Western sanctions against Russia are not dissuasive; Europe will suffer as much

Western analysts say the measures will be crippling in the longer term, but they forget that Russia now has access to Ukraine’s resources and market.

By Joseph P. Chacko

The United States, Europe and Japan have imposed severe sanctions on Russia, but they are currently only punitive. As a deterrent, sanctions are totally ineffective. Russian President Putin does not care about the economic impact of this invasion and will not stop him from doing what he intends to do. Western analysts say the measures will be crippling in the longer term, but they forget that Russia now has access to Ukraine’s resources and market.

The United States and its allies should be seen as punishing Putin for his “bad behavior”, and if they are not taking part in shooting matches in Ukraine, they should punish him in some way. Economic levers are all the allies have, and the United States has even less.

Punishments

As soon as Russia recognized the DPR and LDR breakaway republics, the US grandly announced small, incremental sanctions based on how little influence it had over Russia. Following the invasion, US President Joe Biden implemented a set of measures which he said would “impose a significant cost on the Russian economy, both immediately and over time”.

This time he sanctioned Sberbank and the state-owned VTB Bank. Sberbank owns about a third of total Russian banking assets and the sanctions block US dollar transactions in the future. VTB Bank owns around 16% of Russia’s banking assets and has been totally frozen by US sanctions via “full blocking sanctions”.

Otkritie, Novikom and Sovcom, the three main financial institutions and around 90 subsidiaries of financial institutions worldwide, are connected to the sanctioned banks. According to the US Treasury, these financial institutions carry out foreign exchange transactions daily representing 80% of the total of 46 billion dollars in dollars. Western experts agree that the move could have very critical “systemic” effects on Russia.

It also has “systemic” effects on Europe as it depends on Russia for 35% of the gas it consumes, without which its factories cannot produce goods economically compared to China and other countries. Asians. Europe cannot pay for Russian gas, using correspondent banks that use dollars in the middle of the transaction. Russia could turn off European gas in winter. But the EU has claimed it has all the gas it needs for the winter if Russia cuts off supplies.

The irony of the situation can be seen in the information provided by the Japanese, who say that the United States has “requested” that oil and gas be kept out of sanctions.

However, the EU will see capital flight to the US, buy more expensive LNG from the US, and of course the US will see more arms sales to Europe.

The United States plays the “Tank and Gas” game in Europe as Russia wins Ukraine.

Not so SWIFT

The disabling of the SWIFT international payment system and GPS by the United States has been a long-standing fear of countries around the world. Now GPS has alternatives but not SWIFT.

For a long time, the US threatened to pull Russia out of the SWIFT network, affecting its payments. Yesterday was D-Day and the United States faltered.

“It’s still an option, but right now it’s not the position the rest of Europe wants to take,” President Biden said of the SWIFT option which is not being exercised at the moment.

How the United States played against Ukraine

The United States supported the Ukrainians (you could say it was the other way around, does it matter?) against Russia. First, the United States sent the old stock of weapons to Ukraine to fight a modern Russian army. Then the United States sent its huge gas transport ships to Europe, depriving the income of gas supplies from Ukrainian gas pipelines. Then he refused the “shell” after the Russian attack. And finally, he refused to exclude Russia from SWIFT.

Ukrainian Foreign Minister Dmytro Kuleba tweeted his frustration: “I won’t be diplomatic about this. Anyone who now doubts that Russia should be banned from SWIFT must understand that the blood of innocent Ukrainian men, women and children will also be on their hands. BAN RUSSIA FROM SWIFT.

It is universally agreed that Russia’s withdrawal from SWIFT will be the most crippling action against Russia.

Rest of penalties

The President of the European Commission (EC), Ursula von der Leyen, had promised economic and financial sanctions in the event of an “invasion” of Ukraine by Russia.

Yesterday EU leaders agreed to a second round of sweeping sanctions against Russia in an emergency. EU sanctions statement covers energy and transport sectors, financial sector, dual-use goods with export controls, export financing, visa policy and additional sanctions against individuals Russians.

Ursula said the sanctions would target 70% of Russia’s banking market and major state-owned companies, including defence. “Sanctions would also freeze Russian assets in Europe and block Moscow’s access to European financial markets,” von der Leyen said.

She said the Russian oil sector would not be able to modernize its refineries. Russian airlines will not receive aircraft and equipment. Visa restrictions are against diplomats and businessmen who will not have “privileged access to the EU”.

The first round of EU sanctions targeted the Russian banking system and Russian individuals.

Japan is another economy that counts around the world. After years of trying to mend relations with Russia, he imposed sanctions. Essentially, Japan has sanctioned Russian individuals and groups through freezing assets and suspending visa issuance, freezing the assets of Russian financial institutions, and regulated exports of semiconductors to military-linked organizations. Russian.

Effect on India – Russia trade

US financial sanctions do not affect arms trade between India and Russia. CAATSA has the potential to affect Russian arms deliveries to India and has yet to be used. Although Indian arms purchases contribute enormously to Russia’s arms exports, they are miniscule compared to the contribution to Russian GDP. Even India’s total annual trade with Russia is less than $10 billion.

Rosoboronexport, Russia’s military export arm, has all but abandoned the US currency. India pays Russian rupees and sometimes other currencies like Euros to avoid US sanctions. The rupee-ruble deal ensures that Russian payments will be settled even if Russia is cut off from the SWIFT gateway. Russia has already called for increased exchanges in national currency mode and should expand to all exchanges.

(The author is an editor, columnist and author. He writes on defense and strategic affairs and occasionally on other subjects. He tweets @chackojoseph The opinions expressed are personal and do not reflect the official position or policy of Financial Express Online. Reproduction of this content without permission is prohibited).

Mary I. Bruner