The economic weapon

The fate of the League of Nations provides a stark warning about using sanctions as a tool of modern warfare.

On 24 February the US government and European leaders announced a large and coordinated package of economic sanctions against Russia. Over the previous months, the Biden administration had threatened to impose “significant and severe” sanctions on Moscow should Vladimir Putin attack Ukraine. As Russia launched its invasion, it became necessary to make good on these warnings.

Putin’s invasion has dramatically changed the role of sanctions. As a means of dissuading him from embarking on war, they have not worked. Economic pressure has now entered a new phase in its long history as a weapon of war. In his press conference announcing the sanctions, Biden argued that, “some of the most powerful impacts of our actions will come over time”. Disavowing his earlier use of sanctions as a threat, he claimed that, “No one expected the sanctions to prevent anything from happening… this is going to take time.”

This new US narrative about the point of sanctions marks an important change: from a deterrent to a weapon with which to sap Russian strength. But as the Russia-Ukraine war rages, it is necessary to assess what sanctions can and cannot achieve when used as part of a strategy of exhaustion. Can sanctions alone slow down the advance of Russian forces fast enough to save Ukraine’s independence?

[see also: Adam Tooze: The world is at financial war]

There are historical reasons to worry about whether they can. Many observers have compared Putin’s aggression to Hitler’s annexation of Czechoslovakia in 1938, which prepared the Nazi conquest of Europe during the Second World War. But a more instructive comparison for assessing sanctions’ effectiveness in stopping war is fascist dictator Benito Mussolini’s land grab during the Italo-Ethiopian War of 1935-36.

The war of conquest launched against Ethiopia was the first time in modern history that the threat of economic failed to deter an aggressor. Sanctions had developed in the aftermath of the First World War, when Allied policymakers adapted wartime blockade techniques for peacetime use in the League of Nations. The economic weapon had worked twice before as a deterrent. In 1921 the League warded off a Yugoslav incursion into northern Albania by threatening to impose a blockade. And in 1925 a similar warning against Greece sufficed to stop an escalating border war with Bulgaria. But a powerful imperial nation-state such as fascist Italy was a different matter. The threat of sanctions did not intimidate Mussolini. His invasion of Ethiopia led to the first effort by an international coalition of League states to actually deploy economic sanctions to stop a war of aggression.

The similarities between the Italo-Ethiopian War and what is happening in Ukraine are striking. The aggressor’s military build-up had been evident for a long time, but Western capitals disagreed about how tough to make the sanctions. The invaders had also prepared for sanctions, and those international sanctions that were imposed were plagued by loopholes, especially on energy. And, finally, the international community did not provide the most effective form of support to the victims of aggression: economic, financial and defensive aid.

Throughout 1934 and 1935, Mussolini built up a huge army in East Africa. In Italy’s colonies in Eritrea and Somalia, nearly 390,000 troops and 100,000 supporting personnel – the largest army ever dispatched to Africa by a European power – amassed on the borders of Ethiopia. They were supplied by Italian ships sailing through the Suez Canal. Mussolini’s threats to Ethiopian statehood and his preparations for war were clear to the world.

But Western leaders faced a dilemma about how to calibrate sanctions. Should they be strong and immediate, or gradually increase in strength to match escalating fascist aggression? Mussolini’s menacing of a League member state was intolerable and a serious sanctions threat would have included an embargo on trade and finance, and closing the Suez Canal to Italian ships.

Yet Britain and France feared provoking Mussolini into open war against them. They wanted to retain the prospect of a diplomatic settlement. So, in September 1935 Paris and London agreed on a moderate sanctions package. It prohibited loans and sales of weapons and several key commodities to Italy. But its main focus was on blocking Italian exports from League states. The aim was to drain the country’s foreign reserves, making the continuation of military aggression in Africa prohibitively expensive. As one British official put it, the League’s intention was not to cripple Mussolini, but to make sure he “pays through the nose” for his conduct.

[see also: Putin is running out of options]

But Mussolini believed that he could conquer Ethiopia, a vast mountainous country nearly twice the size of Texas, before sanctions would hurt him. He prepared to deal with the economic pressure – just as Putin’s government has done since the first Western sanctions in 2014 following the annexation of Crimea. The fascist regime built up stockpiles of raw materials, imposed capital and currency controls, and implemented a harsh austerity policy on its own population. The Western freezing of a large part of Russia’s international foreign exchange reserves has left the Central Bank of Russia with a smaller war chest, mainly composed of Chinese yuan reserves and a large gold supply. Mussolini too cast his defiance of liberal internationalism around the civilisational language of gold and solidity. One month after League measures went into effect his regime announced a new holiday, the Day of Faith (Giornata della Fede). This celebration called upon Italian women to donate their jewellery to the state so it could be smelted to augment Italian gold reserves as a way to withstand League sanctions.

Once Italian armies invaded Ethiopia on 3 October 1935, 52 countries joined in the international embargo against Rome. Mussolini, it appeared, had walked into a trap and would be broken by the sanctions. Internationalists rejoiced.

But the dangers of gradualism soon became apparent. Mussolini authorised the use of poison gas to break the Ethiopian resistance. The fate of the African nation was now being decided by whether League sanctions could exhaust Italian reserves before fascist armoured columns reached Addis Ababa. Right now, the question is whether even the toughest sanctions will do enough damage quickly enough to stem Russia’s advance on Kyiv.

Both the initial Euro-American sanctions package presented on 24 February and the subsequent Swift cut-off announced in subsequent days exempt one major segment of Russian exports from interdiction: oil, gas and agricultural exports. Shutting down sales of these commodities is one way to truly damage the Russian economy. But on both sides of the Atlantic, resistance to sanctions on Russian oil and gas exports is driven by fears that consumers will revolt against high energy prices. In 1935-36, the League discussed but never implemented an oil embargo against Mussolini. But even had this been put into effect, oil companies in the US – which was not a member of the League – would have been able to supply Italy.

US and EU sanctions include a novel ban on exports of high-tech components to Russia. This is a significant measure also supported by Japan, South Korea, Singapore and Taiwan. This measure will surely degrade Russian military production over time. But it is questionable whether this long-run constraint will affect the life-or-death battle being fought by Ukrainians right now.

By May 1936, Italian forces had conquered Addis Ababa. Ethiopian emperor Haile Selassie fled into exile, and his country endured five years of brutal occupation. The Italo-Ethiopian case shows that once a conflict begins, it is hard to rely on sanctions alone to stop it. Russia will surely incur significant damage from the Western sanctions, but it has prepared to weather their immediate impact in a way that will continue to give it fighting power in the short term.

The real failure of the League, however, was not that it failed to implement enough sanctions. It was that it did not take actions that would have helped Ethiopia defend itself. The economist John Maynard Keynes argued that large-scale financial support to Addis Ababa would “revolutionise the effectiveness of Ethiopian defence”. But Western obsessions with budgetary balance and an unwillingness to assist African self-determination made such aid a dead letter. The lesson for today should be clear. Aid to Ukraine is of paramount importance in helping its struggle. Ukraine has suffered from decades of economic shocks and stagnation. Positive assistance for the victim, not just negative sanctions against the aggressor, should be a top priority for all those concerned about the survival of free nations.