STATESIDE: The effect of the West’s sanctions on Russia


HERE’S a bet that you’re thinking a lot less this morning about the war in Ukraine than you were just a couple of weeks ago. It’s become kind of old news. That’s kind of amazing, considering that this is the first major land war in Europe in most all of our lifetimes – since 1945. You may well be thinking about skyrocketing gas prices at the pump, food prices that seem to increase every time you visit the supermarket. You may be aware of a general sense of unease in the world, with stock markets on roller coaster rides up and down and dark talk of a coming recession. Or worse.

You may blame part or all of the above on the Ukraine war. But chances are, unless there is some new horrific brutality by the Russian army or some lurid, dramatic revelation such as the Ukrainian report this week that there had been a recent assassination attempt against Russian president Vladimir Putin, you’re not paying as much attention to the grisly details of this gruesome war. There hasn’t been a military breakthrough since the Russians concluded that their plan to blitz through to Kyiv wasn’t working and redeployed to eastern Ukraine.


RUSSIAN President Vladimir Putin chairs a meeting of the State Council in the Kremlin in Moscow, Russia, Wednesday. (Sergei Guneyev, Sputnik, Kremlin Pool Photo via AP)

Still, from a military perspective, the long-term Russian goal is clear enough and it wouldn’t be a high percentage play to bet against their success. Eastern Ukraine, roughly around the Don River basin, is not clearly Ukrainian in many places. The residents identify as Russian, and this is the area that Russia has occupied for eight years, along with Crimea – which isn’t incontrovertibly Ukrainian either. So Russian activity in this area of eastern Ukraine is bound to succeed to some degree, and even to generate some local support.

But that’s not where the Russian vision ends. From the evidence of their dogged assault on Mariupol, the Russian army clearly intends to extend its control along the entire western shore of the Sea of Azov so Russia can achieve a “land bridge” between its southeastern provinces and occupied Crimea. Then, judging by the actions of the Russian navy and marines, the plan is to extend Russian control all along Ukraine’s southern coast, to include the critical Black Sea port city of Odessa, and onward to the Dniester River in the west. There, a Russian-speaking relic of Soviet rule called Transdniestria effectively divides Ukraine from Moldova. Russian troops have garrisoned in Transdniestria for years.

This would effectively make Ukraine a landlocked nation, surrounded by Russian occupied or controlled territory, cut off from the seaports through which its massive grain exports are shipped and subject to even tougher blackmail from Moscow over the fees it now earns through energy transshipments from Russia and the east across Ukrainian territory to Western Europe. Its autonomy and indeed its practical independence would be gone. Ukraine would become as much a de facto part of the new Russian empire as much as Belarus is already becoming. Its sovereignty would be an illusion.

But we’re getting ahead of ourselves. While the Russians appear to have blown key regional centre Mariupol back to, and perhaps beyond, the stone age, their forces are generally stalled along a lengthy front west of the Don valley. And since the ignominious sinking of the “Moskva,” there hasn’t been too much in the news about Russian naval achievements. There have even been sporadic reports that the Ukrainians have pushed their foes back to pre-February 24 lines. It certainly seems that attrition and continued civilian suffering lie ahead militarily.

While the US and the West have been rushing key artillery and other weapons and plenty of ammunition to the Ukrainian army, the Americans have continued to resist establishment of a “no-fly zone” in the airspace above Ukraine that the US would certainly end up enforcing. US president Biden continues to hew to the line that America will not be drawn into a shooting war with a Russian military that possesses such an awesome nuclear arsenal. The real western hopes in deterring Putin lie elsewhere.

Their hopes lie in the onerous and wide-ranging sanctions regime that the West has imposed on Russia. These economic sanctions were widely discussed by Biden and other western leaders well before Putin moved into Ukraine in February, in the hope that detailing their effects would deter him. Obviously, it didn’t have that effect. Complicating matters has been the refusal of many international world producers of oil and natural gas to ramp up their output, which would of course ease the sting of boycotting Russian energy exports for Western Europe.

In fact, there are many reports that Putin and Company have been raking in the dollars and Euros as the price and value of their oil and gas exports has risen significantly. It’s not a big step to the conclusion that the sanctions have not worked as well as their western authors hoped and claimed that they would.

But there is a growing school of thought that argues exactly to the contrary. One of its most well-known proponents is Paul Krugman. This winner of the 2008 Nobel Prize for economics has a Yale and MIT education and distinguished professorial service at Princeton and the London School of Economics, where he holds the title of Centennial Professor. Krugman has also been one of the most respected columnists at the New York Times for many years. His views are worth paying attention to, and he argues that Putin is actually losing the sanctions struggle – and badly.

“Russia’s surging balance of payments surplus is actually a sign of weakness, not strength — it largely reflects a plunge in Russia’s imports, which even state-backed analysts say is crippling its economy. Russia is, in effect, making a lot of money selling oil and gas, but finding it hard to use that money to buy the things it needs, reportedly including crucial components used in the production of tanks and other military equipment.

“Why is Russia apparently having so much trouble buying essential goods? Part of the answer is that many of the world’s democracies have banned sales to Russia of a variety of goods — weapons, of course, but also industrial components that can, directly or indirectly, be used to produce weapons.”

Krugman and others see the most damaging effects of the western-led sanctions in the areas generally reserved for government procurement, not in the headline-grabbing effects of compelling one Russian oligarch to sell his beloved Chelsea soccer team or several others to suffer the humiliation of impoundment of their mansions and yachts.

But the theory goes further. Krugman writes that “Russia seems to have lost access to imports even from countries that aren’t imposing sanctions. There are reliable estimates that this Spring, exports from allied democracies to Russia were down 53 percent from normal levels (and early indications are that they fell further in April). But exports from neutral or pro-Russian countries, including China, were down almost as much — 45 percent.”

This response from the non-aligned arises not so much from an allegiance to the ideals of the US or the West.

Rather, the economist argues, the concern is “being on the wrong side of sanctions. If you make sales to Russia that might be seen as helping Putin’s war effort, wouldn’t you worry about facing sanctions yourself?”

Krugman concludes that “Russia’s trade surplus is a sign of weakness, not strength; its exports are sadly holding up well despite its pariah status, but its economy is being crippled by a cutoff of imports. And this in turn means that Putin is losing the economic as well as the military war.”

Lurking behind the worldwide effects of the western sanctions against Putin and the Russian economy is a potentially significant subtext.

The US in particular is able to exert the economic power it wields in such circumstances because the world’s trade is largely conducted in dollars. When the US wishes to punish nations for their transgressions, it has an array of tools at its disposal, because of the universality and primacy of the dollar. Russia is experiencing this now.

What if the American willingness to leverage its financial clout – the World Bank and the International Monetary Fund are housed only three blocks from the White House, after all – led other nations to rethink the predominance of the dollar? A rogue thought now, but it’s gaining currency.


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