Why sanctions against Russia may not work

The unprecedented U.S.-led Western sanctions against Russia have been likened to economic weapons of mass destruction (WMDs) that would ultimately destroy the Russian economy. In reality, the sanctions are like a double-edged sword — they inflict pain on Russia but also impose costs on their imposers.

 

The West, in fact, is caught in a trap: The sanctions and the deepening conflict, by helping to raise global commodity and energy prices, translate into higher revenues for Moscow in spite of a significant decrease in its exports. And the higher international prices, by fueling inflation, mean political trouble at home for those behind the sanctions.

 

Look at another paradox: Despite Russia being cut off from the world’s financial arteries, the Russian ruble has dramatically recovered through state intervention. But, as if to signal that Japan is paying a price for following the U.S. lead on Russia, the Japanese yen (the world’s third-most-traded currency) has sunk to a 20-year low against the U.S. dollar, ranking this year as the worst performing of the 41 currencies tracked — worse than the ruble.

 

Meanwhile, the runaway inflation and supply-chain disruptions are threatening Western corporate profits, while the interest-rate hikes to rein in inflation make a bad situation worse for consumers. With economic trouble looming large, April became the worst month for Wall Street since the pandemic-triggered March 2020 plunge. The S&P 500 fell 8.8 percent in April.

 

In the first two months of the war in Ukraine, those imposing the sanctions ironically helped Russia to nearly double its revenues to about €62 billion from selling fossil fuels to them, according to a report of a Finland-registered think tank, the Centre for Research on Energy and Clean Air. The top 18 importers, with the sole exception of China, were the sanctions imposers, with the European Union (EU) alone accounting for 71 percent of the purchases of Russian fuels in this period.

 

While Turkey, South Korea and Japan also remain reliant on Russian energy supplies, the EU’s imports of gas, oil and coal from Russia totaled around €44 billion in this two-month period, compared with about €140 billion for the whole of 2021.

 

Russia, even as its economy takes a hit from the Western sanctions, is doing its bit to keep international energy and commodity prices high, including by cutting off gas supplies to Poland and Bulgaria. Moscow could raise prices further through broader counter-sanctions and yet manage to cushion its export earnings.

 

The fact is that Russia is the world’s richest country when it comes to natural resources, including serving among the world’s largest exporters of natural gas, uranium, nickel, oil, coal, aluminum, copper, wheat, fertilizers and precious metals such as palladium, which is more precious than gold and used largely in catalytic converters.

 

Through no fault of theirs, the real losers from the Russia-NATO conflict, sadly, are the poorer countries, which are bearing the brunt of the economic fallout. From Peru to Sri Lanka, rising fuel, food and fertilizer prices have triggered violent street protests, which in some states have spiraled into continuing political turmoil. The debt woes of many poor nations have deepened.

 

In employing the full range of its economic weaponry, the West sought to unleash “shock and awe” on Russia, as if to underscore that sanctions are a form of war. But like armed conflict, as Russia’s invasion of Ukraine illustrates, sanctions are unpredictable in shaping outcomes and often lead to unintended or undesirable consequences.

 

https://thehill.com/opinion/international/3473500-why-sanctions-against-russia-may-not-work/