The West’s Economic Sanctions Against Russia
This BLOG argues that the sanctions thus far imposed are deliberate pin pricks, intended only to send a message and to invite Russia to join in a diplomatic effort to resolve the crisis without significant further economic or military escalation. The BLOG further argues that Russian responses seem also to point to an eagerness to resolve the dispute through diplomacy. Further, there is a diplomatic solution in the wings. I therefore, interpret that what has thus far taken place offers a guarded but optimistic promise.
I think there is very little question among objective observers that the referendum conducted in Crimea was bogus on a number of grounds, first by being conducted with an army of occupation present, with minority Tatars and Ukrainians largely boycotting the vote, noted anti-Russian activists having “disappeared”, the critical media silenced, cancelled air and electronic communications with Ukraine, with the ballot not including an option to stay within Ukraine, with Russian non-Ukrainian citizens in Ukraine casting a ballot, and with clear evidence of overstuffing the ballot boxes since the votes were significantly higher in some constituencies. The absence of the Russian army, the posing of an honest question and a vote in favour of Russia over Ukraine would undoubtedly have produced a good majority for the Russian option if honestly conducted provided Kyiv agreement was obtained.
Obama on behalf of the United States and the EU have now imposed very mild targeted sanctions against Russia as a result of the Russia’s occupation of Crimea and the recent vote overwhelmingly in favour of Crimea seceding from Ukraine and joining Russia. What are those sanctions intended to achieve and what is the likelihood of success, especially given the initial narrowness of the target and the shallowness of the sanctions regime? What are the risks associated with the imposition of such sanctions?
The sanctions regime has not been imposed as a milder aspect of a military conflict as in a blockade, but as a message, in Obama’s words, “to uphold the principle Ukraine’s sovereignty and territorial integrity must be respected, and international law must be upheld,” a principle which is generally accepted as fundamental to the modern transnational order and the essential fabric of the Euro-Atlantic security alliance. But how can such sanctions work since they do not seem inherently to be able to induce Russia to withdraw its troops from Ukraine or to reverse the continuing integration of Crimea into Russia whether that integration is accomplished through political union or simply by making Crimea economically, legally, politically and militarily part of Russia without the final step of annexation or union?
First, the economic sanctions seem more like symbolic gestures to signal a process of diplomatic isolation that has been initiated, beginning with named individuals (Vladislav Surkov, a Putin aide; Sergey Glazyev, a Putin adviser; Leonid Slutsky, a state Duma deputy; Andrei Klishas, member of the Federation Council, the upper house of the Federal Assembly of Russia, Valentina Matviyenko, head of the Federation Council, Dmitry Rogozin, deputy prime minister, and Yelena Mizulina, a state Duma deputy). All are seen to be directly involved and responsible for “undermining the sovereignty, territorial integrity and government of Ukraine” but clearly the main ones responsible, namely Vladimir Putin himself and his foreign minister, Sergey Lavrov,have not been targeted. The sanctions were expanded a bit on Monday to include Russian officials who provide material support to senior officials of the Russian government as well as entities operating in the arms sector in Russia. But the scope of the application is very limited and the restrictions – visa restrictions and the mild economic sanctions – are merely signals that a process is underway which will be followed by further escalation. They do, however, target key architects and ideologues responsible for the Crimea policy who also seem to have been intimately involved in human rights abuses in Russia.
Efforts to begin a process of economic sanctions and diplomatic isolation are not stand alone initiatives. NATO has been involved, not only through the movement of some military assets to Poland and the Baltic states, but in the verbal signal by Obama that, “As NATO allies, we have a solemn commitment to our collective defense, and we will uphold this commitment.” This is clearly a vague formulation, deliberately so, to provide room for political and diplomatic manoeuvring as well as time to consult allies this week to develop a more coordinated policy. But the signals focus on diplomatic isolation and economic initiatives and not military threats, though military threats are clearly not off the table as they seemed to be earlier. The main stress at this time, however, is on diplomatic isolation and economic sanctions.
It should be noted that Russia itself has engaged in token sabre rattling – the Russian fleet conducted live fire exercises, MIG-29s were deployed to Yerevan, Armenia, Turkish airspace was probed to rattle one of the quivering NATO members, and an ICBM test, admittedly pre-scheduled, was launched when it could have been postponed. But these gestures pale into insignificance compared to a call up of Russian troops to the Ukraine border. Both sides seem willing to wave starter pistols but seem reasonably clear that neither side wants this to escalate into a military conflict.
