Although not a part of sanctions per se, Western companies’ withdrawal from Russia triggered by sanctions has had a real impact. Substantial outflows of skilled human capital have also taken place in Russia, partly due to the grim economic prospects under sanctions.

Since economic wellbeing depends on real variables such as consumption and employment, real sanctions have a tangible effect on Russia. But since any trade — domestic or international — benefits both the seller and the buyer, trade restrictions are a double-edged sword that harms the sanctioners’ welfare as well. This tends to moderate and slow the latter’s actions. Some countries’ refusal to trade with Russia also creates opportunities for others to trade on favourable terms. Such opportunistic behaviour has offered Russia breathing space.

As for financial sanctions, the asset freeze affects the wealth of Russian senior officials and oligarchs as well as the Russian central bank’s foreign reserves. As this entails little cost to the sanctioners, and clearly damages the sanctionees, it is easy to introduce. Yet its impact on Russia’s domestic economy is minimal.

The sanctions on Russia’s fund settlement exclude Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) network and ban them from accessing the settlement in hard currencies. They would be effective if they hindered real economic activities — especially trade. Still, there are plenty of loopholes.

The SWIFT exclusion was initially touted as a ‘financial nuclear weapon’ — this was a grossly overblown assessment. SWIFT is just a message application commonly used in international fund transfers. Although exclusion from it certainly causes inconvenience, there are other means of communication for sending cross-border fund transfer instructions.

Sanctions prohibiting access to settlements in major financial centres can be circumvented. For example, if Russia’s trading partners accept payments in renminbi, which Chinese exporters and importers will certainly do, Russia can continue to trade.

The objective of sanctions was to damage the Russian economy enough to make it difficult to continue military operations. Clear economic damage has been done: Russia’s GDP in 2022 is expected to shrink by 3.4 per cent. But the extent of the damage has turned out to be much smaller than initially hoped for. President Vladimir Putin’s approval rating continues to be very high, demonstrating that sanctions have not had a strong enough impact on the public to shake their support.

This does not mean that sanctions have failed. On the contrary, it is likely that they will play a more critical role going forward.

Starting from the principle that ‘changing the status quo by force’ is not acceptable, the only satisfactory conclusion of the conflict is for Ukraine to regain all the territories taken by Russia. If the war ends this way, it is a complete loss for Russia.

While this is desirable from a global justice point of view, it is unlikely that Putin and his hardline supporters would let it happen, especially now that Russia has officially annexed the Ukrainian territories it occupies. There is a serious risk that faced with complete defeat, Russia may cross a red line in terms of its use of weapons and military tactics, which could escalate the conflict into a world war. To avert this Armageddon scenario, the global community must find a way to stop the war before Russia loses completely, even if that means forcing Ukraine to compromise.

It is important to distinguish between the truce thus achieved and the end of war. Under a truce, the West can and should continue sanctions. Although their short-term effect has fallen short of initial expectations, there is no question that sanctions will have a debilitating impact on the Russian economy in the medium to long term. With the withdrawal of Western firms, Russia’s industrial technology has gone backwards substantially. Valuable human capital has left and will continue to leave the country, sapping its growth potential.

When this sober reality becomes clear, Russians may realise that there is no future for them unless they have a political leader who can come to terms with the West. This could lead to a regime change in Russia and provide an opportunity to negotiate an end of war that is consistent with global justice.

An important caveat to this strategy is how Russia’s allies and neutral countries behave under a truce. If they continue to willingly or opportunistically support Russia economically, regime change will not happen. Just look to the example of North Korea where a highly autocratic regime has long survived in the face of international sanctions, due in no small part to China’s acceptance of its reign.

To avoid creating a ‘Big North Korea’ out of Russia, it is essential that the West continues diplomatic efforts to mobilise support from neutral countries and, if possible, convert Russia’s allies to the side that opposes military solutions to international disputes.

Masahiko Takeda is a Senior Fellow in the Australia–Japan Research Centre at the Crawford School of Public Policy, The Australian National University.