Insights: History Politics And Strategy

Why Sanction Against Russia Won’t Bite

As the stand-off in crime continues and west prepares to impose sanctions on Russia, here is why the sanctions won’t have a conclusive effect on Russia’s stance on Ukraine and Crimea and why even a mixture of Sanctions, Diplomacy and propaganda will have a very small effect on Russia. To understand how and why of this we need to understand how Russia works and how it has changed since we last had in on our radars during the “good old” cold war days.

Russia 1991-2014 (Then and now)

In 1991 a day after Christmas when erstwhile USSR was dissolved and 14 new states came into existence all seemed to be over and Russia was written off by almost all foreign affairs experts. At that moment when the worlds future looked Uni-polar (and for a while it was)nobody had really thought about the China-India story, Berlin wall had just been broken and nobody focused on Germany either. Japan was in a downward spiral and US seemed like the only place to go to.

Nobody however had anticipated how good the breakup of USSR would be for Russia. True! Russia lost a lot of buffer zone between the real west and its borders in forms of breakup Baltic and East Europe states. True! It lost vast tracts of resource rich regions in the form of Central Asian break up states. All these losses were however territorial, shrinking Russia’s military footprint and natural resource base.

All communist states are however capital-centric from where the power and propaganda flows and this was no different for USSR. Russia was Moscow-centric and the lost areas were in reality not great losses in terms of infrastructure and human resources. What the breakup really did for Russia was that it forced Russian leadership to look inside and make some fundamental changes in its structure and economy. Since then Russia has come a long way, Economically, Diplomatically and politically. I don’t here claim that Russia today is an ideal state, far from it. However Russia is much better off than it was in 1991 and what was communist propaganda in 1991 has been replaced by genuine efforts by a state to realize its potentials.

Country 1991*

1996

2001

2006

2011

Russia

100

63.1

74.5

103.3

118.3

Ukraine

100

47.2

51.8

73.7

75.9

Belarus

100

67.9

94

141.5

192.5

Moldova

100

45.2

45

62.5

74.5

Latvia

100

67.8

92.9

143.1

130.1

Lithuania

100

64.6

81.5

119.8

123.9

Kazakhstan

100

69.3

88.5

141.4

185.7

Kyrgyzstan

100

58.9

76.1

89.6

114.4

Tajikistan

100

34.1

45.2

56

98.1

Turkmenistan

100

68.4

107.7

215.5

351.8

Uzbekistan

100

82.9

102.6

137.5

208.4

Armenia

100

63.3

84.2

154.7

172.5

Azerbaijan

100

42.7

65.2

150.2

241.1

Georgia

100

39.8

49.8

74.1

93.2

Change in Gross Domestic Product (GDP) in constant prices, 1991-2011

Here is a snap shot. If we compare the change in GDP keeping 1991 as base Russia has done for itself much better than 5 out of 14 breakout nations. Considering the fact that the Russian economy was in tatters with a huge back log and a size which is usually troublesome these are impressive numbers. Most of the nations that have done well along with Russia (6 out of the remaining such as Armenia, Uzbekistan, Turkmenistan) are pro Russian and have deep business ties with Russia.

Except for 3 post USSR states that joined EU Estonia Lithuania and Latvia and an exception of Belarus Russia still has better Human development index numbers than all the break out nations.(HDI Numbers:  Estonia: 0.846 Lithuania: 0.818 Latvia: 0.814 Belarus: 0.793 Russia: 0.788 Kazakhstan: 0.754 Georgia: 0.745 Ukraine: 0.74 Azerbaijan: 0.734 Armenia: 0.729 Turkmenistan: 0.698 Moldova: 0.660 Uzbekistan: 0.654 Kyrgyzstan: 0.622 Tajikistan: 0.622) This means most of these break out nations still look up to Russia.

Pre 1991 USSR was perceived as an enemy of the Islamic world. Invasion of Afghanistan suppression of religion in Islamic parts of USSR and weak diplomatic relations between the Gulf States and USSR did nothing to help the perception. On the other hand the mujahidin supporting, Pakistan endorsing, gulf funding America was perceived as largely a friend of the Muslim world. The tables however have turned. Russian abstinence from meddling in gulf affairs, American invasion of Iraq and Afghanistan, troubled relations with Syria Iran and Pakistan have seen America hit a low reputation in Islamic world. Its support of regimes in Algeria, Lybia and Egypt over a long period has not helped the cause and neither has American inability to impartially mediate in Arab-Israel conflict.