But what are the goals? To prevent Russia from continuing its adventurism in eastern Ukraine? Or just to uphold a principle? Or to actually get Russia to reverse its position as seems to be signalled when Obama vowed that, “The international community will continue to stand together to oppose any violations of Ukrainian sovereignty and territorial integrity, and continued Russian military intervention in Ukraine will only deepen Russia’s diplomatic isolation and exact a greater toll on the Russian economy”? The signals so far seem to indicate that it is the principle that is at stake – and various diplomatic formulations can be devised for upholding the principle while effectively giving Russia de facto sovereignty over Crimea, a position that even Kissinger, the arch-realist and concessionary towards Russian interests, opposes – as well as inhibiting Russia from taking further initiatives along this line given the promise to calibrate the measures up or down depending on whether Russia chooses to escalate or de-escalate.
Obama clearly continues to believe that diplomatic engagement still has a chance and that he understandably fears the alternative of more serious actions. Further, the solution is signalled in his words – Russia keeps its troops in Crimea and “pulls them back to their bases”, allows OSCE monitors to be deployed and then permits Russia and Ukraine to negotiate the solution through a constitutional change that will allow Crimea to legally secede and set out the conditions for such secession. That way the principle is maintained, Crimea is surrendered, but the integrity of Ukraine is otherwise maintained as well as the principle of self-determination of the Ukrainian people. Ukraine will enter the Western economic sphere and Russia will inherit Crimea.
That seems clearly to be the program. Will it work? Lavrov and Putin have both signalled back that the most important issue is the retention of US-Russian relations and not the Ukraine. Russian leaders have unequivocally warned the West that the existing order should not be sacrificed on the altar of the principle of sovereignty generally or the sovereignty of the Ukraine in particular. On Friday, Dmitry Peskov, Putin’s spokesman reinforced the message that Russia did not want a return to the Cold War and openly recognized that the West was seeking a diplomatic solution and that Russia still had hopes “that some points of agreement could be found as a result of dialogue”. Russia was still referring to the United States as a partner in maintaining the international order. But Russia has sent no signal that it is willing to recognize the new central government in Kiev which ousted President Viktor Yanukovych, but would Russia be willing to engage in negotiations to recognize the government to be elected this Spring in return for the West recognizing a legal and formal way for the Ukraine to secede and become once again part of Russia?
At the same time as Russia has been talking softly, it is waving a big stick – economic reprisals of its own and on-and-off military manoeuvres. Russia has aimed its most belligerent remarks at the EU, especially when the EU suspended talks on a new comprehensive economic and political pact with Russia. Clearly, it will be difficult for the EU to hold all its members together in a unanimous policy, especially its south-eastern members such as Greece. But the key factor seems to be the resolve of German Chancellor Angela Merkel. Like Obama, Merkel and Putin have been talking. Further, they have agreed not to take actions which would increase violence. The solution on the European front would involve a positive sum economic game involving not only Ukraine but Georgia, Armenia and Azerbaidjan in a formula that would allow countries like Georgia and Ukraine to be both part of the EU economic zone as well as Putin’s new eastern European customs union thereby serving as a bridge between the two blocks. Of course, easier said than done, but it is another one of the chess pieces in this critical international crisis. At the same time, Merkel has been tough and unequivocal that Ukrainian sovereignty is not up for discussion.
Will the mild signals thus far and the threat of diplomatic isolation and massive economic consequences from both sides while the military option remains off the table (though only in reference to actual deployment of troops on the ground) be able to steer the crisis into a negotiations stream? Russia has not only signalled a willingness to enter such negotiations but had initially signalled its own interest in de-escalating the conflict by NOT annexing Crimea yesterday, but simply recognizing Crimea’s independence of Ukraine, but then made it a fait accompli today. The two options are, admittedly, only a difference in name, but even such slight differences are significant in international diplomacy and the signalling attendant thereto.The EU and the US have been working together to forge a political and diplomatic path out of the crisis which seems to explain a small part of why the initial sanctions have been so mild and shallow.
The issue is how ready are Western nations to impose much more drastic state sanctions given the boomerang effect on their own economies. The words of ultra-nationalist Russian members of the Duma, such as Vladimir Zhirinovsky, that sanctions will not have any negative effect on Russia is, of course, nonsense. The fact that the initial sanctions were so mild and, as almost as a direct consequence, the value of the Russian ruble rose making up for part of its earlier more precipitous fall, is simply one signal that the international economic market alone will significantly punish Russia if the situation escalates rather than de-escalates. The sanctions imposed thus far are simply intended to signal that the West is serious and has stepped onto the second stage of the escalator but in such a way as to allow for reversal and not to insult the key decision makers or Russia itself. But like the MAD doctrine with the nuclear standoff, the signals will only carry that message if they are also backed by the threat of much more serious steps.
