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Top State Department Economist: US Sanctions In Russia Are Working Pretty Great

A new review published on the State Department website, but not technically endorsed by the department, concludes that targeted sanctions against Russian interests have been successful.

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An academic paper recently published on the State Department's website argues that the US sanctions targeted against Russian President Vladimir Putin and his closest allies are working as intended — punitive measures that President Donald Trump has suggested he's open to lifting.

State Department Deputy Chief Economist Daniel Ahn is listed as the primary author of the paper, alongside Georgetown professor Rodney Ludema. Together, they concluded that the economic sanctions were in fact depriving its targets of revenue and resources. According to their 36-page paper's abstract, "the
average sanctioned company or associated company loses about one-third of its operating revenue, over one-half of its asset value, and about one-third of its employees relative to their non-sanctioned peers."

But the researchers also discovered that the "smart" or "targeted" sanctions placed against Russian companies and individuals starting in 2014 live up to their name. The four rounds of sanctions that have been put into place — aimed at Putin's inner circle, several Russian banks, the defense industry, and the energy sector — have, according to the paper, managed to affect those individuals without being a primary damager of the Russian economy broadly.

Instead, a global collapse in oil prices has been far more harmful to Russia's macroeconomy, which had been previously flush with cash from its petroleum exports.

Smart sanctions first gained traction as a way of exerting diplomatic leverage in the mid-1990s, when backlash against broad economic sanctions against countries and their effect on average citizens — as seen in Iraq during an extended oil embargo — began to grow. Ahn and Ludema's paper concludes that, despite the limited number of cases that have been studied, the practice is working as envisioned.

The working paper was part of a series from the State Department's Office of the Chief Economist (OCE), which was created in 2011. A disclaimer at the start of the paper states that the series "allows the OCE to disseminate preliminary research findings in a format intended to generate discussion and critical comments." It also makes clear that the "[v]iew and opinions expressed do not necessarily represent official positions or policy of the OCE or Department of State."

Both Ahn and his boss, Chief Economist Keith Maskus, were appointed by former President Barack Obama.

Bill Browder, co-founder of Hermitage Capital Management Group, an investment fund company that specializes in Russia, told BuzzFeed News via email that while his firm hasn't focused on the effects of the Ukraine-related sanctions, they've been effective from what the firm has observed.

"On an anecdotal basis, we've seen an absolutely apoplectic response from Putin, which makes us think that we've hit a very tender spot for the Putin regime," Browder wrote. "In my mind, the reason for that reaction is that wealth is so concentrated in Russia that you can go after the assets of just a few bad players and you have a disproportionate effect on the evil and rot in Russia."

(A lawyer for Broder's firm, Sergei Magnitsky, was accused of tax fraud in 2011 while working to uncover corruption in the Russian government and subsequently died while in prison. The US later passed the Magnitsky Act to sanction individual Russian human rights abusers.)

Trump has repeatedly said that he’d be open to dropping the sanctions on Russia but not his criteria for doing so. He in one interview implied that he’d be willing to waive the sanctions in exchange for Russia taking action to reduce its nuclear arsenal, rather than keeping them linked to its behavior in Ukraine.

The Trump administration has during its time in office made clear that sanctions placed on Russia for its annexation of Crimea would remain in place until it was returned to Ukraine. But it has been less willing to speak about the later sanctions levied for Moscow's subsequent arming and funding rebels in eastern Ukraine, who are fighting to this day.

When asked on Wednesday about a bill Russia hawks in the Senate are drafting that would require Congress to approve any lifting of the sanctions in place, White House press secretary Sean Spicer was evasive.

"Well, there's two sets of sanctions, Tamara, that we got to deal with, right?" Spicer said in response to a reporter's question. He then reiterated the position that UN Ambassador Nikki Haley delivered at the UN last Thursday, but did not elaborate on the White House's position on the other set of sanctions.

"Beyond the disclaimer in the paper itself, we have nothing additional to add," a State Department spokesperson told BuzzFeed News when asked if the department backed the conclusions inside Ahn and Ludema's study. The White House did not respond to a request for comment.

You can read the full paper for yourself here:

Hayes Brown is a world news editor and reporter for BuzzFeed News and is based in New York.

Contact Hayes Brown at hayes.brown@buzzfeed.com.

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