Old Russian friends India and China have seen unprecedented growth and have thus bolstered Russian position in the central, South and South East Asia.

Overall Russia today is much better off today than it was under the communists where the Red bogey was an overplayed hand due to its nuclear capabilities. In other words Russia had never been a threat to the west as it is today. However a threat is a perceived threat until carried out.

Sanctions: Who won’t participate?

Out of all the countries in any kind of treaty with US and EU there are many who won’t buy this line of argument or will drag their feet on sanction.

China: China is the biggest trading partner of Russia as a single biggest nation. 8.55% of imports of Russia come from China and 6.98% exports of Russia go to China. The business is mostly Oil and Gas. A country that is trying hard to keep a +5% growth rate cannot do without its gas and oil and in an economic environment which isn’t very robust specially for China, it’s in no mood to incur over head costs importing oil and gas from farther locations where there is plenty just a border across. Russia and China share a long border and have major interests in central Asia which though conflicting in nature have subsets of common interest. China known for doggedly protecting its economic interest will not condemn openly or move against Russia anytime soon.

India: India might not have great economic ties with Russia due to geography but they share strategic ties. Many of Indian defense, nuclear and space programs are Russia supported technologically. These technologies have helped India project its global footprint. India probably is the only country who openly washed its hands off the Crimean incident. Out of 7 Billion people that dwell the planet 2.5 Billion (35% population of the world) live in India and China and that’s the reason why their opinion matters.

Iran: A victim of constant threatening and condemnation Iran sees Russia as a ray of hope to counter and check US influence in central Asia. Since Saudi Arabia and Turkey are US-EU aligned and are in tacit struggle with Iran over influence in Central Asia and Mid east, Iran comes as a logically natural supporter of Russia and China. Though Iran doesn’t have deep trade relations with Russia Iran is the bacon of light for the Shia Muslims and as goes Iran so goes rest of Shia or Persian speaking world.  This logic extended Syria, surprisingly Iraq (Which is a Shia majority and has growing ties with Iran), Bahrain and Yemen come under the Iranian sphere of influence.

Japan: With growing Chinese influence and what now looks to be a imminent Chinese aggression in years to come Japan is on a sticky wicket and is scrambling to normalize ties with its neighbors. Shinzo Abe has made tremendous efforts to win back South Korea, Has made trips to India and is reconsidering its stand on Russia which it perceives as an influence on China.

 

Sanctions: Who will drag their feet?

Surprisingly all the laggards come from EU and that’s the reason, they matter. In a set of sanctions which is going to look purely US-EU imposed, all the major EU nations want to take it easy and here is why.

Germany:  Russia is to Germany as Saudi Arabia used to be to USA. To Germany Russia is a huge oil Drum without which Germany simply cannot do. Germany is Russia’s third biggest It takes 24 percent of Russia’s natural gas exports – more than any other European country – and has an 8.7 percent share of Russia’s foreign trade.

As of October 2013, investment by German companies in Russia was valued at €16 billion, according to the German Foreign Office. Germany is also Russia’s biggest oil market taking almost 700,000 barrels a day in 2012, figures from the US Energy Information Administration show.

This reliance on Russian gas is only set to rise as the country attempts to turns off its nuclear power plants in a process called the Energiewende. There are more than 6000 German companies with over 300,000 German employees now dependent on this trade. Only 38 percent of Germans want to impose sanctions on Russia, according to the survey carried out by Infratest Dimap for German public broadcaster ARD. Russia is Germany’s biggest supplier of energy, and it still regards Germany as an ally rather than a potential enemy. Since the collapse of the Soviet Union, no country has benefitted more from expanded ties to Eastern Europe and friendly relations with Russia. Germany definitely isn’t going to go all guns blazing with sanctions as US.

Netherlands: It’s an economic relation that is growing at a rate of 20% reaching $82.7 billion. Netherlands has today is the second-largest investor in Russia. There are more than 300 offices of Dutch firms operating in Russia with more than 800 JVs. Every year Russia supplies the Netherlands with more than four billion cubic meters of natural gas. Russian oil products also have good prospects – Russia has already surpassed the Saudis and Norway in this sphere. In 2012 Russian exports of oil and oil products amounted to 43.7 and 27.7 million metric tons, respectively. Today Netherlands is totally dependent on Russia for Oil and Gas and any major sanctions would have a catastrophic result on the economy of Netherlands.

