The Atlantic

How America Wasted Its Most Powerful Economic Weapon

Edward Fishman – February 24, 2025

In the months leading up to February 24, 2022, the day Vladimir Putin launched a full-scale invasion of Ukraine, Joe Biden warned that such an action would trigger “the most severe sanctions that have ever been imposed”—a threat that many European leaders echoed.

To Daleep Singh, the White House’s top international economic adviser at the time, Biden’s threat could mean only one thing: freezing Russia’s central-bank reserves. The Central Bank of Russia held more than $630 billion in assets, making it the largest sanctions target in modern history. If any entity was too big to sanction, this was it. Maintaining the bank’s teeming coffers was Putin’s attempt to “sanctions-proof” his economy, ensuring that Russia could prop up the ruble and pay for imports even under financial attack. Yet about half of the bank’s reserves were in dollars, euros, and pounds, which in practice left them vulnerable to Western sanctions. At the stroke of a pen, U.S. and European leaders could order their banks to block the accounts of Russia’s central bank, rendering much of Putin’s cash pile inaccessible.

“Big nations don’t bluff”: This mantra, which Biden was fond of reciting, rang in Singh’s ears the day after Putin invaded Ukraine. Sanctions on the Central Bank of Russia, Singh believed, would put Biden’s credo into action. The option was so extreme that it had never received thorough vetting on either side of the Atlantic. Treasury Secretary Janet Yellen was concerned that freezing the central-bank reserves would push other countries away from using the dollar as their go-to reserve currency. The dollar’s global dominance allows America to absorb economic shocks, borrow cheaply, and run large deficits. Yellen was uncomfortable risking these privileges for the sake of punishing Putin.

But in Europe, a momentous political shift was under way, with street protests against the Russian invasion drawing out hundreds of thousands of people. Singh’s European counterparts assured him that if the White House was ready to sanction Russia’s central bank, their governments would follow. Yellen was hard to convince until a phone call from Italian Prime Minister Mario Draghi, her old colleague from his tenure as head of the European Central Bank, persuaded her to relent. Within hours, the United States was on board.

Just two days after the invasion began, the members of the G7 issued a statement committing to target Russia’s central bank. “You heard about Fortress Russia—the war chest of $630 billion of foreign reserves,” Singh told reporters in a background briefing. “This will show that Russia’s supposed sanctions-proofing of its economy is a myth.”

Three years on, the sanctions against Russia’s central bank stand as both a triumph and a warning. In narrow terms, they worked exactly as Singh hoped: They caught Putin off guard and deprived him of his deepest pool of hard currency. The frozen reserves, valued at nearly $300 billion, have also helped underwrite tens of billions in Western aid to Ukraine. As Donald Trump embarks on his much-anticipated peace negotiations, they will provide important leverage—Putin will be desperate to recover them, while Ukrainian President Volodymyr Zelensky will press to redirect them toward his country’s reconstruction.

[Read: The sanctions against Russia are starting to work]

But the sanctions failed in one crucial way. The fact that Moscow was blindsided by them suggests it grossly underestimated the severity of the penalties it would face. Although the U.S. and its allies had developed an extensive menu of possible sanctions before the invasion, they never reached consensus on how far they were willing to go. They left Putin to divine the meaning of “the most severe sanctions that have ever been imposed,” and Putin—as he so often did—read Western ambiguity as weakness.

If Biden and other world leaders had committed ahead of time to the actions they would eventually take, they might have had a much better chance of staving off Putin’s invasion. Deterrence can’t work if your adversary underestimates your ability or willingness to act. Putin never saw the sanctions coming—and that was precisely the problem.

“The acme of skill,” Sun Tzu wrote in The Art of War, is not “to win one hundred victories in one hundred battles,” but “to subdue the enemy without fighting.” Economic warfare has always offered nations a way to advance their interests without resorting to violence.

