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In Pictures: Russia Under Sanctions

The U.S. and EU are hammering Russia with a fresh round of sanctions, after revelations of the killing of civilians in Bucha, Ukraine.

The sum of economic penalties on Moscow has put a heavy toll on the country’s economy, as European countries curb Russian fuel purchases and international brands withdrew. More than 600 companies have announced a suspension of operations in Russia since the beginning of the war, according to a Yale School of Management report

Source : Caixin

Infographic: Which Nations are on Russia’s ‘Unfriendly’ List?

On May 13, 2021, Russian President Vladimir Putin signed into law the List of Unfriendly Nations, which included the United States and the Czech Republic.

On March 5, 2022, as Russia’s military operation in Ukraine progressed, the list was updated to include 45 more nations and jurisdictions. The countries and territories mentioned in the list have imposed or joined the sanctions against Russia.


Source : Strategic Culture Foundation

Infographic: A Recent History of U.S. Sanctions on Russia

See large image . . . . . .

Source : Visual Capitalist

Why Sanctions Don’t Work, and Why They Mostly Hurt Ordinary People

Ryan McMaken wrote . . . . . . . . .

The United States and its Western European allies have in recent days repeatedly increased economic sanctions against not only the Russian regime, but against millions of ordinary Russians.

It has done this by cutting much of Russian trade and Russian finance out of international markets. Moody’s and S&P Global have both downgraded Russia’s credit rating. The US has frozen Russian reserves and cut many Russian banks off from SWIFT, the international banking communications system. Europe is planning on big cuts to its purchases of natural gas from Russia. The US is mulling a stop on all purchases of Russian crude. The ruble has fallen to a record low against the dollar. Russia is at risk of defaulting on its foreign debts for the first time in more than a century. Many of the sanctions appear targeted at only certain wealthy Russians, but these moves greatly increase perceptions of geopolitical risk for anyone with Russian investments or investments connected to Russia. That means many investors and corporations will “voluntarily” cut back their activities in Russia to reduce risk and because they figure they might be targeted next. Ground-up pressure is mounting also: corporations like Coca-Cola and McDonald’s are being pressured to close their operations—and thus lay off all their workers—in Russia. This means a real decline in overall investment in Russia far beyond just some Russian banks and oligarchs.

The trickle-down effect to ordinary Russians will be immense. Purchasing power, incomes, and employment will be significantly impacted, and many Russians will suffer serious setbacks to their standards of living. The Russian ruling class will be affected too, but given they live much further from subsistence levels, they’ll fare much better overall.

And yet if history is any guide, the sanctions won’t work to get the Russian military out of Ukraine or to achieve regime change in Russia.

The Political Logic of Sanctions

The idea behind sanctions has long been to make the population suffer so that “the people” will revolt against the ruling regime and force it to cease the policies that the sanction-imposing regimes find objectionable. In many cases, the stated goal is regime change. It’s essentially the same philosophy behind Allied efforts to bomb German civilians during World War II: it was assumed the bombing would ruin civilians’ morale and lead to domestic demands that Berlin surrender.

Economic sanctions are less despicable than bombers targeting civilians, of course, but they are also likely less effective. Instead of convincing the domestic population to abandon their own regime, foreign attacks on civilians—whether military or economic—often cause the domestic population to double down on their opposition to foreign powers.

Nationalism Trumps Economic Interests

When it comes to economic sanctions, there are several reasons that sanctions fail to achieve stated ends.

First of all, sanctions will fail unless there is near universal cooperation from other states. In the case of the American embargo of Cuba, for instance, few other states cooperated, which meant the Cuban state and the Cuban population could obtain resources from many sources other than the United States. US-led sanctions against Iran, on the other hand, have been more successful because a large number of key trading states have cooperated with the sanctions.

The situation with Russia sanctions are likely to be somewhere between Cuba and Iran. While several key Western states like the US and the UK have taken a hard line against Russia, many other sizable states have been reluctant to impose similar sanctions.

Germany, for example, has refused to impose sanctions in the near term, noting that Germany—as well as much of Europe—cannot meet its energy needs without first making time-consuming changes in energy policy and industrial output. Several key medium-sized states have shied away from a hard line on sanctions as well. India, for instance, has refused to void a weapons agreement with Russia. Mexico has stated it will not impose sanctions, and Brazil states it is seeking out a neutral position.