The Senate Foreign Relations Committee voted 14-3 in favor of imposing much broader sanctions on Russians and Ukrainians involved in human rights violations and anyone involved in undermining Ukraine’s security and stability. Those sanctions, that would include freezing assets held in the United States as well as travel bans and denying visas to a wider cohort, were combined with the promised aid to the Ukraine directly and through the IMF. Hopefully, those signals will not be undercut by any decisions of the House of Representatives. There is a problem with freezing individual assets abroad, however. In this year alone, an estimated $50 billion has flown out of Russia already. This has significantly harmed the Russian economy. If some of such assets are frozen, then the export of capital would stop and Russia’s economy would benefit.
The US has only to hold its 50 states together through a majority, mainly be bringing the House of Representatives on side. The EU is a federation that has to hold its 34 states together in a consensus. The weakest economic link for both, but more for the US, is the need to strengthen the IMF, a move opposed by a significant number of Republicans including Senator Marco Rubio of Florida who argues that giving the money to Kyiv will only reward Russia by allowing Kyiv to pay its huge Russian debts. Therefore, such loans are not a threat but a reward offered to Russia. Nevertheless, only three Republicans on the committee actual cast votes against the IMF provisions, Senators Paul, as could be expected, joined by Senators Jim Risch of Idaho and John Barrasso of Wyoming.
Will the EU which is so dependent on Russia for gas be willing to do this, or, more importantly at this stage, signal that it is willing to take much more drastic steps if diplomacy fails and send enough signals that these threats are serious even though they will be significantly detrimental to the European economy just as it is beginning its recovery from the series of blows around the Euro crisis? More visa bans and asset freezes are on the table for the third stage of escalation (the steps Monday were the second stage for visa restrictions on Russian and Crimean officials and private citizens had already been imposed). But what about much more vigorous economic restrictions?
Germany already has an unprecedented (for it) unemployment rate of 7% and exports goods and services worth $130 billion to the Russian Federation (US exports are only $2.9 billion), let alone its dependency on Russia for 40% of its oil and gas. If, for example, more crippling sanctions, such as imposing limitations on Russian oil and natural-gas purchases, Germany would itself suffer enormously and the initiative has a significant risk of throwing Europe as well as Russia into a downward economic spiral let alone the devastating effect on the Ukraine economy. 45% of Russian exports, 2/3rds oil and gas, goes to the EU. Ukraine sells almost $16 billion to Russia. Wider sanctions would be devastating all the way round, most devastating on Ukraine, extremely devastating on Russia and very devastating on the EU. But unless the EU holds a credible threat that it will resort to such sanctions, the possibility of Russia following a path of greater escalation increases. Russia has to know, as the Dutch foreign minister, Frans Timmermans, noted, that sanctions will be inevitable, thereby enabling Russia to “realise that sanctions will hurt everyone, but no one more than the Russians themselves.”
So broad sanctions will be avoided except as a last resort such as in response to a Russian invasion of eastern Ukraine. The sanctions imposed are extremely mild and are merely a pin prick on the Great Bear. But they are intended only as a signal and are not intended as a deterrent or punishment for they are far too gentle for that. The velvet glove of diplomacy not only thus far lacks an iron glove inside but even a green padded boxing glove, green for both St. Patrick’s day and significant economic sanctions. The sanctions imposed thus far are not intended to hurt. They are just tweets to say more can and will be forthcoming – freezing bank balances, stopping credit lines, cancelling barter deals and suspending joint projects, still far short of broad sanctions – unless we join together in a process of de-escalation.
Sarajevo and 1914 rather than Austria and Czechoslovakia in 1938 really haunt the current crisis. The West is NOT diplomatically impotent even if, militarily, its hands are tied behind its back with few military options available. Should the West escalate by offering Georgia and Ukraine associate status in NATO? Would that act as a deterrent or be seen as an abandonment of the diplomatic route? Diplomacy is accomplished not simply by what states do but by what they credibly convey they are willing to do. But the dilemma is that if the threat is to be meaningful, it must be made credible. But the more credible it becomes the more such measures inspire the other side to adopt equal and balancing counter-measures.
Tomorrow – Margaret Macmillan and How the Peace Was Lost.