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Sanctions or bust?

Rob MudgeDecember 18, 2014

As Vladimir Putin tries to gloss over his country's economic problems, ordinary Russians are starting to feel the double whammy of falling oil prices and sanctions. But has the West bitten off more than it can chew?

Image: picture-alliance/dpa/Karl-Josef Hildenbrand

Russia's economy is in tatters. The ruble is in free fall despite a massive intervention by the Russian central bank to prop up the currency. Russian officials have admitted that the combination of falling oil price and Western sanctions are taking a heavy toll - despite assurances to the contrary by President Vladimir Putin and his inner circle. The country's finance minister says that Russia is projected to lose something to the tune of 140 billion euros a year in investments as a result of the sanctions regime. And here's another figure to drive home the brutal truth: Russia's economy is set to contract by 4.7 percent next year if oil prices stay at their current level.

All of which could make you wonder about German Foreign Minister Frank-Walter Steinmeier's recent statement that the aim of the sanctions is not to harm Russia economically.

End goal

So what exactly is the point? "The actual point is to change Russia's actions in Ukraine. And it cannot be achieved with sanctions in the short term. That's the problem with the sanctions. We don't know for sure, but we can argue, that without the sanctions Russia would go much further and this concept of 'Novorussia' would actually cover a much larger territory. And without the sanctions Russia might have actually invaded Ukraine with much stronger forces and might have had control over a much larger territory," says Kristi Raik, senior research fellow at the Finnish Institute of International Affairs, who co-authored a recent paper on the impact of EU sanctions against Russia.

The question is: Are the Europeans and Americans fully aware of the implications and consequences their actions could have not only for Russia but also for the international order? Have they really thought through to the end all the possible scenarios and permutations that could emerge?

EU and Russian flags
Sanctions till hell freezes over?Image: picture alliance/chromorange

Sanctions trap

From an economic perspective, some experts argue that in the long run the West's sanctions will play into Putin's hands and that the EU and the US have fallen into a sanctions trap. The problem with the sanctions is that the more effective they are at undermining Russia's economy, the more they also undermine Europe's and America's' longer term goals, notes Mark Leonard, co-founder and director of the European Council on Foreign Relations and co-author of the recent essay "The New European Disorder."

"Firstly, adds Leonard, "because in the short-to medium term they strengthen and consolidate Putin's grasp on power and his ability to tame his elite and they've allowed him to force the elite to return money to Russia." And "secondly they accelerate Russia's pivot to Asia as it builds markets in other places and strengthens its relationship with China."

What's more, says Leonard, the sanctions also prove that there's not really an option for Russia to compete with the West economically. As a consequence, he argues, they make it more likely that Putin will resort to the sorts of activities that we've seen in eastern Ukraine.

Politically there are even more potential minefields. Undoubtedly there are those in the European and US echelons of power who are secretly hoping that as Russia is gradually brought to its knees economically, the Russian people will rise up against Putin's regime. Again, though, the West may get more than it wished for. "What would come to replace it? It's not something necessarily more favorable from our point of view," warns Raik.

Post-Putin scenario

Indeed, it could backfire horribly, says Leonard "What he [Putin] has tried to do is find legitimacy by mobilizing the population behind his foreign policy goals. So if the economy gets worse then the main source of legitimacy he has comes from a geo-political conflict, so it's likely to encourage him to create more geo-political crises."

Don't mess with meImage: picture-alliance/dpa/D. Sinyakov

And even if a deteriorating economy were to push Putin out of office, his replacement might be equally unpalatable to the West, quite apart from the fact that an immediate post-Putin scenario would be marked by a level of instability and chaos that could make Putin's reign pale in comparison. "There is the risk of a more nationalist, hard-line leader emerging because Putin's vulnerability has never been to the liberal, Western-facing elite. He's always been more worried that a more nationalistic leader might emerge," says Leonard.

Leonard adds that there is little to expect from the opposition. Even someone like Alexei Navalny, who, only two years ago, was hailed as the charismatic driving force behind the anti-Putin protests, has been conspicuously quiet on Russia's annexation of Crimea.

Merry Christmas?

The question now is: what happens next? It's safe to say that Putin has underestimated the West's resolve in cracking down hard on Russia. So far there is little sign of discord or disunity within the EU regarding the sanctions regime - much to Putin's chagrin. However, the West needs to address the future - by next spring at the latest when the sanctions are up for review. There are plenty of proponents of a Cold-War-era containment policy, who think it's just a matter of time before the regime collapses. But Mark Leonard isn't convinced. "I'm not sure there is the political will to maintain that policy for a very long time. I'm not sure how solid that consensus is within the EU."

By the same token, what of Washington's staying power? After all, as Leonard points out, its sanctions regime record is chequered - to say the least. "We had sanctions after Georgia was attacked by Russia and they were removed because the Obama administration wanted to reset its policy toward Russia without Russia having met any of the criteria that needed to be met in order to lift them. And I think it's not that difficult to imagine something like this happening again if a future American administration is dealing with "IS" or Iran where it needs Russia to help it."

Obama Photo: Rainer Jensen/dpa
Will the squeeze on Russia be sustainable?Image: picture-alliance/dpa

As most of the Western world winds down for Christmas, Russians will have to wait a little while longer before they celebrate their orthodox Christmas. Given the current economic meltdown, there is little to be merry about. If Putin has one wish on his Christmas list, it's surely that a major, geo-political crisis breaks out that would deflect from his problems at home and rally his people around him.