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Sanctions Won’t Topple Putin

March 2, 2022 | FlaglerLive | 8 Comments

Vladimir Putin doesn't much care about sanctions. (DonkeyHotey)
Vladimir Putin doesn’t much care about sanctions. (DonkeyHotey)

By Sergey V. Popov

Russia knows sanctions. In 2009, the death of Moscow anti-corruption lawyer Sergei Magnitsky in custody motivated Bill Browder, an entrepreneur who used to work in Russia and employ him, to lobby the US government to introduce sanctions against Russia.




US sanctions were duly applied to 18 people in 2013 who had been directly related to Magnitsky’s demise or the tax fraud investigation that led to his imprisonment. They were not allowed to hold bank accounts in the US or enter the country. In response, Russia forbade foreigners from adopting Russian orphans. Later, the US sanctions were expanded to other individuals involved with human rights violations, while other countries such as the UK introduced similar rules.

When Russian forces entered Crimea in 2014, it led to sanctions on multiple people. These were not just aimed at individuals directly engaged in human rights violations, but also those who were organising the violations. This went as high up as oil executive Igor Sechin, a person in Vladimir Putin’s inner circle, clearly indicating who would be targeted next.

The sanctions also included oil and defence companies and banks, stipulating that US companies were not allowed to trade with them. Moscow again announced counter-sanctions, banning foodstuffs produced in the EU. This produced quite a few videos of cheese and such being crushed by a bulldozer, but had little effect on the west.




When flight MH-17 got shot down in the Donbas region the same year, further sanctions, spearheaded by the US, were invoked against Russian oligarchs. Most notably affected was Sberbank, one of the largest Russian banks, but also a lot of large-scale projects that depended on foreign machinery.

Russia responded with a law that permitted seizure of foreign assets, though I don’t think it was ever used. The nation’s GDP per capita fell in the next two years by almost 40%, so the sanctions were significant. But Russia’s policies did not change.

The new sanctions against Russia following its invasion of Ukraine are significantly harsher than what was imposed before. The central bank’s foreign assets are frozen and Russia cannot borrow from abroad.

Banks are prevented from using the Swift system, making it harder for them to send money to banks abroad. Making payments is a key component in importing and exporting, and the restrictions introduce risks. When you ship things internationally, which takes weeks, you want to be sure that you will get your money back promptly. Top banks in Russia are also banned from using the US banking system.




Germany, initially reluctant to sanction Russia, has indefinitely suspended the new Nord Stream 2 pipeline, and promises to divest from Russian gas and oil. The EU and US are promising to find all the relatives of all the oligarchs. Switzerland is not neutral for the first time since 1815. And for the first time in history, a sitting president is the target of individual sanctions. The intensity of international condemnation and cooperation is simply unprecedented.

Will the sanctions work?

The military operation in Ukraine was a shock for the market from the start. Many Russian stocks have depreciated by 40%-50% in roubles since Russia’s “peacekeeping operation” in Donetsk and Luhansk was announced on February 21.

The Moscow stock exchange is down by about 30% and has been closed for the past couple of trading days. Many people have been selling roubles to buy foreign currency, causing the exchange rate to drop by about 30%, further exacerbating the losses of foreign investors.

The Russian central bank has had to sell US$1 billion (£745 million) of internally held foreign reserves to prop up the exchange rate, as well as introducing a requirement for exporters to sell their foreign currency, and more than doubling interest rates. However, in the long run, Russia seems secure.

Russia does not need foreign borrowing: it fluctuates around 30% of GDP compared to the US’s 102%, for example. Russia will be happy enough if capital will be hard to take out of Russia as a consequence of expulsion from Swift. Billions of dollars are taken out annually, and not just by oligarchs buying yachts, but also by common people moving their savings to less risky jurisdictions.

The fall of the exchange rate will make Russian workers relatively poorer. A high interest rate will make it harder for them to buy property and cars. If the government does not come up with a support package, there could be unemployment, people losing their houses, and worse things like starvation.

But even with support, a further fall in the average Russian’s income seems likely in the long run. Their incomes still haven’t recovered from the 2014 sanctions. And with the latest sanctions including equipment and repair parts, labour productivity is not going to get better.

As for the oligarchs, they will certainly get poorer, and might have to buy some new yachts to sail in Russia if they can’t access the ones in other countries. But fundamentally they’ll still be very rich and very happy.

Will Russia survive? Probably. A lot of people have spent a lot of time making sure that Russia can endure isolation. For instance, banks have planned ways of facilitating international transfers without using Swift.




Also, other agents such as China will likely buy the oil and aluminium that will not be bought by the west anymore. So while these sanctions will hurt Russia, they will not break Russia.

I also doubt this will bring down Putin. His support was not so big anyway: why else would the administration indulge in massive election fraud? Sanctions that make Russians poorer are therefore unlikely to motivate them to vote differently.

