Economic sanctions against Russia are not the failure that they may seem, but neither do they seem to achieve the desired result.
The economic and financial sanctions imposed on Russia after its invasion of Ukraine were to “crushed its economy” and “reduce the ruble to a state of ruin”, said the American president, Joe Biden, at the start of the crisis. However, four months after the start of their application, the value of the ruble has more than regained all the lost ground, the Russians seem to be going about their business as if nothing had happened, and their country continues to sell abroad for US$1 billion worth of oil and gas. And Russian troops continue to ravage Ukraine.
We felt the G7 countries were a bit short of ideas last week during their annual meeting at Schloss Elmau in southern Germany. Forced to admit not only that their economic sanctions did not force Vladimir Putin to cease his aggression against his neighbour, but also that the crisis contributed to soaring energy prices, inflating the export revenues of Russia while worsening the inflation problem in their own countries, they said they are considering a new way to reduce this source of revenue which accounts for almost half of the Russian government’s revenue.
It would not be a question of preventing Russia from selling its production abroad, because, even if it were possible, it would only contribute to reducing the supply of oil and therefore to increasing world prices. No, we would rather seek to use the overwhelming dominance of Europe and the United Kingdom in the maritime insurance industry to agree to offer compulsory cover only to ships carrying Russian oil sold below a ceiling price well below world prices. It is a “very ambitious” plan, acknowledged the host of the meeting, the German Chancellor, Olaf Scholz. “It will take a lot of work to get things into place. »
Beware of appearances
All these acrobatics illustrate how difficult it is, in a globalized economy, to strike a country in a way that is both effective and that does not inflict too much collateral damage on others, particularly the most vulnerable, observes Nicholas Mulder, professor of history at Cornell University, in the most recent edition of Finance and Development. The largest since the 1930s, the economic sanctions against Russia are proving particularly complicated given its size, its integration into the global economy and its importance in key sectors such as energy and food.
One of the main challenges of such an economic war is to manage to present a sufficiently united front and to maintain it for long enough, recalls the expert. However, of the 38 countries which impose sanctions against Russia, there are missing important players such as China and India which, while the others are making efforts in particular to turn away from Russian oil, take the opportunity to buy it from their place at a discount of US$35 per barrel.
By far the largest economy to still claim to be Russia’s friend, China appears to be the most important flaw in the international system deployed against Vladimir Putin. Don’t just listen to what China says, watch what it does, wrote Martin Chorzempa, a researcher at the Peterson Institute for International Economics in Washington, last week. While the countries that have said they want to economically isolate Russia have reduced their exports of consumer goods, machinery, technology and services there by 60% compared to the same period last year, the reduction has also been 40 % for others, including China. The shortfall amounts to 90% for microprocessors.
This is due, explains the expert, to the fact that no one wants to expose themselves to possible retaliatory measures from Western countries, but also to the fact that half of Chinese exports to Russia come, in fact, from established foreign multinationals. in China.
In reality, the economic and financial sanctions imposed on Russia have a “cumulative effect” and, as its stocks run out, will increasingly “strangle” the Russian economy. In the opinion of its Ministry of the Economy, its gross domestic product (GDP) should thus contract by 12.4% this year, which would be worse than the terrible Russian financial crisis of the end of the 1990s (- 10%). As for the astonishing resilience of the rouble, it is due to monetary measures and controls on the circulation of capital which are not sustainable in the long term, estimated last week the American Secretary of State, Antony Blinken, in the New York Times.
Politics before economics
Will this be enough to stop the Russian war machine or to convince Vladimir Putin that the economic price to pay has become too high? Apparently not. The Russian president and those around him “have long shown that they are not interested in the economic growth of their country”, said in the same article the president of the Center for European Policy Analysis in Washington, Alina Polyakova. .
The effectiveness of economic sanctions is mainly a matter of political factors, recently explained Gerard DiPippo, researcher at the Center for Strategic and International Studies, another research center based in Washington. History has shown that authoritarian regimes are insensitive to this kind of pressure, particularly in times of war.
Conversely, Western countries that have rallied behind Ukraine’s cause will struggle to maintain a united front if the conflict drags on, he fears. Especially if it forces them to take actions that would push world oil and food prices even higher and make the inflation problem worse for them. Their national and international goals are currently colliding, he says, and domestic priorities may end up prevailing.