Would Sanctions Against Russia Even Work?

Tensions remain escalated on the Russia-Ukraine border. On Sunday, Crimean voters will be asked whether they want to join Russia.

Meanwhile, western leaders are considering policy actions like sanctions against Russia if the country ends up annexing Crimea post-referendum.

"We are cautious about the effectiveness of sanctions on Russia," say Morgan Stanley's Russia economics and strategy team. "Russia is a large country, with extensive resources, accounting in 2012 for 2.8% of global GDP, 4.7% of international merchandise trade and 13% of internationally traded oil. Typically, sanctions have been applied against much smaller countries, such as Iran, Iraq, Libya and North Korea, with significantly fewer resources."

The analysts point to Russia's diversified trade partners. From Morgan Stanley:

"Russian trade and investment are spread across multiple jurisdictions, which points to a lack of dependence on any one country. Moreover, commodities - for which it is generally easy to find an alternative buyer - dominate exports: energy exports alone account for 66% of the total. Moreover, most Russian investment abroad ($406bn USD, end 2012) and foreign investment in Russia ($496bn USD, end 2012) is structured through offshore financial centers, which may make imposition of sanctions more challenging, although we suspect that most of the assets owned by Russian foreign investors, and most of the ultimate beneficiaries of foreign investment in Russia, are in OECD countries."

That being said, sanctions won't be ineffective.

"We see two main reasons [why sanctions might have some impact]," they add. "First, Russian economic performance has weakened in recent years, with growth slowing from 4.3% in 2011 to 1.3% in 2013, and is set to weaken further in 2014, partly as a result of the higher rates and higher risk premia driven by the security crisis. Against this background, the authorities will want to minimize any negative impact on the economy. Second, measures targeted at influential Russians, such as visa bans and asset freezes, may be effective in increasing pressure on the authorities for a negotiated settlement."

Economists seem to agree that Russia has done itself more harm than good with its aggression in the region. The ruble and stock market have been tumbling and GDP forecasts have been slashed.