The extension of sanctions against Russia by the EU and their expansion by the United States demonstrated that the restrictive measures will
remain in place for the foreseeable future. However hard for the Russian
economy, the sanctions have not delivered a devastating blow, which could have
led to a significant change in Kremlin policy.
These measures were arguably not
created to ruin the Russian economy, which is too large and important for the
world to do without. The sanctions were designed to warn Russia against foreign
policy actions that the West does not agree with. Instead, they became a crash
course for Russian policy makers and elites, reminding them that for Russia to
truly secure an independent standing in international relations it should be
ready and able to withstand international pressure, especially in the economic
sphere.
Since the start of Western sanctions against Russia it
has been obvious that the measures are not as severe as they could have
been—and for good reason.
Consider the sanctions leveled against the Russian
energy sector: among other things, they have been aimed at reducing financing options for Russian energy
companies and preventing them from developing complicated offshore and Arctic
projects. Both spheres play a very important role in strategic planning for
these companies, but the restrictive measures did not harm much of their
current operations. The reason is simple: Russian companies supply, according
to different estimates, up to a third of the EU’s natural gas and oil demand. In such
situation, any immediate or devastating measures against these companies can
hardly be expected.
At the same time, with sinking oil prices, it would be
difficult to argue that the sanctions do not harm the strategic perspectives of
Russian energy companies and, as such, put a drastic pressure on the Russian
economy as a whole—which is still very dependent on energy exports, although
less than before. More importantly, after the sanctions were confirmed by the
United States and the European Union at the end of 2015 it became clear that
this pressure is here to stay.
Only a few months ago, several Russian and foreign insiders thought that
with the fragile ceasefire more or less holding in eastern Ukraine, and with
many European companies discontented by profit loss due to the sanctions, the
restrictive measures would be lessened—at least by the EU. One can recall the Paris talks in the “Normandy Four” format in October, which de fac to confirmed the continuation of the Minsk process into 2016. At the same time, the
leadership of Lugansk and Donetsk People’s Republics postponed their elections,
opening the possibility of holding them within the Ukrainian legal space. The
latter would be a step in the direction of reconciliation. But, when extending
and expanding the scope of sanctions, the EU and the United States did not take
into consideration the improvement and stabilization of the situation in
Eastern Ukraine.
It should come as no surprise: the political elites in
Europe and the United States have attached so much political significance to
the sanctions that the sanctions have become irreversible, at least without a
significant move on the part of Russia. Since there are no signs that Moscow
will, for example, reverse its decision on Crimea, one cannot expect an end to
Western sanctions against Russia any time soon.
This means that for the Kremlin, the sanctions have
become a permanent factor in decision making, and make other domestic and
international problems more severe. Those include the question of whether
Russia has loyal allies who can help. It has become obvious that, on the one
hand, even Russia’s business partners in Europe cannot assist it in dealing
with the sanctions. In the last months of 2015, the world saw how Germany
wanted to have it both ways, attempting to continue implementing North Stream 2
while keeping the sanctions in place. Italy, deprived of natural gas from the
South Stream after the crisis in relations between Russia and the West started
in 2014, became frustrated by German actions, but to no avail.
On the other hand, it is not clear how much support
Moscow will receive from Beijing on various issues. Certainly, China might need
Russian natural gas and oil, but how far can this cooperation go? Even in terms
of expanding buyers for Russian energy resources, Moscow needs to diversify its
partners in Asia—if China becomes the chief client in the region and
cooperation with the Europeans decreases, will Beijing be able to dictate the
terms of cooperation to Moscow?
In Russian domestic policy, Western sanctions also increased pressure on
the Kremlin to act on many fronts. For years, businessmen, officials and
experts have been discussing the investments needed to modernize Russia’s
energy sector. But with high oil prices there was no major incitement to
modernize: why bother when profits are easy and high? Now, not only has the
price of oil gone down, but Western sanctions, including the ban on
energy-related services, equipment and technologies, are not going anywhere.
