The Art of Punishing Putin

In the summer of 1941, the United States sought to leverage its economic dominance over Japan by imposing a full oil embargo on its increasingly threatening rival. The idea was to use overwhelming economic might to avoid a shooting war; in the end, of course, U.S. economic sanctions backed Tokyo into a corner whose only apparent escape was the attack on Pearl Harbor. Boomerangs aren’t the only weapons that can rebound.

Stephanie Baker, a veteran Bloomberg reporter who has spent decades covering Russia, has written a masterful account of recent U.S. and Western efforts to leverage their financial and technological dominance to bend a revanchist Russia to their will. It has not gone entirely to plan. Two and a half years into Russian President Vladimir Putin’s war in Ukraine, Russia’s energy revenues are still humming along, feeding a war machine that finds access to high-tech war materiel, including from the United States. Efforts to pry Putin’s oligarchs away from him have driven them closer. Moscow has faced plenty of setbacks, most recently by losing control of a chunk of its own territory near Kursk, but devastating sanctions have not been one of them.

Punishing Putin: Inside the Global Economic War to Bring Down Russia is first and foremost a flat-out rollicking read, the kind of book you press on friends and family with proselytizing zeal. Baker draws on decades of experience and shoe-leather reporting to craft the best account of the Western sanctions campaign yet. Her book is chock-full of larger-than-life characters, sanctioned superyachts, dodgy Cypriot enablers, shadow fleets, and pre-dawn raids.

More than a good tale, it is a clinical analysis of the very tricky balancing acts that lie behind deploying what has become Washington’s go-to weapon. The risky decision just after the invasion to freeze over $300 billion in central bank holdings and cut off the Russian banking system hurt Moscow, sure. But even Deputy National Security Advisor Daleep Singh, one of the architects of the Biden administration’s response, told National Security Advisor Jake Sullivan that he feared the sanctions’ “catastrophic success” could blow up global financial markets. And that was before the West decided to take aim at Russia’s massive oil and gas exports, which it did with a series of half-hearted measures beginning later that year.

The bigger reason to cherish Punishing Putin is that it offers a glimpse into the world to come as great-power competition resurges with a vengeance. The U.S. rivalry with China plays out, for now, in fights over duties, semiconductors, and antimony. As Singh tells Baker, “We don’t want that conflict to play out through military channels, so it’s more likely to play out through the weaponization of economic tools—sanctions, export controls, tariffs, price caps, investment restrictions.”

The weaponization of economic tools, as Baker writes, may have started more than a millennium ago when another economic empire was faced with problematic upstarts. In 432 B.C., Athens, the Greek power and trading state supreme, levied a strict trade embargo on the city-state of Megara, an ally of Sparta—a move that, according to some scholars, sparked the Peloponnesian War. (Athens couldn’t break the habit: Not long after, it again bigfooted a neighbor, telling Melos that the “strong do what they can, and the weak suffer what they must.”) The irony of course is that Athens, the naval superpower, eventually lost the war to its main rival thanks to a maritime embargo.

It can be tempting to leverage economic tools, but it is difficult to turn them into a precision weapon, or even avoid them becoming counterproductive. The British empire’s 19th-century naval stranglehold and love of blockades helped bring down Napoleon but started a small war with the United States in the process.

Britain was never shy about using its naval and financial might to throw its weight around, but even the pound sterling never acquired the centrality that the U.S. dollar has today in a much bigger, much more integrated system of global trade and finance. That “exorbitant privilege,” in the words of French statesman Giscard D’Estaing, enabled the post-World War II United States to take both charitable (the Marshall Plan, for starters) and punitive economic statecraft to new heights.

The embargoes on Communist Cuba or revolutionary Iran were just opening acts, it turned out, for a turbocharged U.S. approach to leveraging its financial hegemony that finally flourished with the so-called war on terror and rogue states, a story well-told in books such as Juan Zarate’s Treasury Goes to War or Richard Nephew’s The Art of Sanctions.  

Osama bin Laden is dead, Kabul is lost, Cuba’s still communist, and a Kim still runs North Korea, but the love of sanctions has never waned in Washington. If anything, given an aversion to casualties and a perennial quest for low-cost ways to impose its will, Washington has grown even fonder of using economic sticks with abandon. The use of sanctions rose under President Barack Obama, and again under Donald Trump; the Biden administration has not only orchestrated the unprecedented suite of sanctions on Putin’s Russia, but also taken Trump’s trade war with China even further.

