness of the sanctions. The final and fourth step assesses the impact and effectiveness of the EU sanctions against Russia.

Overview of the EU smart sanctions against Russia

The EU uses the terms “restrictive measures” and “sanctions” interchangeably. Most official EU documentation refer to sanctions as “restrictive measures”, but the websites of the EU institutions and other online resources use “sanctions” more often. The 2012 “Guidelines on implementation

and evaluation of restrictive measures (sanctions) in the framework of the EU Common Foreign and Security Policy” provides information on the principles, objectives, and implementation guide

for EU sanctions. According to the guidelines, Article 215 of the Treaty on the Functioning of the European Union provides the legal basis to adopt sanctions on one or more third countries, where such measures are necessary to achieve the objectives of the Common Foreign and Security Policy (CFSP). The CFSP was established with the Treaty of Amsterdam in 1997 and helps the EU member states to coordinate their foreign policy and defence objectives and have a unified stance in external relations including conflict prevention and crisis management. Sanctions are considered one of the key foreign policy tools to achieve EU’s Common Foreign and Security Policy.

The EU follows and implements UN Security Council Resolutions and sanctions, but it may also adopt stricter measures on its own. In the event that the UN Security Council is unable to adopt sanctions, the EU may adopt and initiate its own sanctions. Currently the EU has 38 sanctions in force against countries and terrorist organizations around the world. The EU member

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states are responsible for the implementation and enforcement of the sanctions, but the European Commission is responsible for keeping the sanctions guidelines and provisions as clear as possible. The Commission regularly updates the sanctions list.

According to the sanctions guidelines, the general objective of sanctions is “to bring about a change in policy or activity by the target country, part of country, government, entities or individuals.” Furthermore, “the measures taken should target those identified as responsible for the policies or actions that have prompted the EU decision to impose restrictive measures and those benefiting from and supporting such policies and actions. Such targeted measures are more effective than indiscriminate measures and minimize adverse consequences for those not responsible for such policies and actions.”

Sanctions can be applied in cases of support to terrorism, nuclear proliferation activities, human rights violations, annexation of foreign territory, and deliberate destabilization of a sovereign country. The types of sanctions vary depending on their objectives and particular circumstances and could include freezing of funds and assets; a ban on the provision of financial services; travel restrictions; arms embargoes; export and import restrictions; and sectoral bans to prevent misuse of equipment, technology or software in conflict situations.

The EU has imposed sanctions targeting individuals and certain sectors of the Russian economy as a response to two actions by Russia: (1) illegal annexation of Crimea, and (2)

deliberate destabilization of eastern Ukraine. These sanctions consist of:

1. The first round of individual sanctions in the forms of asset freezes and travel restrictions as “a response to Russia’s illegal annexation of Crimea and Sevastopol”, effective until 15 September 2017.

On March 17, 2014, the European Council adopted Decision 2014/145/CFSP and Regulation 269/2014 gave effect to it. The regulation has been updated regularly with additions and removal of names of people who have deceased. The current updated list has 150 persons and 37 entities. This includes persons and entities responsible for actions against Ukraine's territorial integrity, persons providing support to or benefitting Russian decision-makers and 13 entities in Crimea and Sevastopol. The list of individuals includes both Russians and Ukrainians.

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2. The second round of economic sanctions targeting Russia’s defence, energy and finance sectors for “deliberate destabilization of eastern Ukraine”, effective until 31 January 2018.

On July 31, 2014, the European Council adopted Decision 2014/512/CFSP, and Regulation 833/2014 gave effect to it. The sanctions target Russia’s defence, energy and finance sectors. Defence sector:

Ø Export and import ban on trade in arms

Ø Export ban on the sale, supply, transfer or export of dual-use goods and technology Ø Limit access to EU primary and secondary capital markets exceeding 90 days

maturity for the following defence companies or their subsidiaries: 1. Oboronprom

