Just as certain sanctions or the threat of them, if deployed properly, could impose severe costs on Russia, it is also reciprocally true that Russia’s importance to the EU economy and its energy supplies poses serious constraints on how far the EU will move against Russia while simultaneously incurring self-inflicted pain.

As sets of Western sanctions are debated, implemented, and expanded, the calculations then shift to Moscow, where President Putin weighs the perceived costs against his objectives on an issue that he considers to be of fundamental strategic importance. It could be that Russia is willing to incur great costs without immediately changing course, as Ukraine is the centerpiece of regional security from Russia’s perspective.

U.S. Policy: The Path Taken

Ultimately, the goal of U.S. policy should be to elicit changes in Russian behavior, deescalate tensions, and promote a dialogue between Russia and Ukraine in pursuit of a long-term and lasting resolution.

In the run-up to Russia’s annexation of Crimea in March, U.S. policymakers and their EU counterparts decided on a two-track response: international isolation of and economic pressure on Russia. The goal of the Western policy response was to punish Moscow and to deter further Russian aggression. But from the outset, the strategy and tactics have suffered from a lack of clarity in both their overall intention and their intended targets. They have also suffered from a timing problem, in that the United States and Europe are seeking to change short-term behavior by imposing costs that escalate over time and that are most significant for Russia in the medium- to long-term.

The first steps to isolate Russia in the international arena consisted primarily of what the United States and Europe will not do—in other words, to demonstrate that partnership with Russia has become a thing of the past. The first measure, canceling the G-8 summit that Russia planned to host in early June, effectively expelled Russia from the top-table body in favor of reverting to the G-7 format for the foreseeable future. Other U.S. steps included putting bilateral trade and investment talks and military cooperation initiatives on-hold, as well as canceling planned meetings of the U.S.-Russian Bilateral Presidential Commission. On the multilateral front, talks on Russia’s OECD accession were suspended.

Russia’s response to these steps was rather predictable and was primarily rhetorical in nature. It consisted of dismissing the importance of some international forums such as the G-8 while combating attempts to unify the Western position. Russian officials made clear that Russia has many trading partners and interlocutors, and that bilateral “boycotts” of previously planned initiatives were unfortunate unilateral decisions to not further develop economic opportunities in and with Russia.

The second set of measures was seemingly developed as a hybrid of the dual track: to both isolate Russia and prominent Russian individuals and to exert economic pressure. An executive order on March 6 put in place sanctions in the form of visa bans and asset freezes against those directly involved in Crimea; additional Russian officials and other figures close to President Putin were subsequently designated on the list. The visa bans are of limited utility if they merely restrict travel to the United States, but these travel prohibitions constituted a greater nuisance when the EU followed suit within hours and issued its own list. In themselves, these steps would get Russia’s attention but would not influence Russia’s position. They quickly became viewed as a potential irritant, but not as an actual inconvenience. The Russian response, accompanied by derisive rhetoric, came in classic tit-for-tat diplomatic fashion, with American officials and others soon identified as ineligible for Russian visas.

The second set of U.S. responses represented a step up on the severity scale, as the March 6 executive order provided for asset freezes and a prohibition on U.S. persons from doing business with the “specially designated nationals” (SDNs) and entities on the sanctioned list. The initial list of SDNs was quickly expanded within three days to include individuals outside the Russian government and entities whose principals are close to President Putin, including Gennady Timchenko, Arkady Rotenberg, and Bank Rossiya. Additions made to the list in late April included Rosneft CEO Igor Sechin, Rostec CEO Sergey Chemezov, and numerous entities within Gennady Timchenko’s Volga Group.

The Russian response to these sanctions was more worrisome to the U.S. business community. Anti-American sentiment escalated, as reflected in the polling trends—from 44% negative bias in January to 71% in May. Commercial retaliation was proposed in the Federal Assembly in the form of a draft law permitting confiscation of assets of American and European companies in Russia. When Visa and MasterCard declined to process transactions for Bank Rossiya subsidiaries, the Russian government announced an accelerated plan to develop and implement a Russian national card payment system.