Only in November 2014, after Western sanctions were imposed, did the Russian
government approve a plan of measures to decrease the Russian energy sector’s
dependency on imports. This was done after years of discussion and a broad
consensus that the measures were long overdue. Would have they been implemented
without the presence of sanctions? As of December of 2015, subsequent measures,
necessary to support the domestic production of equipment for offshore
production, were still being discussed. The United States and the European Union may expand the list of
sanctioned services, equipment and technologies anytime. Therefore Russian
companies, with the support of their government, should act fast to get the
necessary technologies (maybe through cooperation with Asian companies) and use
them to modernize.
Furthermore, the majority of sectors that Russia needs
to develop and grow its economy can fall prey to Western sanctions. Are they
ready to withstand this kind of pressure? Do Russian companies in those sectors
have enough partners in Asia, in case they need access to international
know-how or services if they become the target of Western sanctions?
There is a broader question: How mature is the Russian
economy to weather further Western reactions to a more assertive Kremlin
foreign policy? In the twenty-first century, it is impossible to build a strong
economy providing decent living conditions for one’s population while in
international isolation. This fact is understood in the Kremlin—during a
meeting with business leaders on December 24, President Putin said: “To
expand the capabilities of national businesses we also intend to develop
economic ties with other countries and take part in integration processes.” But
this task will be far more difficult to achieve against the pressure of Western
sanctions, which do not seem to be going anywhere.
Western sanctions have failed to deliver a ‘devastating blow’ but they also
seem here to stay.
In Russian
domestic policy, Western sanctions also increased pressure on the Kremlin to
act on many fronts. For years, businessmen, officials and experts have been
discussing the investments needed to modernize Russia’s energy sector. But with
high oil prices there was no major incitement to modernize: why bother when
profits are easy and high? Now, not only has the price of oil gone down, but
Western sanctions, including the ban on energy-related services, equipment and
technologies, are not going anywhere. Only in November 2014, after Western
sanctions were imposed, did the Russian government approve a plan of measures
to decrease the Russian energy sector’s dependency on imports.
This was done
after years of discussion and a broad consensus that the measures were long
overdue. Would have they been implemented without the presence of sanctions? As
of December of 2015, subsequent measures, necessary to support the domestic
production of equipment for offshore production, were still being discussed. The United
States and the European Union may expand the list of sanctioned services,
equipment and technologies anytime. Therefore Russian companies, with the
support of their government, should act fast to get the necessary technologies
(maybe through cooperation with Asian companies) and use them to modernize.
Furthermore,
the majority of sectors that Russia needs to develop and grow its economy can
fall prey to Western sanctions. Are they ready to withstand this kind of
pressure? Do Russian companies in those sectors have enough partners in Asia,
in case they need access to international know-how or services if they become
the target of Western sanctions?
There is a
broader question: How mature is the Russian economy to weather further Western
reactions to a more assertive Kremlin foreign policy? In the twenty-first
century, it is impossible to build a strong economy providing decent living
conditions for one’s population while in international isolation. This fact is
understood in the Kremlin—during a meeting with business leaders on December
24, President Putin said: “To expand the capabilities
of national businesses we also intend to develop economic ties with other
countries and take part in integration processes.” But this task will be far
more difficult to achieve against the pressure of Western sanctions, which do
not seem to be going anywhere.
The curious
student of history and international relations may still wonder what is the real
reason for these sanctions: disagreements over Ukraine, or Western concerns
over a more assertive Russian foreign policy and the prospect of Russia
becoming a full-scale power center in international relations? In reality, such
alternative reasoning does not exist: Russia’s expectation of having its
position on Ukraine acknowledged by the West shows that a more assertive Russia
is already here.
After Russia
claimed its right to a more assertive foreign policy, its economy has found
itself in a far more challenging international environment. So far, it has not
been completely broken, and Russian society seems ready to endure harsher
economic conditions for the benefit of a more ambitious foreign policy course:
at least 59 percent of Russians support the country’s foreign
policy. But this endurance challenge is set to continue at least for the coming
year. The Kremlin has no choice but to further implement the measures necessary
to build an economy adequate for a country aspiring to be a true power center
in current international relations.
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