For most of history, imposing serious economic pressure required the deployment of military forces: ships blockading ports, armies laying siege to cities. As recently as the 1990s, the United Nations embargo on Iraq relied on warships patrolling the Persian Gulf. But over the past two decades, America has pioneered a more potent and nimble style of economic warfare. In a world where finance and supply chains are deeply globalized, Washington learned to leverage economic chokepoints—such as the U.S. dollar and advanced semiconductor technology—against rivals. Now, by merely signing documents in the Oval Office, the president can impose economic penalties far more severe than the blockades and embargoes of old.

This new age of economic warfare began innocuously enough: with Stuart Levey, a little-known lawyer who led a brand-new division of the Treasury Department from 2004 to 2011, trying to prove President George W. Bush wrong. Iran’s nuclear program was racing forward in the mid-2000s, and Bush lamented that America had “sanctioned ourselves out of influence” with the country. The only options, seemingly, were to go to war or let Iran join the ranks of nuclear-armed states. Levey set out to show there was another way.

In the years that followed, Levey and his colleagues overhauled U.S. sanctions policy. They drew on their legal expertise and their understanding of the financial sector’s risk calculus to conscript multinational banks into a campaign to isolate Iran from the world economy. Prodded by Congress, they tested the limits of their new economic weapons—they even found a way to freeze more than $100 billion of Iran’s oil money in overseas escrow accounts. Over time, this economic pressure helped spur political change in Iran and opened a path to the 2015 nuclear deal. The United States had managed to put Iran’s nuclear aspirations on hold—as Barack Obama boasted, “without firing a shot.”

The Iran deal had its critics, but one thing was beyond dispute—sanctions worked. In fact, the deal’s toughest opponents argued that America had traded them away too soon: The pressure was working so well that if the U.S. had just kept it up, the Iranian regime might have permanently relinquished its entire nuclear program or, better yet, collapsed. But a key reason the sanctions were so successful—winning grudging acceptance even from the likes of China, India, and Russia—was that Obama expressly deemed them a means to an end. They were intended to pressure Iran to concede to nuclear constraints and then be lifted. This is just how things played out.

As the Iran deal was being negotiated, Putin shocked the world by sending “little green men” into Crimea and swiftly annexing the territory. Determined to punish Russia for this flagrant imperial land grab, but unwilling to risk war with a fellow nuclear power, U.S. officials again reached into their economic arsenal. Russia was a trickier target than Iran: It was much bigger and more integral to the world economy. European countries depended on Russian oil and gas. If sanctions wreaked too much havoc on Russia, the fallout would quickly reach Europe and then the United States. As a result, the Obama administration stitched together a sanctions coalition with the European Union and the rest of the G7. This alliance imposed sanctions that, surgical though they were, quickly sent Russia’s economy spiraling. The collapse of world oil prices in the second half of 2014 supercharged their impact, and by early the following year, Putin was eager for a truce.

Up until that point, the United States had used its economic arsenal wisely. But then it made a costly error. The unexpected severity of Russia’s economic crisis frightened European leaders, who feared it would spill over into their own countries. Instead of insisting that the West press its advantage, Obama endorsed a European-brokered cease-fire to freeze the Ukraine conflict and refrained from ratcheting up pressure—even after Russia violated the cease-fire and interfered in the 2016 U.S. presidential election. Putin drew a lesson from this experience: Western leaders lacked the stomach to sustain real economic pressure on Russia—and even if they proved him wrong, he could just wait them out.

[Watch: ‘War and cheese’]

That assumption held up when Trump came to power. Far from strengthening sanctions on Russia, he allowed them to atrophy. Meanwhile, he ripped up the Iran deal and tried to bludgeon Tehran with “maximum pressure” sanctions, leading Iran to restart its nuclear program. Trump’s policies on Russia and Iran gravely undermined the strategic value of American sanctions. Putin had done little to concede to U.S. demands, yet he was rewarded with a reprieve. Iran, by contrast, had complied with a deal to dismantle core parts of its nuclear program—only for the U.S. to reimpose penalties two years later. World leaders drew another troubling lesson: Even if they did exactly what Washington asked of them, they might still face the brunt of America’s economic arsenal.

