Tonight, the UK

is seizing a nearly $50 million super yacht owned by a Russian businessman tied to Putin. But while

the West has been united in its condemnation of Russia, its new sanctions regime has not been bulletproof. And that's because much of the world refuses to enforce Western sanctions. Armenia, Kazakhstan, and Kyrgyzstan, for example, have all been importing more from Europe and have mysteriously since become major suppliers of critical goods for Russia. Countries across Asia, not bound by the sanctions, remain a lifeline for Russia to sell oil and receive critical imports and financial services. But that hasn't stopped fresh sanctions from coming.

President Biden warned today that Russia is about to pay the price in the form of major sanctions for the death of Russian opposition leader Alexei Navalny. Far from

being obliterated by the Western economic arsenal, Russia's economy has proved shockingly resilient. In fact, output appears to have grown slightly between 2021 and 2023. So does financial warfare work? You're listening to money talks from the economists, our weekly podcast on the markets, the economy, and the world of business. In Singapore, I'm Mike Bird.

In Washington, D.C., I'm Alice Fullwood.

In London, I'm Tom Lee Devlin.

And in today's show,

have sanctions lost their bite? First,

we hear how the world is a wash per sanctions to an unprecedented scale. They really

started picking up after 9-11, 20 years ago. But since Ukraine, they've gone into overdrive.

Then, we speak to one of the early architects of the current U.S. sanctions regime.

They're painful in the short and long term, but they may not be effective enough to change the strategic behavior that everyone so desperately wants to affect. Finally, to become more

effective, how will financial warfare have to evolve?

There's been a big push by the U.S. to make arguments with the confiscation of frozen Russian reserves. It's a serious amount of money. Hello, I'm Mike.

Hi, Mike.

Alice, you are under a blanket. You look like you're lacking. Everything accepts a hospital bed and oxygen mask. What is going on?

I think we've been struck down by some strange virus. It might be COVID, some sort of later iteration, or it might be something else. But I've felt better and more cheerful to be joining you both in the studio. But I'm still happy to be here.

Said we're such conviction.

Yes, still. My general misery obviously pales in comparison to the very somber stuff that we are going to be discussing today. I understand you are about to remind us that it's been two years since the start of the war in Ukraine, Mike.

Yes, if you weren't aware of all that from the news coverage this week, and with two years having passed since the Russian invasion of Ukraine, that also means that it's been around two years since the U.S. and a lot of European countries assembled this financial warfare in response to a boots-on-the-ground war in Ukraine.

Right. Because of things like Dollar hegemony and the Coruscans banking system, the U.S. has by far the most power to meet out these kinds of sanctions on people who are doing things it does not like. But even with all of that power, there are a lot of reasons why you should be skeptical about how effective sanctions really are.

Yeah, and to that point actually, things cranked up another notch last week in response to the killing of Alexei Navalny. The U.S. sat on a further 500 new restrictions on Russian firms and officials. It's also going to place export restrictions on about 100 new entities that provide support to Russia. But I can't help but suspect this escalation of sanctions is somewhat subject to the law of diminishing returns.

Yes, and after two years of the West trying to lock Russia out of a lot of the fruits of the global economy, we can now see a number of the ways in which Russia is coping with or adapting to its new economic reality. What structures it has to get in place to circumvent those sanctions. What's becoming clear is that it's getting by with a little help from its friends. Or if not friends, then help from these sort of ambivalent neutral middle countries who have something to gain from keeping their own economic and financial channels with Russia open.

Ambivalent neutral middle countries would be a great name for our band.

Ambivalent neutral milk hotel. That would be a terrible tribute.

Well, I play the guitar, so any musical talents from the tour of year?

I have been known to sing in my life.

I think if I sang an episode, the living would envy the dead. But getting back on track slightly. To help us understand the sprawling world of sanctions, I wanted to speak with Kerry and Richmond Jones. She's the economist's international economics correspondent and she's been covering the story for us. Kerry and welcome to Money Talks. Thanks for having me. Could you get us up to speed on what's the latest state of affairs when it comes to the West's economic sanctions? Because obviously in the last few years, especially in relation to Russia and the invasion of Ukraine, there's been a massive expansion in the use of these tools.

Yeah, absolutely. The US is the dominant sanctions power. It presides over the global trade system. It presides over the global financial system through the dollar. So theoretically, that gives its economic warfare this deadly punch that no other countries has. And that's enabled it to impose a barrage of restrictions. And they really started picking up after 9-11, 20 years ago. But since Ukraine, they've gone into overdrive. So American firms can't sell anything that the Russian army could repurpose. And that ranges right from drones, but also all the way through to ball bearings. There are import restrictions on commodities, such as the $60 barrel oil price cap imposed on Russian oil by Europe and America. That's meant to weaken hostile powers by reducing the revenue that their governments get. There are bans on doing business with Iranian and Russian governments, but it's not just isolated to Russia and Iran. So in the Middle East, everyone from the Israeli settlers in the West Bank are into sanctions all the way to the Houthi rebels in the Red Sea. We're seeing an increase in sanctions on Chinese military firms. Even South American drug cartels are under more sanctions now than they were two years ago. America's first port of call for dealing with all of them is sanctions. The consequences of breaching these sanctions for firms all around the world can be really severe. They range from fines to jail time if you're in the

US. So the world isn't just made up of countries implementing sanctions and the countries targeted. You've been looking at these middle power countries with growing influence around the world that are neither implementing nor subject to the sanctions. Can you explain which countries these are and what role they're playing, why they're important here?

Third countries are the countries that impose neither American nor European sanctions, and they're also not in the sanctions themselves. Some people also call them neutral countries, non-aligned countries, which refers to a movement that 120 of them are members of. That includes Brazil, India. And it's a growing problem because in 1990, they produced 15% of GDP. Now in 2022, they produced 38% of global GDP. These countries tend to decline to participate in the West's economic war. Brazil, India, and Mexico all bowed out soon after Russia invaded Ukraine. But the problem is that they're still keyed into the West's systems. All of their banks rely on dollar transaction systems, dollar clearinghouses. If you want to bank in dollars in India and transact dollars to maybe Indonesia, the chances are that it's going to touch an American bank at some point. And the problem is that America really struggles to reach these firms in the same way that it would discipline the firms on its shores. So countries that are not party to the West's price cap on oil are willing to pay more than $60 a barrel. Brazil, China, and India have all bought more stuff, not less since the war in Ukraine began. So that's really thwarting America's efforts to reduce Russia's government revenue. Many of the country's biggest customers, including the UAE and Turkey, import cheap fuels for domestic use at the same time as exporting their own more expensive non-embarcote oil. And in 2022, China, India, Singapore, Turkey, and the UAE all together imported $50 billion more oil from Russia than in 2021. Meanwhile, the value of the EU's oil imports from these countries increased by $20 billion. So it's very clear where that flow is going.