Despite U.S. sanctions’ mixed record, the almighty dollar can certainly strike fear in countries that are forced to toe a punitive line they might otherwise try to skirt. Banks in third countries—say, a big French lender—could be forced to uphold Washington’s sanctions on Iran regardless of what French policy might dictate. Those so-called secondary sanctions raise hackles at times in places such as Paris and Berlin, prompting periodic calls for “financial sovereignty” from the tyranny of the greenback. But little has changed. Countries that want to continue having functioning banks have little choice but to act as the enforcers of Washington’s will.

What is genuinely surprising, as Baker chronicles, is that the growth of sanctions as the premier tool of U.S. foreign policy has not been matched by a commensurate growth in the corps of people charged with drafting and enforcing them. The Office of Foreign Assets Control, the Treasury Department’s main sanctions arm, is overworked and understaffed. A lesser-known but equally important branch, the Commerce Department’s Bureau of Industry and Security, struggles to vet a vast array of export controls and restrictions with a stagnant staff and stillborn budget. Post-Brexit Britain has faced even steeper challenges in leaping onto the Western sanctions bandwagon, having to recreate in the past few years a new body almost from scratch to enforce novel economic punishments.

Punishing Putin is not, despite the book’s subtitle, about an effort to “bring down” Russia. The sanctions—ranging from individual travel and financial bans on Kremlin oligarchs to asset forfeiture to sweeping measures intended to kneecap the ruble and drain Moscow’s coffers—are ultimately meant to weaken Putin’s ability to continue terrorizing his neighbor. In that sense, they are not working.

One of the strengths of Punishing Putin is Baker’s seeming ability to have spoken with nearly everybody important on those economic frontlines. She details the spadework that took place in Washington, London, and Brussels even before Russian tanks and missiles flew across Ukraine’s borders in February 2022, and especially in the fraught days and weeks afterward. It takes a special gift to make technocrats into action heroes.

The bulk of Baker’s wonderful book centers on the fight to sanction and undermine the oligarchs loyal to Putin who have helped prop up his kleptocracy. Perhaps, as Baker suggests, Western thinking was that whacking the oligarchs would lead to a palace coup against Putin. There was a coup, but not from the oligarchs—and it ended first with a whimper and then a mid-air bang.

There are a couple of problems with that approach, as Baker lays out in entertaining chronicles of hunts for superyachts and Jersey Island holding companies. First, it’s tricky to actually seize much of the ill-gotten billions in oligarch hands; the U.S. government is spending millions of dollars on upkeep for frozen superyachts, for example, but can’t yet turn them into money for Ukraine. And second, the offensive has not split the oligarchs from Putin: To the contrary, a Kremlin source tells Baker, “his power is much stronger because now they’re in his hands.”

At any rate, while the hunt for $60 billion or so in gaudy loot is fun to read about, the real sanctions fight is over Russia’s frozen central bank reserves—two-thirds of which are in the European Union—and the ongoing efforts to strangle its energy revenues without killing the global economy. Baker is outstanding on these big issues, whether that’s with a Present at the Creation-esque story of the fight over Russia’s reserves and the ensuing battle to seize them, or an explanation of the fiendishly complicated details of the “oil price cap” that hasn’t managed to cap Russian oil revenues much at all. More on those bigger fights would have made a remarkable book a downright stunner.

The Western sanctions on Russia, as sweeping and unprecedented as they are, have not ended Putin’s ability to prosecute the war. They have made life more difficult for ordinary Russians and brought down Russia’s energy export revenues, but they have not yet severed the sinews of war. “But, in fact, the West didn’t hit Russia with the kitchen sink,” Baker writes. Greater enforcement of sanctions, especially on energy, will be crucial to ratchet up the pressure and start to actually punish Putin, she argues. The one thing that is unlikely is that the sanctions battle will end anytime soon—not with Putin’s Russia, and not with other revisionist great powers such as China, whose one potential weakness is the asymmetric might of U.S. money.

“As long as Putin is sitting in the Kremlin,” Baker concludes, “the economic war will continue.”