Russia Sanctions

“Fog in Channel: continent isolated.” So ran an apocryphal 19th century headline in The Times, a joke on the ridiculous tendency of the British to assume that they are the centre of the world. But “Euro-American sanctions: Russia isolated” is no less ridiculous. Since the invasion of Ukraine, the number of states who have refused to join the ‘EUSA’ in ‘isolating’ Russia has grown ever longer: China, India, Saudi Arabia, the United Arab Emirates, South Korea and swathes of Africa. That is half the world’s population and maybe two-thirds of the surface of the planet.

In various ways, these different countries have defied the supposed lead given by Washington and Brussels. China, the world’s most populous country and its second largest economy, is not only supporting Russia politically and economically, but she is also arming her. India, the second most populous country in the world, is happy to buy the Russian oil which the EUSA says it will shun. South Korea, one of the most highly developed economies in the world, will continue to export high-tech goods. Israel remains steadfastly neutral in spite of Euro-American blandishments.

In the UN General Assembly, the following African countries were among those who abstained from condemning Russia: Algeria, Angola, Burundi, Central African Republic, Congo, Equatorial Guinea, Madagascar, Mozambique, Namibia, Senegal, South Africa, Sudan, Uganda, Tanzania and Zimbabwe.

To cap it all, Boris Johnson was roundly humiliated by the Saudi leader, Mohammed bin Salman, when the latter refused to increase oil production to keep world prices down. The sight of Boris Johnson returning empty-handed from Riyadh on 16 March - one of the least democratic states in the world which has just beheaded over 80 people and which continues to prosecute a bloody war in Yemen - demonstrates not only the West’s impotence but also its unbearable double-standards.

These examples of international dissidence are not the result of chance or of some anti-Western spasm which will soon fizzle out. They are, on the contrary, the very mature fruit of years and even decades of patient and highly professional diplomacy by Moscow. While the West confuses diplomacy with diatribe, Russian foreign policy under Putin and Lavrov has been a textbook case of careful Palmerstonian pursuit of mutual national interest.

Far from isolating Russia, the war in Ukraine has shown up who the West’s friends really are. Perhaps this is why Vladimir Putin said on 16 March that the dominance of the West is now over.  Other countries are less squeamish than Western Europe and their reaction to the war in Ukraine is based on an assessment of their national interest, not on emotion.

These diplomatic considerations do not even factor in the likely negative effect of the sanctions on the countries doing the sanctioning. In an unguarded moment, the French finance minister said that the sanctions were an act of “total economic and financial warfare” which are designed to “provoke the collapse of the Russian economy”. But what if, like the old Soviet T-64 tank whose autoloader could trap the gunner’s limbs, maiming or even killing him, the sanctions do more harm to those applying them than to those on the receiving end?

There is huge Western exposure in the private sector. French banks are the largest in the world in those futures and other derivatives contracts which guarantee major commercial transactions for food and energy and which will now come under massive strain. Leasing companies will lose spectacularly after the impounding of over 700 aircraft stranded in Russia.  The euro’s pretensions to be a reserve currency, like the dollar’s, has been sabotaged by the EU’s seizure of funds belonging to the Central Bank of Russia. Which country will now put its reserves into euros if it sees that they can be taken away at the say-so of officials?

The situation in the public sector is worse still. Western states are severely fragile after decades of overspending. The Western debt mountain is now so gigantic that it will never be repaid: nearly three trillion euros for France, for instance.  Even the interest payments are crippling. Moreover, in the eurozone it is effectively impossible to increase interest rates (they are currently negative) because so many eurozone economies are on the brink of collapse and have been kept on life support only by massive monetary creation (tens of billions of euros a month for the last 7 years).

Instead, the decision has clearly been taken, as in Weimar Germany, to inflate the debt away. It was officially running at nearly 6% even before the invasion of Ukraine provoked further rises in the price of energy and food. Worse, several governments are responding to price rises with pay rises, thereby engaging precisely the vicious cycle which leads to hyperinflation – higher spending paid for by higher debt. To take the French example again, the minimum wage is indexed to inflation which means that not only all those employees currently on that level (12% of the workforce) will have to be paid more but also the many millions more who are currently just above it.

During this same period, indeed for well over a decade, Russia has been running a substantial budget surplus and using it to accumulate foreign exchange reserves and gold. The German refusal to open Nord Stream 2 has only had the effect of increasing the market price for hydrocarbons which Russia continues to export through the existing infrastructure. Above all, Russia has been under substantial sanctions since 2014.  Not only have these not had the desired effect (Russia is still in Crimea) but they have forced Russia to increase domestic production in various sectors.

But it is not just Russia. Sanctions have been liberally employed by the EU, the USA and the West in general for decades.  China, for instance, is still under sanctions for the events in Tiananmen Square in 1989. For that matter, the EU has even sanctioned the USA since 1996 for the extraterritoriality of its laws, which has not changed as a result. A huge package of sanctions was voted against Syria at the beginning of the civil war in 2011: they have absolutely not produced the effect desired, which was regime change. On the contrary, Assad has won the battle for his country (with help from Moscow) and his position is now assured.

One could multiply the examples of economic warfare which have failed, going back to the continental blockade imposed on Britain by Napoleon in 1806. Those earlier examples typically failed because the sanctions were bypassed. In this case, the bypassing has begun even before the sanctions regime has started to bite, while in the earlier cases, unlike now, the sanctions and counter-sanctions had a negligible effect on the sanctioning countries.

We are in the third week of the war.  It took the German army seven weeks to conquer France in 1940, in what we now call a Blitzkrieg, and it did so by terrorising the population, and even then the war came to an end only because of the capitulation of Marshal Pétain: the French could have continued to fight.  The sanctions, by contrast, and any counter-sanctions, will remain in place for much longer. Who is better placed to fight a long economic war? Time will tell.