Most importantly, China has not cooperated with US-led sanction efforts, and China stands to benefit from sanctions imposed by other states. While China has not yet signaled outright support for Moscow, it nonetheless abstained in the UN vote condemning the Russian invasion of Ukraine. This is likely less than what Moscow hoped for, but Russia can likely count on China as a willing buyer of Russian oil and other resources. After all, China has been uncooperative with US-led sanctions in Iran, and has been a significant buyer of Iranian oil. China is likely to strike similar deals with Russia. Moreover, if Russia faces a restricted number of buyers for oil, this gives Beijing more leverage in obtaining Russian resources at a discount.

So long as Russia can continue to trade with sizable states like China, Mexico, Brazil, and possibly India, Russia will not face the sort of isolation the US hopes to impose.

A second reason that sanctions fail is that nationalism—a potent force among most populations—tends to impel sanctioned populations to support the regime when they are threatened.

As Robert Keohane has noted, even in noncrisis situations, nationalism can be a general source of strength for a state, since nationalism can unify populations behind the regime. Moreover, as John Mearsheimer shows in The Great Delusion: Liberal Dreams and International Realities: “Nationalism is an enormously powerful political ideology…. There is no question that liberalism and nationalism can coexist, but when they clash, nationalism almost always wins.”

That is, in crisis situations, we can often expect even disgruntled liberal reformers to defer to nationalistic impulses over liberal ones, further strengthening national opposition to sanctions imposed from the outside.

To see the plausibility of our claims, we need look no further than the United States, which has long been remarkably safe from any realistic threat of foreign conquest. Yet even in the United States, it doesn’t take much in terms of foreign aggression to convince the population to unite in support of the regime. Certainly, the regime has rarely enjoyed more support than in the wake of Pearl Harbor and 9/11. Were some foreign power—say, China—to attempt to coerce Americans to commit to regime change through economic sanctions, it’s hard to imagine this would produce much support for the foreign power in the US.

Similarly, US sanctions have not exactly invigorated pro-American or antiregime efforts in Cuba, Iran, North Korea, Venezuela, or any other state where the US sought to bring about domestic political change through sanctions.

There are few cases where sanctions might have worked; however, the two go-to examples of this—i.e., Iraq and Serbia—are cases where where economic sanctions were accompanied by overwhelming military force or plausible threats of it. Needless to say, that’s a very specific type of sanction, and has little to do with a conflict involving a nuclear power like Russia.

Sanctions might also bring undesirable side effects. As Richard Haass at the Brookings Institution shows:

Trying to compel others to join a sanctions effort by threatening secondary sanctions against third parties unwilling to sanction the target can cause serious harm to a variety of U.S. foreign policy interests. This is what happened when sanctions were introduced against overseas firms who violated the terms of U.S. legislation affecting Cuba, Iran, and Libya. This threat may have had some deterrent effect on the willingness of certain individuals to enter into proscribed business activities, but at the price of increasing anti-American sentiment…. Sanctions increased the economic distress on Haiti, triggering a dangerous and expensive exodus of people from Haiti to the United States. In the former Yugoslavia, the arms embargo weakened the Bosnian (Muslim) side given the fact that Bosnia’s Serbs and Croats had larger stores of military supplies and greater access to additional supplies from outside sources. Military sanctions against Pakistan increased its reliance on a nuclear option, both because the sanctions cut off Islamabad’s access to U.S. weaponry and by weakening Pakistani confidence in American reliability.

And finally, even if sanctions “worked,” that would be insufficient to justify their use. They are, after all, a type of protectionism on steroids and that requires sanctioning American individuals and American firms that run afoul of these government regulations—many of them difficult for Americans to navigate legally.

Yet sanctions remain popular because they placate the voters who insist “we” must “do something,” and government officials are more than happy to engage in policies that grow state power and can be used to reward friends of the regime.

