Economic Sanctions Cause Collateral Damage

Throughout history, war has been declared by powerful elites and fought by brave people of much less fortune. In more traditional wars, people on the front lines have seen their houses burned, their families devastated, and their communities torn apart. And while elites can certainly experience loss, their losses pale in comparison to the losses of the non-elites.

But there is a new form of war: economic war. Unfortunately, economic war only targets the non-elites, leaving the elites virtually unscathed.

Consider the economic sanctions placed on Russia resulting from the unjust invasion of Ukraine. Removing Russia from the SWIFT bank messaging system and other financial sanctions designed to limit the Russian Central Bank’s ability to liquidate its assets or to otherwise access its international reserves does nothing to prevent Putin from waging war, nor does it affect his personal wealth. He himself has said that he is “indifferent” to the sanctions. Instead, the people who bear the brunt of these sanctions are the people standing in long lines at ATMs around the country. These are not Russia’s rich oligarchs, but parents and grandparents trying desperately to acquire the money necessary to put food on the table for their families.  

The Russian stock market’s tumble sounds tragic and likely to hit people who hold stocks (i.e. the Russian oligarchs) the hardest. But this tumble is almost certainly the result of middle-class Russian citizens liquidating their investments because they need the money now, meaning that their golden years will be all the more difficult. The rich oligarchs? They can afford to wait and acquire these stocks at rock-bottom prices, making them even richer in the future than they already are today.

The effects of energy and transport sanctions again fall disproportionately on ordinary Russian citizens by making ordinary, everyday life harder, not easier. When energy prices soar, elites simply write a bigger check for their utilities. Non-elites combine their mattresses so they can sleep together for warmth. When transportation is restricted, making everyday items more expensive or harder to come by, elites simply pay more. Non-elites have to pool their resources, wiping out their life savings, and ration whatever they manage to come by, hoping that it will be enough.

By all accounts, popular support for the invasion of Ukraine is extraordinarily low in Russia. Tens of thousands of Russian people have already been arrested for anti-war protests around the country. Hundreds of thousands have actively and visibly protested. All this in a country without the freedom to assemble peacefully, so we can only speculate how many Russian citizens disagree with the invasion but are understandably too afraid to protest themselves.

Despite their opposition, these are the Russians whose lives are being torn apart through the economic sanctions imposed by the West. Higher prices and decreased availability do not affect wealthy oligarchs; in fact, the Russian oligarchs may end up benefiting from them in the long run. Instead, they affect ordinary citizens who are just trying to make ends meet. The hope is that these sanctions cause enough damage to convince oligarchs to change their tune.

Ask yourself: Are we really to believe that Putin, a man who has historically ignored and frequently caused his people’s suffering, will suddenly decide that his people have suffered enough and end the invasion?

David J. Hebert, Ph.D. is an Associate Professor of Economics at Aquinas College in Grand Rapids, MI and member of the Board of Scholars at the Mackinac Center for Public Policy. The views expressed here are his own and do not necessarily reflect endorsement of either organization.