The Russia sanctions cul-de-sac

By Dan Steinbock
0 Comment(s)Print E-mail, September 1, 2014
Adjust font size:

 [By Yang Yongliang/]

 [By Yang Yongliang/]

In March, President Obama initiated and expanded sanctions against Russia in financial services, energy, defense and related materials sectors. Meanwhile, China's Ambassador to Germany Shi Mingde cautioned the West against sanctions, saying such measures could “trigger a spiral with unforeseeable consequences."

In May, Russia signed a 30-year gas deal with China. The agreement between Russia’s Gazprom and China National Petroleum Corp (CNBC) was estimated to be worth over $400 billion. Moscow diversified its energy markets from the West to the East.

On July 16, Washington initiated unilateral restrictions targeting powerful interests in Russia’s financial, energy, and military technology sectors, including Gazprombank, Vnesheconombank, Novatek, and Rosneft; as well as senior government officials. After Malaysia Airlines Flight 17 was shot down in Ukraine and 300 people perished, EU leaders joined in the sanctions against Russia.

In turn, Moscow banned the import of agricultural goods from countries that had imposed sanctions on Russia. The tit-for-tat move reflected the deepening standoff between the Kremlin, Washington and Brussels.

Sanctions united Russia

In Russia, growth forecasts are being downgraded, prices are rising and food shortages are felt. Washington and Brussels hope that the Ukraine crisis and the sanctions will quash the popularity of President Putin in Russia. The net effect has been precisely the reverse.

Before the Ukraine crisis last October, Putin’s approval rating had plunged to 61 percent; the lowest since 2000. In March, the annexation of Crimea galvanized public opinion behind Moscow. Two months later, Putin’s rating soared to 83 percent; and recently, to a record high of 87 percent.

Instead of focusing on economic reforms in Russia, the West opted for a political approach to crush Moscow. That is likely to prove expensive to Russia, Europe and the United States.

In the 2000s, Russia’s growth exceeded 7 percent on average until the global economic crisis of 2008/2009, which caused a dramatic contraction. In the subsequent years, growth halved to 3-4 percent, while inflation remained at 5-8 percent. Meanwhile, Putin’s domestic support dwindled to 61 percent. By 2013 growth halved again to 1.3 percent. In 2014, Russia is likely to suffer a mild contraction, even as inflation amounts to 7 percent.

In the absence of the West’s sanctions, Putin’s approval ratings might have declined to low 50s. That, at last, was the trend line. Instead, sanctions unified Russia behind Putin.

Despite efforts at diversification, oil, gas and petroleum products accounted for some 70 percent of total exports in 2013. Growth is likely to stay around 1-1.8 percent until 2020, with inflation around 5 percent.

In brief, Russia needs economic reforms, not political sanctions.

Follow on Twitter and Facebook to join the conversation.
1   2   3   Next  

Print E-mail Bookmark and Share

Go to Forum >>0 Comment(s)

No comments.

Add your comments...

  • User Name Required
  • Your Comment
  • Enter the words you see:   
    Racist, abusive and off-topic comments may be removed by the moderator.
Send your storiesGet more from