2. United Aircraft Corporation 3. Uralvagonzavod

4. JSC Sirius

5. OJSC Stankoinstrument 6. OAO JSC Chemcomposite 7. JSC Kalashnikov

8. JSC Tula Arms Plant

9. NPK Technologii Maschinostrojenija 10. OAO Wysokototschnye Kompleksi 11. OAO Almaz Antey

12. OAO NPO Bazalt Energy sector:

Ø Limit access to certain sensitive technologies and services that can be used for oil production and exploration

Ø Limit access to EU primary and secondary capital markets exceeding 90 days maturity for three major Russian energy companies or their subsidiaries:

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1. Rosneft 2. Transneft 3. Gazprom Neft Finance sector:

Ø Limit access to EU primary and secondary capital markets exceeding 90 days maturity for major Russian majority state-owned financial institutions and their majority-owned subsidiaries established outside of the EU:

1. Sberbank 2. VTB Bank 3. Gazprombank

4. Vnesheconombank (VEB)

5. Rosselkhozbank (Russian Agriculture Bank)

3. The third round of sanctions on 12 September 2014 strengthened the terms of the previously imposed economic sanctions and limited the defence, energy and finance sectors from access to primary and secondary capital markets exceeding 30 days maturity.

In addition to the above listed targeted sanctions against Russian individuals and sectors, the EU restricted economic cooperation with Russia in July 2014:

a. The European Investment Bank was requested to suspend the signature of new financing operations in the Russian Federation

b. EU member states agreed to coordinate their positions within the European Bank for Reconstruction and Development (EBRD) Board of Directors with a view to also suspend the financing of new operations

c. The implementation of EU bilateral and regional cooperation programs with Russia was re-assessed and certain programs suspended

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The EU also placed sanctions on Crimea and Sevastopol. These include a ban on imports of goods originating in Crimea or Sevastopol; a prohibition to invest in Crimea; a ban on providing tourism services in the territory; export ban on transport, telecommunications and energy sectors; and a ban on providing technical assistance, brokering, construction or engineering services related to the exploration of oil, gas, mineral and infrastructure sectors. It is outside the scope of this paper to investigate the sanctions against Crimea and Sevastopol and will only focus on the sanctions imposed against the Russian Federation.

Analysis of the EU sanctions against Russia applying the 4-step assessment

methodology

Step 1: EU’s goals and objectives in sanctioning Russia, and the sanctions’ role

The first step defines the specific objectives pursued by the EU by sanctioning Russia, as well as the bigger foreign policy goals. After the goals and objectives are defined, the sanctions role in achieving those goals and objectives are defined. In order to do so, the companion policy tools that are used by the EU in conjunction to the sanctions are identified. The scope and presence of other companion policy tools help identify the role of sanctions within the EU’s bigger foreign policy goals and objectives towards Russia.

EU’s overall goals and specific objectives

What exactly is the EU trying to achieve by sanctioning Russia? Russian annexation of Crimea and its actions destabilizing eastern Ukraine poses a potential threat to EU’s security and undermines its policy towards Russia and the region. By deliberately sending troops into Crimea and annexing it as part of its territory, Russia violated the post-Cold War world order. The EU’s decisions and regulations on the Russian sanctions suggest that EU’s objective is not focused on returning Crimea back to Ukraine. Only the first round of asset freezes and visa bans in March 2014 were imposed as a response for “the illegal annexation of Crimea and Sevastopol”. The second round of targeted economic sanctions in July 2014 were for “Russia’s actions in destabilizing the situation in eastern Ukraine”. It is therefore important that the economic sanctions are not judged against a foreign policy goal that is not explicitly pursued by the EU, that is to return

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Crimea back to Ukraine. The economic sanctions should be judged against the explicit objectives pursued by the EU: de-escalate the conflict in eastern Ukraine, and increase the costs for Russia.