But having the regime “do something” is a dangerous game, and if the voters want to signal their virtuous opposition to perceived foreign enemies, the voters can always take action on their own. If Americans don’t like Russian goods and services, they’re free to boycott these goods, just as Americans boycotted British goods during the Revolution. But embracing yet more federal power in the name of teaching foreign regimes a lesson tends to harm ordinary people in many ways few can anticipate, while also potentially placing many Americans in legal jeopardy. And all of this will be done, no less, with little hope of success.


Source : Mises Institute

Chart: The World’s Most-Sanctioned Countries

Source : Statista

To Punish Putin, the World Turned Finance Into a Weapon of War

Matthew Boesler wrote . . . . . . . . .

The European Union, the U.S., and a handful of America’s allies in Asia have responded to Russia’s invasion of Ukraine with financial sanctions unprecedented for a target Russia’s size. The steps taken to isolate it within the global financial system are aimed at punishing President Vladimir Putin by sowing chaos in his country’s economy.

In the first week of the conflict, Russia’s central bank was struggling to contain the fallout on its own side of the border, while Ukraine’s was able to maintain a semblance of stability even as it rallied global financial resources around its defense effort.

Central banks have been key players in war finance since their inception. “You can go back to the establishment of the Bank of England in the 1690s, and you can see directly where that establishment was in large part in order to be able to finance wars against Louis XIV, and also to help stabilize the economy during those wars,” says Paul Poast, a political science professor at the University of Chicago.

The Central Bank of Russia was indeed central to Putin’s strategy in the years leading up to the invasion—since 2014, when he annexed Ukraine’s Crimea region and Western nations responded with sanctions aimed at making it more difficult for Russia to transact in the U.S.-dominated global financial system.

The repercussions from that episode were severe. Combined with a collapse in oil prices that year, it sent the ruble tumbling more than 40% against the U.S. dollar, forcing the Russian central bank to enact dramatic interest-rate increases that pushed the economy into recession.

From that point the bank embarked on a massive accumulation of foreign exchange reserves. That stockpile, now the fourth-largest in the world, at around $643 billion, could be deployed to defend the ruble in the event of another crisis. “They have been trying to ‘bulletproof’ their economy from sanctions since 2014,” says Elina Ribakova, deputy chief economist at the Institute of International Finance in Washington.

That bulletproofing came at a significant cost. Hundreds of billions of dollars brought in via oil and gas exports were salted away instead of being reinvested in the economy, which has averaged growth of 1% a year since 2014. In that sense, Russian citizens have already been bearing the cost of the current conflict for many years.

That’s why the new raft of sanctions, and in particular the extraordinary targeting of Russia’s central bank, is such a big deal. Putin was counting on the world’s, and especially Europe’s, reliance on Russian energy exports and investments by a host of marquee foreign corporations to prevent governments from taking extreme measures in the opening days of the invasion. It didn’t work: Just days after Russian troops marched into Ukraine, the U.S., European nations, and other allies topped off a barrage of harsh sanctions by cutting off access to hundreds of billions of Russia’s reserves parked in their jurisdictions. (China did not follow suit.)

With that, Putin’s war chest was effectively cut in half overnight. “At this stage, ‘Fortress Russia’ is going out the window,” Ribakova says. The move to freeze reserves “significantly limits their options in terms of helping the financial sector, looking after common Russians—you know, financing the war effort.”

The financialization of warfare is bringing the social character of money to the fore on a global scale. Or, as Bloomberg Opinion columnist Matt Levine put it: “Russia’s foreign reserves consist, in the first instance, of a set of accounting entries. But in a crisis the accounting entries don’t matter at all. All that matters are relationships, and if your relationships get bad enough then the money is as good as gone.”

And the fallout has been severe. To halt the ruble’s free fall without depleting its greatly diminished stock of foreign reserves, Russia’s central bank instead hiked its benchmark interest rate to 20%. Stagflation is sure to follow as the economy sinks into recession while a weaker currency propels already-elevated inflation higher.

Russian officials also were forced to put stringent controls in place to deter capital flight and stem a bank run that drained some $14 billion in deposits in a single day. Measures included freezing the assets of all nonresident investors, making it impossible for them to liquidate their holdings, and a ban on converting rubles into other currencies. And companies bringing in export revenue from overseas were instructed to sell 80% of their foreign exchange, effectively drafting businesses to help put a floor under the ruble.

