17/02/2023

Sanctions on Moscow: A Bitter Success on the First Anniversary

On February 24 it will be one year since Putin's invasion of Ukraine. Thus far, the world still does not know how the war will end. The word "far" is meant literally, for the conflict has escalated further and further, both in terms of political intensity and the use of Western-supplied weapons, which are increasingly powerful and sophisticated, from yesterday's Javelin, Stinger, or HMARS, to today's Leopard I (obsolete) and II (cutting-edge), and perhaps tomorrow's fighter jets, when aerial combat will seriously get underway. 

However, the European military response falls short in the face of a full-blown commercial war of massive sanctions on Moscow. The largest and most powerful "sanctions coalition" in history (more than 50 economies) responded to the most brutal invasion ever in Europe since the Second World War with the strongest sanctions in modern history.

What minimally objective and sensible overall evaluation can be made now? The sanctions are obviously "successful" in that they are causing serious transitory and structural damage to the Russian economy: deficit, disruptions in the price of oil and gas, losses in various sectors, the exodus of foreign companies and investment, and technological damage. There is a great deal of literature on this matter from various European and North American organisations: official bodies, consultancy firms and think tanks. A (not insignificant) nuance is that analyses by specialised sources from East Asia or the Persian Gulf tend to be less strongly biased in this regard.

Obviously, it would be strange if the Russian economy had not been so badly affected. However, this sad first anniversary calls for the following war report on the sanctions:

1. The sanctions are not serving the purpose they were (supposedly) put in place for: to force the sanctioned regime (Moscow) to change its behaviour with regard to the war in Ukraine through international isolation and economic collapse. On the contrary, Moscow appears to be doubling down on its determination to continue the armed conflict.

2. The sanctions are not producing the almost immediate, devastating effect (the "massive European response") on the Russian economy expected after ten rounds of sanctions by the EU. So it seems from a number of economic indicators - growth, exports, fiscal policy, etc. - or from the way the Kremlin is using a plethora of financial tools to mitigate the pressure.

3. Notwithstanding the lack of clear information provided by the Russians, in the early 2023 there are signs that their economy is not only resilient but undergoing rapid restructuring, including a shift to a classic war economy and the effective leverage of their scientific-technical base. The other key dimension is external: the Kremlin's exploitation of its oil and gas customers —China and the Global South—, coupled with the implicit political support of many countries for what they see as an enlarged NATO coalition, just like in the recent past.

4. On this side, Europe. The impact on our major European economies, as well as the socio-economic "success" of the response so often vaunted by the media, is yet to materialise in the coming months for several reasons. One could say "It's not just the inflation, stupid", or at least the hyper-inflation predicted a few months ago (it was above 10%, and now at a little over 6%).

On a closer look, Europe itself is not without its problems. First, inflation is taking its toll on the middle and working classes, for example in France, the UK and Spain, despite the social cushion and European funds. There could also be gas and oil supply problems if the war persists. With Germany in technical recession this year, there is a re-industrialisation uncoordinated among the member states. Yet, it is the so-called European "strategic autonomy" that is bearing the brunt due to our increasing dependence on the US in defence (NATO, or the F-35) or energy (Liquefied Natural Gas at record prices).

And last but not least, the Commission's current energy policy, which entails greenwashing everything from coal to gas or nuclear energy, is shaped by our sanctions on Russian energy and the resulting global disruptions. Despite significant progress in coordination and green hydrogen projects, this policy jeopardises climate objectives to reduce greenhouse gases and our own energy transition. Such signals go in the opposite direction in the short and medium term (in the long term, as we know, we will all die in the end).

5. The European sanctions regime is at any rate resulting in negative externalities for the EU in a number of ways. First, in terms of its trade relations with countries in the global South. Second, in terms of migration from the south due to worsening food crises. And thirdly, in terms of global prestige and political alignment with many governments - democratic ones to be precise - in Latin America (Brazil), Africa (South Africa), or Asia (India).

Conclusion? On the issue of sanctions, rather than being sceptical, it would seem reasonable to adopt a cautious approach and a somewhat humbler attitude than is currently the case in Brussels. It would be wise, at the very least, not to state categorically that European sanctions are proving successful and that their objective is being achieved. Simply because it is not true: they are neither successful for the purpose pursued, nor for some of the interests of the European Union itself. On this occasion, practical experience supports the theory: sanctions on a Great Power (even a regional power) have never truly worked for their intended purpose. To say the least, this is a bitter success.

An implication of the above might be this: why not simultaneously try other paths to turn the tide of the war and end the conflict?

That is, of course, unless it is claimed that the true purpose of the sanctions has always been to annihilate the Russian economy and bring the Kremlin to its knees. We would then be talking about a different matter.

Vicente Palacio is Director of Foreign Policy at Fundación Alternativas.