Concurrent with the SDN list expansion on April 28, the United States also announced new restrictions on high-tech defense exports to Russia, noting that current export licenses for defense or dual-use technologies that could contribute to Russia’s military capabilities would be revoked and pending applications for export licenses would be denied. The Russian response echoed the Cold War-era rivalry with the U.S., with a reciprocal threat to discontinue sales of Russia’s RD-180 rocket engines for U.S. space launch programs, as well as plans to remove GPS stations in Russia.

The mid-March sanctions list and the April addendum also indicated the direction in which the U.S. administration was heading as it threatened further sanctions if Russia refused to halt destabilizing actions in eastern Ukraine. President Obama’s executive order provided a framework for implementing subsequent sanctions as needed: a third wave of more severe sanctions targeting five key sectors of the Russian economy, including defense/high technology, energy, engineering, financial services, and metals/mining.

The administration proceeded on this path in July, though the third round did not constitute full sectoral sanctions that prohibited U.S. companies from conducting business in these sectors.  Rather, the July steps introduced restrictions on new financing to several banks and energy firms while adding select defense enterprises to the SDN list.  Russia responded in August by banning the importation of U.S. agricultural products for one year.  Though Russian imports of many American agricultural products (especially meat) have declined in recent years, Russia still represents 10% of U.S. agricultural exports, accounting for some $1.3 billion in sales.

Russia’s consumer safety agency subsequently closed 12 McDonald’s restaurants and launched investigations of dozens of others for health and sanitary violations, which was widely perceived as symbolic retaliation (the action against the American fast-food chain included closing the first restaurant opened in 1990 on Moscow’s Pushkin Square).  By early September, Rospotrebnadzor’s initial health inspections resulted in the opening of some 80 administrative cases against McDonald’s across Russia.

Following the NATO Summit in Wales in the first week of September and a tenuous cease-fire in Ukraine, U.S. officials indicated that Washington is “finalizing” new sanctions in coordination with the European Union.[1]  Further measures have since been put in place.[2]

U.S. Policy: What Next and Why?

An assessment of this two-pronged approach should include not only examination of its effect on desired outcomes but also a clear sense of where the policy is heading along a continuum—an if-then matrix of conditionals that prescribe likely next steps and that are understood by various stakeholders.

That concept, at least in its public form, has been lacking in U.S. policy toward Russia in the past few months, specifically with regard to a progression in stepwise sanctions. Policy clarity and public articulation have not kept pace with the rapid developments on the ground and the ongoing fluidity of the situation in Ukraine. In turn, that has made steadfast support more difficult to maintain in American domestic politics, within the U.S. business community, and among transatlantic partners.

There have been several instances when both the trigger for sanctions and their ultimate objective have been subject to differing interpretations. First, in the Crimean case, the initial sanctions were announced in March to hold accountable those responsible for coordinating Crimea’s secession and Russia’s annexation of the territory. These steps were, however, accompanied by public statements and pressure from Congress seeking the reversal of the outcome in Crimea as the goal of U.S. policy. If the failure to undo the annexation and to return Crimea to Ukraine were the trigger for an escalating series of sanctions, then clearly sectoral sanctions would have been implemented much earlier in the spring.

By the time the reality of Crimea’s new status had been absorbed (if not recognized), at least for the short run, unrest in eastern Ukraine quickly spiraled into a similar scenario. The scenario was similar not in cultural and historical terms, but in terms of mechanics and modus operandi—separatist seizure of local government facilities, hurriedly staged votes for independence, pleas for Russian support, and well-equipped forces securing key infrastructure and transport routes.

In the case of eastern Ukraine, the threshold for implementing sectoral sanctions has been specified over the past months in various terms, including, among other things: 1) Russian attempts to disrupt Ukraine’s May 25 presidential election, 2) Russian support for further destabilizing actions in eastern Ukraine, 3) Russia’s failure to withdraw its forces from forward deployment in regions bordering Ukraine, and 4) a Russian cross-border incursion into Ukraine.