In 1992, a wide range of western sanctions was imposed on Yugoslavia as a result of atrocities in the Balkan wars. These included a sports ban, international trade ban, naval blockades, Yugoslav airlines ban and an arms embargo.

Yugoslavia had to live through hyperinflation as a result. Yet the atrocities continued. Slobodan Milosevic was brought to The Hague. Milosevic, of course, did not have nuclear weapons.

 

Sergey V. Popov is Senior Lecturer in Economics at Cardiff University.

The Conversation arose out of deep-seated concerns for the fading quality of our public discourse and recognition of the vital role that academic experts could play in the public arena. Information has always been essential to democracy. It’s a societal good, like clean water. But many now find it difficult to put their trust in the media and experts who have spent years researching a topic. Instead, they listen to those who have the loudest voices. Those uninformed views are amplified by social media networks that reward those who spark outrage instead of insight or thoughtful discussion. The Conversation seeks to be part of the solution to this problem, to raise up the voices of true experts and to make their knowledge available to everyone. The Conversation publishes nightly at 9 p.m. on FlaglerLive.
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Reader Interactions

Comments

  1. Jimbo99 says

    March 3, 2022 at 12:57 am

    This has been going on since Obama-Biden, it didn’t stop with Trump in office either. Congressional Democrats have been after Russia, Russia, Russia ever since HRC lost. And I don’t doubt that in the backrooms of Congress that as they defeated Trump, the next level of a coup was to go after Putin. I already know that this has been at least been going on since Biden took office. The Democrats were convinced that Russia had meddled in the election of 2016. It’s one thing they tried to impeach Trump from the day after he beat HRC, this is at least 5+ years of efforts by Democrats. Don’t get me wrong, this is not any sympathy for Putin. He did accumulate & invade the Ukraine. But what drove him to that ? I think it has to do with the 2020 election, across the board the Democrats have the power to accomplish a coup to remove Putin. and this is out there as April 2021. Just a lot of history behind this Obama-Biden-Putin tryst.

    https://www.gibsondunn.com/biden-administration-imposes-additional-sanctions-on-russia/

  2. DaleL says

    March 3, 2022 at 11:48 am

    The Russians did meddle in the 2016 election. More than one Russian oligarch celebrated when Trump won. The Mueller investigation and report confirmed that. The Russians didn’t further invade Ukraine during Trump’s time in office for a number of reasons: 1. Trump was openly disparaging NATO. 2. Russia was continuing to modernize its military. 3. The COVID pandemic hit Russia particularly hard.

    Trump was first impeached by the House on December 18, 2019. That was THREE years after the 2016 election. He was impeached for withholding military aid to Ukraine in an attempt to have Ukraine smear Hunter Biden and by association Joe Biden. The Republican controlled Senate refused to even have a trial or call witnesses.

    Sanctions will weaken Russia economically. That will make it harder for Russia to sustain this war of aggression and rebuild its military. Russia’s space program will be crippled.

    Slava Ukraini!

  3. Michael Cocchiola says

    March 3, 2022 at 11:57 am

    Sanctions may not topple Putin, but it’s a start and if maximized, may help to destroy whatever support he has left to govern.

    Some want military intervention by the U.S. We can’t do this without the full support of NATO and the UN. We can’t make this an America vs Russia war. We could not possibly deploy enough troops and equipment on the ground, and an air war won’t stop Russian ground forces.

    So… it’s sanctions for now. And for that “Obama-Biden-Putin tryst” above… I have no words.

  4. Sherry says

    March 3, 2022 at 3:06 pm

    Agree 100% Michael! If the US begins any direct military action in Ukraine, we would likely be starting WWIII against a murdering madman who has threatened to unleash nuclear weapons. Saying that, if Putin attacks a member of NATO, the full force of our military should be used to defend our NATO allies.

  5. Sherry says

    March 3, 2022 at 3:13 pm

    @jimbo99. . . regarding yet another completely nonsensical post. . . this time misusing the words “tryst” and “accumulate”. . . a good dictionary and continuous education is a good thing.

  6. C.J. says

    March 3, 2022 at 3:52 pm

    I clearly recall Trump yelling, “Russia, if you are listening” wherein he called upon Russia (Putin) to steal a US citizen’s emails. That was a clear act of treason in my assessment. I also think he supports Putin in this unjust invasion of Ukraine. Both are mentally deranged and threats to the planet. I am half Ukraine in-heritage and support all efforts to stand against this travesty.

  7. Steve says

    March 4, 2022 at 7:52 pm

    Vlad will be done in by his own inflated opinion of himself and a well placed bullet IMO.

  8. Steve says

    March 4, 2022 at 8:14 pm

    Interesting but disagree. Too much Conspiracy Theory for me. Its simple. Putzin is a Megalomaniac and felt his position and influencewere slipping Internationally. No one was listening and as Narcissists do he lashed out at the World to restore old Russia. In the process Vlad will do himself in IMO

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