France & Italy: Italy and France are strangely in similar positions as far as Russia is concerned. Italy supplies apparels; leather goods, machinery and furniture to Russia and in return imports Oil and natural gas. In the recent crisis Italian exports have dropped however imports have remained more robust creating a trade deficit. There are presently 500 Italian companies working in Russia out of which 70 have production facilities in Russia. Franco Russian cooperation happens at many levels including, defense, space and energy. France in the recent years has been scrambling to iron out cold war differences and wants to get a piece of the pie Germans are having. France sees its relation with Russia as a bargaining chip and leverage against any other EU member, and Germany specifically. The relations of both the countries developed under the previous heads of states, Sarkozy and Berlusconi, with both the leaders gone there seems no chance of the derailment of partnership due to deep economic and strategic impacts.

What Sanctions?

Of all the countries that matter its seems as of now only US and Great Britain are all set to impose sanction along with turkey. Of all the possibilities discussed

Possible Sanctions and analysis:  Here is a list of sanctions that could come into effect and their effect on the present Russia stance.

TRADE EMBARGO

Trade sanctions against Russia have been suggested by US. It is easy for them as they do not rely heavily on Russian imports and do they export a lot to Russia. European Union, a major market for Russia’s energy exports, will be reluctant to follow. Finding new energy sources such a LNG takes times and major infrastructure investments such as pipe lines. In a fragile economic condition they don’t have a choice but to trade with Russia. Russia on the other hand has option of exporting natural gas to other locations for now.

G8 suspension

The G7 could abstain from the G8 summit in Sochi Russia. However this would more be a token of protest and will create negative news about Russia. Other thank that it is unlikely to have any serious ramifications from Russia. What will be affect will be the work at G8, as of late G8 has become an important forum for solving many stuck bilateral issues and for announcing major policies that have effect of the global ecosystem.

OECD MEMBERSHIP TALKS

Suspension of Organization for Economic Cooperation and talk could be one of the steps. However OECD is not an effective organization. Its just of NATO and EU with Australia and some south American nations. Russia isn’t a member of OECD and had only expressed interest in member ship. This means that it won’t have any real impact on Russian economy and political standing.

 EU-RUSSIA TALKS

EU and Russia have been taking about easing the Visa norms and travel policies. Nothing however has come to fruition. The suspension of these talks will not once again affect Russia.

ASSET FREEZES AND TRAVEL BANS

US could freeze assets of companies and individuals involved directly in the Crimean crisis. However to see how effective this could be we need only to see how many Russian companies have assets in US banks. Once again this won’t have any long lasting effects on the Russian stance.

ARMS EMBARGO

As of now only France and Germany have a pending arms deal with Russia. France has already delivered 1 Mistral and won’t be stopped from delivering another. Germany on the other hand has almost developed a brigade level training facility which is the best in the world. There is however no way to take it away. Other than there are no such major arms deals that could be thwarted.

PIPELINE BLUES

This would hurt the countries supporting the pipelines more than it could hurt Russia. For one they will miss out on the transit fee. Moreover they will not be able to meet the projected demand.

IRAN-STYLE  SANCTIONS

Any financial sanctions that could hurt Russian banks will hurt EU as well. To hurt Iran, US first suspended trade with Iran and put embargoes on exports. This wont be possible in case of Russia as Russian exports are essential. Russia will have to be paid for what it sells. Any other financial sanction that could hurt Russian currency will force Russia to accept payments in other international currencies such as Renminbi, or in extreme cases Russia might just forgo the payment option and resort to barter. Exactly the way Iran is surviving.

 

Conclusion

In its present form all the sanctions can do is get RUSSIA some bad press most of which will be directed ad Mr. Putin. This is not only insufficient to make Russia change its stance it will also go a long way to prove that US doesn’t run the world any more.

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One thought on “Why Sanction Against Russia Won’t Bite

  1. a decendent of abraham on said:

    there is no god and the rothchilds can fall,,your friend LUCIFER

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