Unless they want to start a new world war, Western countries don’t have many ways to oppose Russia’s invasion of Ukraine. Economic sanctions remain the weapon of choice, even if their effectiveness is always difficult to assess.
Posted at 5:00 a.m.
The rain of sanctions that fell on Russia will certainly have a negative impact on the country’s economy. But unlike missiles, whose strike force is immediate, economic weapons take time to produce their effect.
Elsewhere, as in Iran, Cuba or Afghanistan since the return to power of the Taliban, we have seen that the effect of the application of economic sanctions could be relatively rapid.
The case of Russia is special. The Russian economy is a funny animal. The country is the third oil power in the world, behind the United States and Saudi Arabia. It is rich in resources of all kinds, including those most coveted by modern economies, such as aluminum, nickel or titanium. But it remains an emerging country in many respects.
China, which has started further afield, now overtakes Russia in terms of gross domestic product per capita and its middle class has made a strong entry into the consumer society. The Russian population, meanwhile, is treading water.
Russian wealth mainly benefits the regime and a small circle of friends and allies, and the population benefits little. In a sense, Russia today is not that different from what it was in the days of Tsar Nicholas II.
This extremely wealthy caste tends to invest its money abroad to shelter itself from a possible change of mood of the political leaders. We can understand them. The millennial history of Russia is full of cases of disgraced strongmen of the regime who lost everything, including their lives.
It is not for nothing that international sanctions against Russia target individuals and their bank accounts abroad. Vladimir Putin’s regime needs the support of these oligarchs who, if deprived of the power to profit from their billions, could turn against him. The Russian president himself is targeted by the freezing of his assets abroad.
nuclear weapon
In addition to imposing targeted sanctions against individuals and companies linked to Putin’s regime, the Western world has the ability to cut all financial ties with Russia by denying it access to Swift, the interbank network through which all international transactions. That’s what happened this weekend.
Swift, an acronym for Society for Worldwide Interbank Financial Telecommunication, is a Belgium-based secure network that serves 11,600 financial organizations in 200 countries. It was created in 1973 to facilitate trade and is now considered an essential service.
Cutting off the Russians’ access to Swift has been compared to using nuclear weapons against them. It needed a majority vote of the member countries to use it and several hesitated, before resigning themselves. It is easy for Canada to be in favor of banning Russia from the network. But the consequences can be dramatic for countries that depend on Russian gas, such as Germany.
The Russians nevertheless had time to prepare for it, the threat not being new. The country is said to have set up its own international financial network which, although it is less extensive, can count on the participation of China.
Since 2014 and the first international sanctions that followed the annexation of Crimea, the Russian central bank has accumulated reserves estimated at 631 billion US dollars and reduced its dependence on the international financial system, in particular by reducing the share of US dollars in its foreign exchange reserves, reported the New York Times last week. The United States, Canada, France, Italy, Germany and the United Kingdom, however, agreed over the weekend to ban transactions by the Russian central bank.
Some have predicted a spectacular collapse of the Russian economy as of Monday morning, due to these new sanctions. We will have to see for how long the Russian regime can do without the international financial system. His allies the oligarchs, on the other hand, could be less patient. “No more shopping in Milan, parties in Saint-Tropez and diamonds in Antwerp,” taunted European Union Foreign Affairs Commissioner Josep Borrell on Twitter in a message that was later deleted.
It will be necessary to see if the sanctions directed at the friends of the regime and its boss will do more harm than the embargoes and the other types of sanctions, but in any case, it will take time to measure their effect. Economic weapons are slower to act. The Russians have time to invade Ukraine and settle there.