Ukraine and Economic Sanctions against Russia

Ukraine and Economic Sanctions against Russia

As the events in Ukraine unfold, the voices calling for sanctions against Russia are raised louder in the West. They got united in a choir as the Russian Federation Council unanimously approved on March 1 the bill which envisions granting the President special powers to use the armed forces in Ukraine to prevent the spread of banditry and protect of Russian population in the brotherly nation. 

On March 2 U.S. Secretary of State John Kerry condemned Russia's «incredible act of aggression» in Ukraine and threatened Moscow with international isolation. On March 3 information agencies reported that seven leading states of the West (Canada, France, Germany, Italy, Japan, Great Britain and the United States) suspended preparations for G8 Sochi summit (Russia chairs the group in 2014). G7 said they support the territorial integrity and sovereignty of Ukraine and welcome its renewed contacts with the International Monetary Fund. Then threats followed. Economic sanctions are the most widely used instrument of the West to exert pressure on the states which stick to their own policy or, at least, try to do so. As some estimates show, the countries or territories, where half of humanity lives, are under sanctions imposed by the West. 

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It’s not the first time Russia is faced with the threat of sanctions. It’s enough to remember the Georgia’s aggression against South Ossetia in August 2008. The issue was debated, though there was no decision taken. It became a part of discussions in the summer of 2012 with regard to the “Snowden’s case”. Finally Snowden stayed in Russia, no sanctions were imposed. 

In the autumn of 2013 the situation in Syria got especially tense with Russia resolutely coming out in support of the country’s government. A letter of US senators appeared calling on the administration to impose sanctions against the largest Russian banks which allegedly cooperated with the Syrian authorities. Actually it was a direct call for declaration of economic war against the Russian Federation. Finally it was hung in the air. 

Serious politicians realize that economic sanctions cut both ways. The measure can strike the target, but it can also backlash against those who started it. Western historians have determined a general pattern: the achievements of industrialization policy under Stalin in the 1930s were to large extent explained by the fact that the West constantly organized trade and credit blockades of the Soviet Union. As a result, the USSR created the economic potential which allowed it to win in the world war. 

Another example of sanctions backlash is Iran. Washington has exerted pressure on this country since 1979 by freezing its currency reserves in Western banks, banning the cooperation of US banks with Iran, suspending supplies of industrial products, technological equipment and consumer goods including foodstuffs and medicines. Washington even pressed its European allies to make them refuse oil imports from Iran. Iran faced hard times but it has been making it through for already 35 years and it’s not going to give up. Washington is concerned: Iran has managed to do without US dollars and get around Western sanctions using barter deals and national currencies of trade partners (such as yuan, rouble and rupee), as well as gold for payments. Iran trades with the so-called “black knights” – small companies of different countries which act as go-betweens and are not scared by the prospects of sanctions. 

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Russia is not Iran. It has everything it needs to build powerful economy, reliable defense and satisfy the needs of its population. 

Freezing Russian international reserves? Nothing to be happy about, but it should be understood that the reserves of the world financial system created by the financial International is nothing but an illusion. A country which accumulates reserves cannot even use them for payments. Sanctions will push Russia to expedite the creation of its own sovereign credit and payments system as well as a system of international settlements out of US control. The options are already being studied. 

The boycott of G8? Actually Russia has never been a full-fledged member of the club of the chosen. All serious issues have been discussed as before within the framework of G7 while Russia has been sidelined. The return of the West from the G8 format to the G7 pattern as it had been would only help Russia to get rid of illusions. 

Trade boycott? There are staples of Russia exports: oil and natural gas. Europe will not refuse the imports of natural gas and oil exports will not be any problem, especially with such a neighbor as China asking for more energy supplies. Even more so with the imports. At first “black knights” will help, and then Russia will be given a great impetus to launch import substitution economic projects or industrialization. 

The sanctions imposed by the United Nations Security Council? Russia has a permanent seat in the Security Council and it often sides with another veto wielding member – China. These two states can block any decision put forward by the Western UNSC members. 

Russia’s expulsion from the WTO? It’s a great boon for Russia! Today even Alexey Mordashov, the owner of Severstal, who had had a reputation of the main lobbyist for the WTP entry, all of a sudden started to see the things clearly and realize that the only thing his business gets from WTO membership is suffering losses. The expulsion of Russia would create conditions for revival of its agriculture, whatever is left of it. A country cannot exist without providing for its food security. 

Probably, the freezing (or even only a threat of freezing) of Russia’s oligarchs foreign accounts is the only effective sanction against Russia that hurts. The threats to freeze the foreign accounts of Ukrainian oligarchs have been also voiced recently. In January US Assistant Secretary Victoria Nuland dressed down the main Ukrainian oligarch Rinat Akhmetov right in Kiev. She wanted him to take concrete steps to return the country back to law and order. Or, to make it precise, disorder. The dressing down worked. There is plenty of evidence that Ukrainian oligarchs provided funds for Maidan. Their mission is not accomplished as yet. Now they do their best to make the Maidan gains spread across the entire Ukraine. Some of them not only provide funds to strengthen the new regime, but also get positions in the government structures. What would the Russian “off-shore” aristocracy do under the same circumstances? 

So, what are the conclusions?

1. The imposition of sanctions against Russia over Ukraine cannot be excluded. But it cuts both ends. The US ruling circles serve as a driving force recklessly pushing for economic war against Russia. 

2. The imposition of sanctions should not be perceived as a tragedy. It would rather be an impetus for the country to launch industrial transformation in the XXI century. 

3. Russia should be prepared for the sanctions. The Federation Council is already on its way to come up with a bill granting the President the right to confiscate the property, assets and freeze the accounts of US and European companies in case the West launches sanctions against Russia. 

4. One of the main things to do in view of the would-be sanctions is to make Russian oligarchs return their foreign assets back to Russia.