But when do sanctions become more than just penalties and turn into economic warfare? That’s the question that informed much of the conversation I had this week with Foreign Policy columnist Adam Tooze for the podcast we co-host each week, Ones and Tooze .

The West’s sanctions against Russia over its invasion of Ukraine are already leading to a crash in the Russian ruble that will affect the country for years to come. Those measures, specifically against the central bank, make it impossible for Russia to access the foreign currency reserves it had built up over the years.

The West’s sanctions against Russia over its invasion of Ukraine are already leading to a crash in the Russian ruble that will affect the country for years to come. Those measures, specifically against the central bank, make it impossible for Russia to access the foreign currency reserves it had built up over the years.

But when do sanctions become more than just penalties and turn into economic warfare? That’s the question that informed much of the conversation I had this week with Foreign Policy columnist Adam Tooze for the podcast we co-host each week, Ones and Tooze.

We discussed whether the measures can be expected to bring an end to Russian President Vladimir Putin’s war—or whether they’re designed instead to instigate regime change.

What follows is a transcript of the interview, edited for clarity and length.

For the entire conversation and episodes in the weeks ahead on this subject and others, subscribe to Ones and Tooze on your preferred podcast app.

Cameron Abadi: Should we say now that the West is at war, by which I mean an economic war? Or is there such a thing in the first place: economic war?

Adam Tooze: I think this is a very profound question and a really serious one, and it’s been haunting me all week. Europe and the United States acting in concert launched this bomb of an economic measure—sanctions by central banks on another central bank. And that does create a condition, which, if you had to choose anyway, the phrase which I think brings home the gravity of the situation that we’re in is economic war, financial war. Because we are aiming to inflict massive damage on the Russian financial system, and by way of that, on the Russian economy in the middle of a shooting conflict, which is unresolved and the consequences of which are yet unclear. And we are clearly taking sides. To me, the difference is between sanctioning an assailant in the courts after an assault has taken place and us throwing ourselves into the fight on the side of the party that’s been aggressed against.

CA: If we are calling this a kind of economic war, how does that compare to the methods of military war? Can this method of war be just as vicious and violent?

AT: I don’t think I’m establishing equivalence here. We should at all costs avoid that because the gravity of what’s happened in the Ukraine is not something that one should obfuscate. The point I’m making is really that this doesn’t seem to be any longer, strictly speaking, in the realm of sanctions.


For the entire conversation, and episodes in the weeks ahead on this subject and others, subscribe to Ones and Tooze on your preferred podcast app.

What I’m particularly worried about here is the alignment of thinking between the measures that we’re taking towards Russia and the measures that the U.S. has been taking for many years now towards Iran. Because the fundamental terrifying misunderstanding there is that Iran is really, in a sense, helpless in the face of these measures. Whereas Russia is anything but, as Putin demonstrated so forcefully on Sunday. [Russia’s] not an aspirant nuclear state that’s desperately struggling to develop a nuclear program in the face of Western opposition. [Putin] commands the second-largest nuclear arsenal in the world, and that used to be the dominating fact of global politics until the 1990s. And somehow in the last couple of decades, that has slipped our mind. So that’s really what I think is terrifying.

Yes, in the details, of course, it’s not really a shooting war. It’s legalistic; it’s forensic. In cases where countries are under the most severe economic pressure, it can be lethal. The blockade of Germany in World War I is estimated to have cost the lives of hundreds of thousands of people, if not more than that, through starvation and malnutrition. This sanctions regime doesn’t even come close to that. It specifically exempts the trade in food and medical supplies. But in the limit, this is coercion, and it has material impacts which are very real, and you could therefore qualify it as a kind of violence. But it would be metaphorical—we have to insist on that.

CA: Could there be economic blowback for the rest of the world from these sanctions on Russia—and what form would it take?

