In an interview with ntv.de, the Russian economic and defense analyst Igor Danchenko talks about whether Western sanctions against Russia are having any effect at all. He expects the war in Ukraine to end as a frozen conflict. However, even after a ceasefire there will be a new Iron Curtain between Russia and the West.
ntv.de: More than a year after the start of the Russian war of aggression against Ukraine and the corresponding Western sanctions against Russia: How is the Russian economy really doing?
Igor Danchenko: On the one hand, the Russian economy is doing better than Western policymakers had expected. We also know that the effects of the sanctions against Russia have so far been rather marginal and that Russia is also using them to make itself more independent. On the other hand, the long-term effects will inevitably have more negative implications for Russia.
Igor Danchenko was born in Russia and has been living in the USA for several years, where he worked, among other things, as an analyst for the Brookings Institution think tank. His areas of specialization are security and defense policy. Between 2017 and 2020, Danchenko was considered an informant for the FBI on national security issues.
(Photo: private)
Could Russia gain complete economic independence from the West?
Let’s assume for a moment that Russia is able to shake off Western influence and embark on economic or social investment programs – many of them dating back to the Soviet era, by the way. Even if that happened, Russian funds would still be limited. Russia has courted foreign investment and access to Western technology for decades. While this is now portrayed (in Russia) as if the West exploited Russia, ultimately Russia is dependent on foreign investment. And that’s where Vladimir Putin miscalculated: These investments from the West have not been replaced by investments from other countries.
countries like China?
China, the Middle East, certain African countries. These markets have their limitations, so Russia faces problems there too. But it has to be said that there was no shock to the Russian economy, as many had expected. Although the euro-dollar exchange rates shot up in the first week after the start of the invasion, they were already stabilized in March 2022 by the intervention of the Russian central bank and have been more or less stable since then.
How well are Western sanctions against Russia working? Do they have the potential to dry up the Russian economy and thus also influence the course of the war?
Sanctions have not worked well in recent years, as was the case after the annexation of Crimea. So why would they miraculously do this overnight? But to be clear, Russia’s economy is badly hit by sanctions, and also by Putin’s war effort. The military-industrial field, that is, the mass production of weapons and ammunition, leads to resource depletion. The Russian economy survives. That’s how I would say it.
The level of European sanctions is already extreme. So there isn’t that much more to do. I don’t think the West will be able to drain the Russian economy. Russia will turn to other markets, which it has already done offensively. I would agree with those who say that Europe has maxed out its sanctions regime. I’m not saying that you can’t or shouldn’t get creative, but seriously, sanctions against people like Alina Kabaeva’s mother are a joke. [Alina Kabajewa gilt als Geliebte Putins.]
Let’s look at energy prices: are countries like Germany facing high costs again next winter?
Quite possible. These are market prices and OPEC (Organization of Petroleum Exporting Countries) intervenes in the market. The West has not yet been able to provide a real answer to the challenges posed by OPEC. Incidentally, there is also the GECF, the Forum of Gas Exporting Countries, which has been lurking in the background for a decade. What would happen if Russia or any other country brought such an organization back to life? So there’s a lot of potential for momentum here. Energy will be more expensive for Germany in the next few years – for sure in the coming winter.
On the other hand, we see that the markets are already correcting. If oil and gas no longer come directly from Russia, then in the form of liquefied natural gas (LNG) via a third country. That’s already happening. Sanctions are circumvented and oil products reach Europe via India, which in turn contains Russian oil. Because the Russians have to circumvent the sanctions, they have established a whole fleet of “ghost tankers”. They have to transport crude oil from tanker to tanker, mix it with other types of oil and thus mask part of their energy exports. Third countries like India refine it and export oil products. Such circumvention of sanctions is difficult to monitor. However, all this effort is shrinking Russia’s profit margins.
How could this form of circumventing sanctions be controlled?
Of course, if the West were able to convince China and India to go along with the sanctions against Russia, that would carry more weight. But that’s just how the market adjusts itself. This means that Germany will ultimately get the same mix of oil and gas as in the past. Not directly, of course, and it will also be more expensive, but ironically, part of it will still come from Russia.
Also, we will see what will happen with the Russian “Arctic LNG” projects. Russia has its own patented liquefaction technology called “Arctic Cascade”, which in turn is being tested by the Novatek company. If Russia’s LNG projects are successful, despite sanctions and restrictions, then suddenly more Russian LNG would be available on the world market, which in turn could ease the pressure in Northern Europe or Northeast Asia. Or, should more LNG from the Russian Arctic be made available to India and China, cheaper North American LNG could be left over for Germany and its neighbors.
What other effects does this war have on the energy markets?
Energy markets are reaching a new form of equilibrium. By the time the war is over, the world will have changed. I don’t see the end of the war yet, but I do see this new equilibrium being leveled out. So the world has already reacted and the more the world adapts, the less it will pay attention to Putin’s aggression.
When and how do you think this war will end?
I hope this war will end in 2023. However, the parties involved in this war are willing to go to great lengths to impose their political will. Unfortunately, since the summer of 2022, this war has turned into a face-saving exercise. Everyone is so stuck in their positions that no one is willing to move forward with a peace plan.
Unfortunately, there is also no caliber of Richard Holbrooke, for example [Holbrooke war der Architekt des Dayton-Abkommens, mit dem der Bosnienkrieg beigelegt wurde]. Sometimes all it takes is Richard Holbrooke to get through such a conflict and at least establish a “bad peace” that all parties can get used to. Personally, I regret that there is not the political will to do so.
This in turn means that the war will be decided on the battlefield. Ukraine may be able to regain part of its territory and Russia will try to take more Ukrainian territory or at least cement its current position. Should a truce appear on the horizon, a new iron curtain or fence could be established in the coming decade. Nevertheless, the USA and the EU should not shy away from appointing special representatives at this point in time.
By Iron Curtain do you mean a physical wall?
No, I was speaking metaphorically. But it could already resemble the Korean Demilitarized Zone or the Berlin Wall.
So will the conflict freeze at some point?
Ultimately yes. And then there could be a kind of demilitarized gray area, possibly along the borders of Luhansk and Donetsk and in the Crimea region.
Finally, if we look at the West and also at Germany: What do you think is the greatest threat for this part of the world at the moment?
I think there are two: the excessive polarization of society and, of course, corruption.
Corruption?
Some Western societies have lost their political center. Some have also lost their economic middle class. And many people have simply become indifferent and deliberately look the other way or cling to some conspiracy theories. Polarized societies are less cohesive and more vulnerable to serious disruption from within, but also from outside, for example from state actors like China and Russia. That’s always a threat. And also in this context one should pay special attention to corruption.
Philipp Sandmann spoke to Igor Danchenko.
An English version of the interview can be found here.