Russia Sanctions and the Global South: Let’s Talk National Interest

No conversation on sanctions against Russia in response to its illegal full-scale invasion of Ukraine is complete without reflecting on the circumvention role of third countries – those countries that have chosen not to follow the G7 and other allies of Ukraine in imposing sanctions. Despite the diplomatic efforts of London, Brussels and Washington, the Russian military continues to procure the ‘critical high priority’ items needed by its military, and to rake in the revenue required to support the continuation of its aggression via the sale of oil and gas. 

Diplomatic missions jet across the globe seeking to recruit non-aligned countries to support the sanctions objectives of Ukraine’s allies, and sanctions policymakers develop new tools (and threats) in an effort to encourage banks in third countries to cut ties with clients providing financing to companies trading with Russia’s military. The US has used the spectre of secondary sanctions as a powerful incentive to comply with its restrictive measures. The EU, traditionally opposing the concept of extraterritoriality, has in practice expanded the range of measures that can be applied to those outside the EU who are not subject to sanctions but do business with sanctioned individuals or companies. And the UK, more boldly but quietly, followed the US and has now explicitly incorporated the power to impose secondary sanctions in its sanctions regime. Yet despite all these efforts, the position of the Global South appears largely unmoved.

Diplomacy has been defined as ‘the art of letting someone have it your way’. So, what might this look like in the case of Russia sanctions diplomacy? Yes, Western diplomats can threaten secondary sanctions and offer inducements. Butso far, such actions have had little effect because - we would suggest -the approach from the West has not properly appreciated the notion of ‘national interest’. So, are there any arguments that might sway the ‘non-aligned’ community to reconsider and conclude that implementing sanctions on Russia is, after all, in their national interest? 

The Threat is Closer to Home

At the Centre for Finance and Security at RUSI, we’ve been immersed in this question for over two years. While the vice will never close entirely on the Russian economy, a recent trip to South Africa revealed a possible line of thought that might - perhaps - make a difference. In short, to coin a phrase: it’s economic security, stupid! 

While the notion of economic security has only gained currency in developed economies in recent years, the concept - if not the phrase - has been central to the survival of many developing economies for far longer. For these countries, the key to economic security is stability. 

The early months of Russia’s war in Ukraine revealed the fragility of these economies as they weathered food security and energy shocks, and faced gyrating global interest rates that directly impacted the cost of servicing sovereign foreign currency borrowing. Although the Russian war might be on another continent, the threat to economic stability felt much closer to home. 

And herein lies the opportunity.

After gaining independence, many countries of the Global South faced obstacles that curbed their ability to fully benefit from emerging globalisation. Today, in a rapidly shifting geopolitical landscape marked by the formation of new trade blocs and alliances, these countries increasingly seek to harness this momentum and actively pursue related economic opportunities, financial stability, and development that reflect their aspirations, anchored in their national interest and desire for strategic autonomy.

At the conceptual level, this affirms the right of these countries to be active participants in shaping trade relations. In practice, this may involve engaging with trade alliances such as BRICS, ASEAN and the Commonwealth of Independent States, as well as maintaining partnerships with the EU and the US. Through a pragmatic approach, these countries seek to advance their growth and prosperity independent of the geopolitical considerations of their trading partners; but equally vital to their success is stability in the global economy.

Given the centrality of this ambition to the national interest and economic security of Global South countries, the West should turn this ambition to its advantage. G7 countries remain the biggest trading partners for the Global South. Consequently, to ensure economic security, the latter cannot afford to forfeit the opportunity to trade with these developed economies by, for example, losing access to correspondent banking, a fear widely held (we discovered) by South African banks if they are found to be facilitating the circumvention of US sanctions against Russia. This is not an imagined risk. Indeed, the South African Reserve Bank, steward of national financial stability, has noted that ‘the potential implications [of secondary sanctions] for the South African economy are severe’. 

Contrasting Perspectives

The conversations we had with South African financial institutions signal they are keen to comply with G7 sanctions. They understand what is at stake for the South African economy if they lose international financial access, and view themselves as a key guardian of their country's reputation and relations with the West.

In contrast, the corporate sector often does not share the same perspective – or awareness – of economic security risks, favouring increased sales over caution. Corporates often enlists local legal experts, who take a narrower view of sanctions implementation, focusing primarily on domestic regulations, without taking into account the international considerations the banks make when assessing their compliance obligations. Historically, corporates have rarely been fined or sanctioned to the same degree as banks, so they do not appreciate the risks. This can lead to tensions with the financial sector, which finds itself placed on the frontline by policymakers in G7 capitals via their secondary sanctions threats. 

In an attempt to improve this situation - which is a challenge across many jurisdictions, including the EU - last month, for the first time, the G7 published joint guidance for industry on preventing the evasion of export controls and sanctions imposed on Russia. But changing practices in the corporate sector will be a long journey, and thus before we see the fruit of government efforts to make corporates develop a sorely lacking compliance culture, the sanctions coalition should seek more direct communication with financial institutions and the corporate sector in the Global South in its effort to reset anti-circumvention diplomacy, rather than just relying on the threat of secondary sanctions.

Sustaining Stability

So how should what we learnt in South Africa be applied to securing greater Global South support for the G7 sanctions mission against Russia?

The short answer is that G7 diplomats must understand and engage with the economic security concerns of these countries. A loss of economic stability is existential for most Global South governments, and thus national interest related to economic security will ultimately drive their decisions, regardless of their ideological position on sanctions.

It is important to promote a deeper understanding among the populations of Global South countries about the connection between the implementation of G7 sanctions and their economic stability. By raising awareness, we can encourage greater engagement from civil society, which in turn can help foster a more informed dialogue and scrutiny of policymakers' decisions.

Furthermore, diplomats should find channels via which to talk directly to Global South financial institutions. These financial institutions are often critical national trade and finance gatekeepers, something governments and the general public fail to appreciate when it comes to not only sustaining good economic relations with the G7, but also issues such as financial inclusion and other development goals that are hampered by sanctions and associated consequences. Finally, analysis must be granular, engaging with all stakeholders from both the public and private sectors, and respect the differences and diversity of Global South states.

It is perhaps politically understandable that Global South governments – for whatever contemporary or historical reasons – distance themselves from any urgings by G7 countries to enforce sanctions against Russia. Contradictions by Western countries inevitably weaken their arguments for supporting their sanctions on Russia. But for Global South countries, the risks posed to their economic security by losing access to international trade and finance should focus their minds. It is not about choosing to support Russia or the West, but about prioritising their own economic stability and national interest. That’s an argument Western diplomats should try. 

The views expressed in this Commentary are the authors’, and do not represent those of RUSI or any other institution.

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