Thank you, Mr. Chairman.
Thank you to the committee for inviting me again to address the subject of sanctions.
I think what is so important to recognize now in the year 2023, when we are assessing the effect of the western collective sanctions, is how different the environment is today compared to the last round when we applied sanctions, or, I should say, in the last generation when we applied sanctions. That was during the Cold War, when we, the collective west, applied sanctions against countries like South Africa.
The reason we could successfully apply sanctions during the Cold War was that we, the collective west, were such a powerful economic force. That, of course, shifted with the end of the Cold War. The end of the Cold War delivered an incredible increase in globalized business.
That matters so much, because today when we apply sanctions, either as a deterrent or as a punishment, countries that aren't willing to toe the line with us, that don't support our use of sanctions, that are indifferent or that simply want to take advantage of another country's predicament because it is under sanctions are in a position to undermine our sanctions. I think that is the biggest challenge we face in administering our sanctions. Yes, we can do so, and we can be very meticulous in designing the sanctions, but there are always countries waiting around the corner to expand their trading relations—I'm talking about economic sanctions—with a country that is under sanctions.
That's what we are seeing, to such a large extent, happening with Russia. We are primarily seeing China increasingly expand its trading relations with Russia. However, it's not just China. India is doing the same. Other countries are doing the same. That, of course, has the effect that our sanctions are not as powerful as they would be if applied against a background of no other business activity with a sanctioned country.
That doesn't mean we shouldn't sanction countries, but we should bear in mind that the effectiveness of what we can do through economic sanctions is not what it was during the Cold War. It's not that we are not going to return to the sort of economic power we had during the Cold War any time in the near future. This is something we have to bear in mind with all sanctions we apply against Russia or any other misbehaving country today and in the near future.
Another thing to bear in mind is why we apply sanctions. Do we apply them as a deterrent or do we apply them as punishment? Of course, in the case that you're discussing in the committee—i.e. Russia—the west has been applying sanctions both as a deterrent and as a punishment.
Before the invasion of Ukraine, we applied sanctions against Russia to warn it against invading Ukraine. If it invaded Ukraine, our message was that there would be much stronger sanctions, and that's what we did. We imposed stronger sanctions, and it is phenomenal that the western alliance has stuck together in imposing those stronger sanctions.
The second main thing I'd like the committee to bear in mind is that sanctions are such an obvious instrument of deterrence and punishment that the leaders of a misbehaving country factor this punishment into their cost-benefit analyses when they consider whether to pursue the action that we, the west, are trying to deter. Russia and the Russian leadership had very clearly factored the risk of substantial devastating western sanctions into their cost-benefit analysis before invading Ukraine and decided they'd do it anyway. That is one of the really big challenges of sanctions. They are such a useful tool that they are still extremely predictable, and that makes them less powerful as a deterrent.
In connection with that, a really important thing to bear in mind is that the leaders of a country that has been put under sanctions—or that is about to be put under sanctions—may not care whether their country suffers as a result. I have found over the years that selfishness prevails everywhere. Leaders of countries will think first of themselves and second of their country. If we, the west, threaten to impose economic sanctions against Russia as a whole, it may not faze Vladimir Putin that much. It may not faze the leader of another country against which we threaten sanctions because they themselves don't suffer too much or they're willing to pay the price.