AT: At the global level, one shouldn’t exaggerate the significance of Russia as an economy. It is a major supplier of oil and gas, and nothing has been done so far to interrupt that. The interruptions which are occurring in the oil market had to do with private actors deciding they don’t want a piece of the Russian oil action anymore. But the Russian economy makes up just 1.7 percent of global GDP. If you were to cut Russia’s imports in half, it would be a fraction of a fraction of 1 percent of global GDP that was affected.

Where the impact is felt more severely is in Russia’s smaller and more dependent neighbors. Central Asia, for instance, is a place to watch because those economies and states are not just within Russia’s grip in terms of politics and security policy. Their workforces travel to Russia for work. There are 4.5 million workers from Uzbekistan in Russia, 2.4 million from Tajikistan, 920,000 from Kyrgyzstan. And all of those have been hit by these central bank actions because one of the responses of the Russian central bank was to stop foreigners from selling rubles and buying foreign exchange. And those workers are there not for the love of Russia but because they need to make remittances to their families at home. It’s the immediate environment that takes the hit.

CA: What about the effect on the U.S. dollar? In previous crises, the U.S. dollar acts as a safe haven for investors around the world. Are we already seeing that kind of thing in this crisis, and how would that affect the United States more generally—for example, with inflation?

AT: Investors did run strongly into the dollar, especially in that terrifying Sunday to Monday as the day began with a nuclear threat. The [U.S.] dollar did surge. This has a complicated set of impacts on the U.S., but first and foremost, one ought to stress that this has a hugely contractive effect on the global economy because, essentially, a huge part of global trade and finance is done in dollars. And if the dollar is rising relative to everything else, which it was in that early phase of the crisis, it exerts a squeeze on everyone. Everyone who owes dollars, who happens to need to settle dollar bills that week—whether it’s for oil or gas or anything else—all of those suddenly become more expensive as the dollar rises. So, it’s a very bad sign for the global economy generally if the dollar is rising sharply because it will produce financial pressure.

We know how the [U.S. Federal Reserve System] can respond to this. In extremis, it can fill the world with dollars, which is what it most recently did in the spring of 2020. The tension there, though, is that if the Fed floods the world with dollars, it counteracts its efforts to stabilize inflation at home.

CA: Could the global economic order itself be damaged as a result of the sanctions? One of the big reasons that the international economic system works are the legal norms that everyone trusts, including that central banks can place their deposits with one another without worrying. Will the underlying trust necessarily survive the crisis?

AT: Well, I think as far as Russia is concerned, evidently not. I think what this exposes is there’s a kind of hierarchy—that the rules of property, the relationship of trust among central banks, is conditional on the willingness of governments to respect what we, the West, regard as basic norms of international legality. The entire private property regime, all the intergovernmental civility and respect of law, is conditional on [the idea of] more basic respect for international boundaries, which Russia has absolutely violated.

And does that shift the parameters? Absolutely, it does. And … if you’re managing the Saudi Arabia Foreign Exchange Reserves or the China Foreign Exchange Reserves, those are the two countries in the list of large reserve holders that might conceivably find themselves in the sort of situation Russia is—a conflict between what they understand to be national security objectives and their economic interest. You would think that Saudi and China would be taking a long, hard look at where they put their money and who’s holding it. For the Saudis, that might be a soluble problem because they’ve got something like $450 billion worth of reserves, somewhat less than the Russians. But for China, it’s $3.5 trillion worth of assets. If you’re not going to put them into something which is either euro or dollars, where on Earth do you go? There isn’t an asset market really large enough to absorb that kind of money and to place it outside the reach of sanctions—I mean, the only other place you could put it would be China, and of course, that doesn’t help China, right? So that creates a very different set of tensions. It’s a dramatic moment.

CA: Just how bad could things get for the Russian economy? What are the worst-case economic and political scenarios here?