U.S. sanctions policy grew more arbitrary under Trump. With the exception of Russia, he was as sanctions-happy a president as America has ever had. He levied so many sanctions—against Iran, Venezuela, China—that countries all over the world took steps to shield themselves. The Russian central bank traded most of its dollars for euros and gold. China sought new ways to promote its own currency internationally, releasing a digital version of the renminbi and creating a homegrown financial-messaging-and-settlement platform.

U.S. officials often initiate sanctions campaigns in the heat of a crisis and scramble to react to unfolding events. The latest iteration of American economic warfare, following Russia’s 2022 invasion of Ukraine, has been different: U.S. officials knew months ahead of time that Russia was gearing up to invade. They had the opportunity to use sanctions to deter Russian aggression rather than punish it after the fact. But following years of deploying economic weapons in an erratic and incoherent manner, the opportunity went to waste.

After the central-bank freeze that followed Russia’s invasion of Ukraine, subsequent sanctions were a disappointment. If Moscow didn’t foresee the one big sanction that might have deterred the invasion, it certainly did foresee the smaller ones that were coming—and had plenty of time and resources to prepare.

[Read: What makes Russia’s economy so sanctions-resistant?]

In December 2022, months after the move against the central bank, the United States and its allies made their first serious attempt to target the lifeblood of Russia’s economy: oil sales. Under the new regulations, known as the “price cap,” U.S. and European firms could no longer ship, insure, or finance cargoes of Russian oil sold for any price above $60 a barrel.

The price cap was not as extreme as the central-bank freeze, but it packed a punch. A typical barrel of Russian oil was shipped aboard a European tanker whose insurance was British and whose cargo was paid for in U.S. dollars. The West had a near-monopoly on maritime insurance, in particular: Its insurers covered more than 95 percent of all oil cargoes. Now Western governments were exploiting this dominance to stem the flow of petrodollars to the Kremlin.

But as with the central-bank sanctions, America and its allies were too worried about economic blowback to act decisively. They took nearly 10 months after the start of the invasion to impose the price cap. As a result, Russia raked in a whopping $220 billion from oil exports in 2022, contributing to the highest single-year energy revenues the Kremlin has ever collected. Perversely, this was almost as much hard currency as the West had frozen when it sanctioned Russia’s central bank. To make matters worse, the West also built loopholes into the policy to avoid even the slightest possibility that it could cause an oil-supply crunch and exacerbate inflation. Russia took full advantage, amassing a “shadow fleet” of secondhand oil tankers and designing state-backed insurance schemes—and the impact of the price cap eroded. Today, with Trump back in the White House, the prospects of strengthening the policy look slim.

The United States uses sanctions a lot, and yet it has hardly perfected the art of economic warfare. Compared with the way the Pentagon prepares for conventional war—including recruiting and training professional troops, devising plans, and rehearsing them repeatedly—the U.S. agencies responsible for economic war are still playing in the minor leagues, using ad hoc processes and a rudimentary policy apparatus.

Sanctions are like antibiotics: They work well when used correctly but cause a host of problems when used excessively or inappropriately. For some purposes, they’re simply the wrong tool; sanctions didn’t change the regimes in Iran or Venezuela, despite the best efforts of the last Trump administration, nor could they be expected to.

In other cases, sanctions have the potential to work, but only if they’re administered in strong enough doses over a long enough period to avoid resistance. This is the problem the United States has faced in confronting Russia: Washington and its allies ratcheted up sanctions incrementally, giving Russia time to adapt and build resistance along the way. As a result, Biden failed to deliver a knockout blow to Russia’s economy—and Putin, yet again, seems confident he can get a reprieve, no matter what he does in Ukraine.

This article has been adapted from Edward Fishman’s new book, Chokepoints: American Power in the Age of Economic Warfare.

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