The first explicit objective of the EU is to de-escalate the conflict in eastern Ukraine and eventually end the conflict through a peaceful settlement. EU documents on the sanctions, and the statements and interviews by EU leaders on the Ukrainian conflict reflect an objective to end the conflict in a peaceful manner. The second explicit objective of the EU is to increase the costs of Russia’s actions and behaviour in Ukraine. In other words, the EU aims to economically hurt Russian individuals and key economic sectors in order to make the Russian government pay literally a high price for its policies in Ukraine. The reasoning is that if the costs were high and painful enough, perhaps it will change Russia’s aggressive policy and behaviour towards Ukraine. The Council Regulation No 833/2014 of July 31, 2014 combines the two explicit objectives in one sentence:

“It is therefore considered appropriate to apply additional restrictive measures with a view to increasing the costs of Russia's actions to undermine Ukraine's territorial integrity, sovereignty and independence and to promoting a peaceful settlement of the crisis.”

One of the unstated implicit EU objective is to discontinue Russia’s military involvement in eastern Ukraine (Donbass) by ceasefires and weapons withdrawals as stipulated in the Minsk Agreements. The Minsk agreements are not protocols related to Russia’s annexation of Crimea and Sevastopol. The Minsk agreements are documents providing a roadmap to peacefully end the conflict in the eastern region in Ukraine, namely the Luhansk and Donetsk oblasts (provinces).

The first Minsk protocol was signed in September 2014 by Ukraine, Russia and the Organization for Security and Cooperation in Europe (OSCE). The latter is responsible in monitoring the implementation of the agreements. The Minsk I proved to be a failure when in January 2015, a full-scale fight erupted violating all ceasefire agreements with escalation of conflict in eastern Ukraine. With the mediation of the chancellor of Germany and president of France, Russia, Ukraine and the pro-Russian separatist groups from Donetsk and Luhansk regions signed a second agreement called the “Package of Measures for the Implementation of the Minsk Agreements” in February 2015 after more than 16 hours of negotiation. The so-called Minsk II

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agreement stipulates 13 points to be implemented by the signatories in order to bring an end to the conflict in eastern Ukraine.

A related implicit objective is to impair Russia’s military potential by arms embargoes and banning the export of military technology to Russia. By sanctioning Russia’s defence industry, the EU is in the short-term aiming to limit the number of arms and equipment that are being used by pro-Russian rebels in eastern Ukraine. In the long-term, EU aims to reduce Russia’s military potential by cutting off western high-tech military technology and equipment. If Russia’s military potential is restricted, EU’s regional security will be safer and could deter future similar aggression from Russia.

Looking at the bigger picture of the EU-Russia relations also helps putting the current sanctions into perspective. The EU-Russia relations have never been easy and the Ukraine crisis have complicated them even more. After the Cold War, the EU and Russia signed a Partnership and Cooperation Agreement (PCA) as a basis for their political and economic relations. The PCA provides a framework on political and economic cooperation, and even talks about creating a free trade area between the two. In 2008, the two sides started negotiating on a new agreement, but the 2008 war in Georgia, and the 2014 Ukraine crisis have suspended these negotiations according to the EU website. After the Ukraine crisis, the foreign policy objectives towards Russia had to be redefined. According to a European Parliament briefing from October 2016 “The EU’s Russia Policy”, the EU foreign ministers agreed in March 2016 upon five guiding principles in dealing with Russia. Although not officiated in EU decisions and regulations, these five points are EU’s overall mid-term and long-term policy goals towards Russia.

1. Full implementation of the Minsk agreements as a key element for any substantial change in EU-Russia relations;

2. Strengthening relations with Russia’s former Soviet neighbours; 3. Strengthening internal EU resilience to Russian threats;

4. Selective engagement with Russia on certain foreign policy issues such as the Middle East peace process and counterterrorism efforts;

5. Support for Russian civil society and invest in people-to-people contacts, especially between the EU and Russian youth.

Are the Sanctions Working on Russia? The Impact and Effectiveness of the European Union Sanctions

Are the Sanctions on Russia Working?

The Impact and Effectiveness of the European Union Sanctions

August 2017

Table of Contents

Introduction

Chapter 1

Literature Review and Theoretical Framework

Chapter 2

An assessment methodology to evaluate the impact and

effectiveness of sanctions

Chapter 3

The case of Russia: Annexation of a neighbouring country territory

Analysis of the EU sanctions against Russia applying the 4-step assessment

methodology