A month into Russia’s invasion of Ukraine, the world’s richest countries have ventured into a financial world war.
Financial sanctions have been part of governments’ arsenal for decades, and it’s not the first time rich countries deployed them together as a unified front. But the sanctions against Russia are a watershed moment in the history of economic warfare because of their scope, their speed, and their spillover.
The last time there was a comparable use of sanctions against a major economy was in 1935, also in response to an invasion. Dozens of governments tried to drain Italy’s currency reserves to force Benito Mussolini to withdraw from Ethiopia. That took months and was attempted by blocking Italian exports—and Italy’s access to hard currency. This time around, things moved much faster: Vladimir Putin lost access to hundreds of billions of dollars at the push of a button, thanks to the digitized financial system.
And unlike more recent sanction regimes, like those imposed on relatively small economies like Venezuela or Iran, the effects of the measures against Russia are already reverberating throughout the world.
“What we’ve done to Russia over the last weeks has blown the top off sanctions,” said Julia Friedlander, director of the Economic Statecraft Initiative at the Atlantic Council.
Never before have sanctions cut so deep or spread so far. It took a confluence of factors to arrive at this point, including an interdependent global financial system anchored by the dollar that makes it easy to intercept money. It also took nearly a century of trial and error.
Historical financial sanctions by the EU, the US, and the UN
Like in Russia’s case, the Venezuelan sanctions froze the country’s central bank reserves, blocked it from the debt market, and targeted individuals and companies. But when those kinds of sanctions were rolled out against Venezuela, it was mostly Venezuelans who bore the economic brunt, with some spillover to their neighbors.
The Russia sanctions are even more comprehensive. Applied to the world’s 11th largest economy, over a matter of weeks, they will have a much bigger impact. We’re already seeing the fallout in the shape of wheat shortages in the Middle East and higher oil prices everywhere. Economic strife could develop into political strife and conflict, says Eva Nanopoulos, a sanctions expert at Queen Mary University of London
“This is quite risky. We are globalizing it,” she says. “This is going to become a world war. It’s not just Russians who are going to die.”