Sanctions primer

What is the third stage of sanctions?

The so-called third stage of sanctions would broaden the scope of the punitive measures and target specific sectors of the Russian economy. While the first and second phase of sanctions involved primarily individuals and their assets, the third stage could target corporations or products in specified sectors. Designated sectors mentioned in Obama's third executive order are financial services, energy, metals and mining, engineering, and defense and related materiel. "My guess would be that when they talk about sectoral sanctions they simply mean something which is not targeting specific individuals or companies, but which seeks to impede or make more difficult in some way or completely prohibit certain kinds of trades or transactions between Russia and the EU or Russia and the US," says Maya Lester, a top sanctions lawyer who has successfully represented many clients targeted by Western sanctions.

What's the West's red line to impose third-stage sanctions?

Good question - it seems to be moving. In its sanctions decisions from March 20 and April 28, the EU Council stated that any "further steps by the Russian Federation to destabilize the situation in Ukraine would lead to additional and far reaching consequences for relations in a broad range of economic areas". Up until last week, the level of "destabilizing" Moscow would need to engage in to trigger sectoral sanctions was generally thought to be some sort of Russian intervention in Ukraine. That changed when Obama and Merkel declared on May 2 that third-stage sanctions would be triggered if Russia undermined Ukrainian elections scheduled for the end of the month.

How quickly can they be implemented?

After three executive orders each expanding the scope of the sanctions, the US is ready to go once the political decision is made. No additional legislative action is needed. "They already have in place this executive order which is basically the legal power by which the US authorizes sanctions, but they haven't yet acted on the basis of that order," says sanctions expert Lester. The authority to expand the sanctions rests with the State Department and the Treasury, specifically with the Office of Foreign Assets Control (OFAC).

The EU is a different matter. "At the moment as far as I am aware there is no European legislation which permits sectoral sanctions," says Lester. "So there would have to be an expansion to the EU measures which permit sanctions against Russia to expand them." Before the EU could launch sectoral sanctions new legislation is needed, says Lester. "It would take a decision of all the member states setting out the extent of what they call the restrictive measures, which they have decided to impose. And then that would be implemented in a regulation."

Behind the scenes, member states are very likely talking to each other and the US about legislation for sectoral sanctions. If and once they agree on it, it can be implemented fairly quickly. However, in the past there have differences on sanctions generally and sanctions against Russia specifically within member states. But since Obama and Merkel have now upped the ante, perhaps the EU has already reached an agreement on third-phase sanctions.

Has this been done before?

The EU and the US have extensive experience with the application of various sorts of sanctions. EU sanctions are currently in effect against more than 30 countries, US sanctions against more than 10 countries. Most of the targets are Asian or African countries like North Korea, Sudan or Zimbabwe. Russia, due to the size of its economy and its interdependence, plays in a different league, says Thomas Biersteker, who directs the Targeted Sanctions Consortium, a global expert group on UN sanctions and is professor at the Graduate Institute Geneva. In theory, that would make it easier and more effective to target. "A country like North Korea that is relatively nonintegrated in the world economy has relatively little to lose from sanctions," says Biersteker.

But in practice, it can be politically more difficult to target a major global player like Russia, because strong sanctions would automatically inflict considerable pain not just on the target, but on the originator. The only sanctions case remotely comparable to Russia according to the experts is Iran. It is also the best study case for the application of broad sectoral sanctions by the EU and US. And while many now regard Iran's apparent change on its nuclear stance as evidence for the effectiveness of strong sanctions, it's important to keep in mind just how long it took and how difficult it was to set up and maintain that sanctions regime.

What could a third-stage sanctions scenario look like?

While US officials have mentioned the energy, defense and financial sector, i.e. banning US credit card giants Mastercard and Visa from doing business in Russia, sanctions experts see such sweeping measures as a last resort, not a first step. "I would personally be surprised if it was enormously far reaching," says Lester. More likely would be lesser, but visible sanctions for instance on caviar or vodka. "That would be fairly targeted," notes Biersteker. "It would affect a small percentage of the Russian export market and it would be quite more discriminatory than financial sector sanctions which would affect the entire Russian economy."

A continued ratcheting up of measures according to what is happening on the ground is thus much more likely and effective. "Probably the greatest utility at the moment about discussing third phase is that one doesn't know exactly what it implies and that there is a certain degree of what some would call constructive ambiguity," says Biersteker. "Presumably that is enhancing the bargaining position broadly considered between Russia and Europe and the United States."

How effective can these sanctions be?

It depends. Sanctions can generally serve three purposes: coercion, constraint or signaling or stigmatization. Coercion, i.e. changing the behavior of an actor via sanction only works in one out of 10 cases, according to a survey of UN sanctions conducted by Biersteker's sanctions group. Constraint, i.e. raising the costs and causing the actor to rethink its course, works in some 27 percent of cases and signaling or stigmatization of an actor which works in around 25 percent of cases.

In the case of Russia, it would be unrealistic to expect sanctions to coerce Moscow into reversing its annexation of Crimea. But one could certainly argue that throwing Russia out of the G8 has stigmatized the country. And one could also make the case that even the current comparatively light sanctions have already have had such an impact on the Russian economy that it probably made the Kremlin reconsider its options. While it's impossible to prove, it helps to imagine the counterfactual, says Biersteker: "If there had been no Western response whatsoever, but simply diplomatic protests, then why would Russia not have been more aggressive with regard to eastern Ukraine?"

Especially in the long-term sanctions on Russia can have an impact. But in order not to over- or undershoot it is essential that there should be as much strategic planning and thinking going into the use of sanctions as there is going into the use of military force, says Biersteker and to remember that much of what is driving things is happening on the ground and everyone else outside is merely reacting to it.