The U.S. and Europe also moved to disconnect several major Russian banks from SWIFT, the global messaging system used to facilitate payments between financial institutions. That will force them to figure out complicated workarounds.

If the objective of all these moves is to precipitate a financial crisis in Russia, the strategy seems to be working. One telling indicator: The cost of insuring Russia’s government debt has shot up, with one gauge showing the likelihood of a default had climbed to as high as 65%. Fitch and Moody’s each downgraded Russia’s sovereign credit rating to junk status on Wednesday, saying sanctions would weaken the economy. “In terms of economic war, this is jumping into the void,” says Yakov Feygin, associate director of the Future of Capitalism program at the Berggruen Institute in Los Angeles.

Even if President Volodymyr Zelenskiy succeeds, with a big assist from his friends abroad, in repelling Russia’s attack, Ukraine’s economy will suffer heavily from the physical destruction of the military incursion. Yet unlike in Russia, the central bank at least has been able to maintain liquidity in its domestic financial system to support the nation’s defense. On Day 1 it put a new twist on the central bank’s traditional war-finance role by setting up a crowdfunding account to process donations from foreigners. It has raised almost $200 million so far.

Ukraine’s finance ministry sold 8.1 billion hryvnia, or $277 million, of war bonds paying 11% interest to international investors on Tuesday. It also made a regularly scheduled interest payment of about $300 million on outstanding debt.

International assistance is flooding in through other channels. The U.S. and European countries have already authorized billions of dollars’ worth of funds and equipment to aid Ukraine’s defense, and more is on the way. For the first time in its history, the EU is supplying arms to a country at war, using a financial vehicle it calls the Peace Facility.

Smooth operations at the National Bank of Ukraine offered a modicum of stability on the ground in Kyiv in the first several days of the invasion, even as air-raid sirens were ringing and residents fled to bomb shelters. On Day 7 the central bank eased previously instated restrictions on foreign-currency withdrawals for individuals, lifting the cap to 30,000 hryvnia, or almost $1,000, a day.

Supplies of basic goods are running low in cities sustaining heavy damage from the Russian assault, such as Kyiv and Kharkiv, according to Nataliia Shapoval, chairman of the KSE Institute at the Kyiv School of Economics. But in areas of the country where civilian infrastructure hasn’t been targeted, business is more normal and prices have not been affected. “Macrofinancial stability is important, and the ability of the central bank and ministry of finance to be in control is important,” Shapoval says.

Russia, despite the heavy sanctions, still retains its oil and gas exports as a critical financial lifeline. “We have a situation where energy prices are high, and they may get even higher, and this is a help to the Russian economy,” says Vasily Astrov, an economist at the Vienna Institute for International Economic Studies. “This is a difference to the situation in 2014, when it was a double shock of Western sanctions and falling energy prices.”

The U.S. and the EU have been loath to take any actions that would result in a serious disruption to oil and gas supplies, as they would be on the receiving end of some of the economic repercussions. Russia provides approximately 40% of Europe’s natural gas, and the European Central Bank has estimated that a total shutoff would result in an economic hit equal to 3% of gross domestic product. The resulting spike in oil and gas prices would also stoke inflation, which has become a political problem.

But Ukraine’s allies can keep climbing an “escalation ladder” if they so choose, according to Ribakova, of the Institute of International Finance. The EU is looking at ways to limit access to its ports and waters for Russian vessels, expanding on an earlier ban of Russian flights into the bloc’s airspace. And on Wednesday, the White House announced restrictions on exports of oil technology to the country aimed at “degrading Russia’s status as a leading energy supplier.”

The extent to which the newfangled techniques of financial warfare will prove an effective substitute for old-fashioned troops and tanks remains to be seen. Julia Friedlander, a senior fellow at the Atlantic Council and former U.S. Treasury Department official, worries that the outcome could be a lose-lose situation. “I think this is going to be a conflict that is going to go on for a very long time, and we could very much see it completely destroy Ukraine. That’s my biggest fear: You impoverish Russia through sanctions, but they destroy Ukraine in the process, and no one gets anything.”


Source : Businessweek


Read also at New Yorker

How Vladimir Putin Miscalculated the Economic Cost of Invading Ukraine . . . . .