AT: Let’s take Iran as our benchmark instead to kind of get a view of how this might work out. The first thing which the phase that we’re in currently right now is the acute shock phase, in which you’re going to see financial panic, market closures, this repressed inflation as a result of the devaluation, which is quite serious. And that could take months to work its way through until they figure out exactly where the damage is, whose balance sheet has taken a hit. Then there’s the big recession that follows: a hit to confidence, to investment spending, to exports, to trade, and so on. Folks right now think that, by the end of this year, could amount to a recession of about 10 to 14 percent. Something like that would be reasonable. That would be half of Russia’s exports as a share of GDP, which is 28 percent. So that cut in half.

Then you get, however—and this is crucial, and this is what Iran’s experience shows us—adaptation, recovery, adjustment. In the end, Iran ended up around 7 to 8 percent below where it was before the sanctions hit. And then, of course, the question is: What is the longer-term impact in terms of the slowing down of growth? And that’s where the real shock and horror for many Russians comes in because they look to the future and they see a broken future at this point.

CA: It seems ordinary Russian people will suffer the most—and that’s the logic of the sanctions, to kind of instrumentalize the discontent of ordinary Russians?

AT: It is. And that’s obviously very ambiguous in its morality and in its politics. Those at the very bottom are going to suffer if we get generalized inflation, but they don’t have assets to speak of and their standard of living probably doesn’t include a lot of expensive imported goods. And so it’s probably really the Russian middle class who have a bit to lose and can really ill afford to lose it, unlike the oligarchs that will feel this pinch most. There’s a risk of a proletarianization of the Russian middle class that comes into view with these kind of sanctions. And I guess the theory may be that it’s also they that matter most in terms of mass politics. This is the educated, aspiring, upwardly mobile element of society that may feel that its hopes and dreams are being dashed at this moment.

CA: So you mentioned the economic elites: the oligarchs. Do they have ways of insulating themselves from this kind of general crisis? Are there ways that parts of Russia can even profit from this kind of isolation?

AT: Yes, there are. I mean, at the ultra-oligarch level, of course, they simply employ the very best tax avoidance specialists and, with various types of dark finance, they can bury assets very deep in the Caribbean or in Cyprus or Malta or wherever. And they will, to that extent, be able to rescue huge nest eggs through this entire crisis.

Sanctions also create markets and opportunities. Russia, for example, in response to Europe’s sanctions after the seizure of Crimea, imposed a boycott on the import of West European food. And so one of the results of this is a huge surge in the Russian poultry industry, a huge surge in the Russian dairy industry. And believe it or not, Russia now has its own brand of parmesan cheese. There is a Russian cheese industry as a result of the sanctions measures.

CA: Could these sanctions directly affect Putin’s prosecution of this war? Could they make it too costly for him to continue this invasion and end the war early that way somehow?

AT: If we’re asking whether the sanctions could stop the military offensive and halt the campaign due to shortages of some kind or not, I think that’s very unlikely. They have enough, surely enough equipment stockpiled to carry this through. I think the escalation of the violence on the battlefield, which is such a horrific reality in the current moment, is independent of this problem.

Insofar as the sanctions have a logic beyond the punitive, I think the idea is that they raise the pressure on the home front of the regime, to such a point that Putin has to change his mind. And I have to say, I find that vision, too, quite unrealistic. And so I’m a bit worried that—more than a bit worried—that there’s actually some sort of vision of regime change that is animating this. Because anything else implies that you’ve got to believe that the Russian population en masse will shift against Putin on the basis of economic deprivation. There’s no reason particularly to believe that’s the case. You’d also, then, have to believe that faced with that kind of opposition, Putin would choose to back down. And if we know anything about his character, it seems to point in the opposite direction—that this is a man who, when backed into the corner, raises the stakes and becomes more aggressive. And if that’s the case, then it would seem that the model is premised on a further assumption, which is that, when he really begins to escalate in an extremely dangerous fashion, that some members of the elite will intervene to stop him—which is essentially a story about regime change.

And that just seems to me a mountain of, as it were, imponderables and high-risk scenarios and assumptions that—I just don’t see what you would found that model on. But in the short run, I think it’s about inflicting pain and showing consistency and solidarity.