The diplomatic effort seems to have worn off. After months of tension around Ukraine, Russian President Vladimir Putin chose on Monday 21 February to recognize the two separatist territories that are part of the Donbass region – the “People’s Republic of Luhansk” and the “Republic People’s Republic of Donetsk” – and announced the sending of his army in support.
For Westerners, now is the time for gradual sanctions against Moscow. What form will this retaliation take? What consequences can they have on Russia? Can these measures, by ricochet effect, penalize Europeans?
Why use the weapon of economic sanctions?
Ukraine is not part of the North Atlantic Treaty Organization (NATO), a political-military alliance whose members pledge to protect each other in the event of an attack. Direct intervention by the Atlantic Alliance on Ukrainian territory is therefore not an option. Concretely, several countries provide military equipment to Kiev, but none will send troops to fight on its soil. Economic sanctions are another lever of action to put pressure on Russian President Vladimir Putin.
What are the sanctions announced against Russia?
Member states of the European Union (EU) immediately condemned the decisions taken by the head of the Kremlin. They also translated their anger into action without delay, announcing a first series of sanctions which were to come into force on Wednesday.
These reprisals are aimed on the one hand at Russian political leaders – now visa bans in the EU, where their assets will be frozen – and on the other hand banks involved in the financing of pro-Russian separatists – who will no longer be able to issue or trade bonds on European markets. The EU favors a gradual approach and has other measures in reserve to deal with a possible escalation of the conflict.
Germany has dealt the most symbolic blow: Chancellor Olaf Scholz announced on Tuesday that it was suspending authorization for Nord Stream 2. Completed in November 2021, this gas pipeline, which is to bring Russian gas to Germany via the Baltic Sea, does not has not yet been commissioned.
For its part, the United Kingdom decided on Tuesday to freeze the assets of three billionaires considered close to Vladimir Putin, and to ban them from the territory. The British sanctions also target five Russian banks, including Rossiya and Promsvyazbank, which are very active in financing the defense industry. “We will do much more in the event of an invasion”warned the British Prime Minister, Boris Johnson.
In agreement with their European allies, United States have chosen to cut Russia off from Western funding. Concretely, Moscow can no longer raise funds in the United States or Europe and its new debt issues can no longer be traded on the American or European financial markets.
Two Russian public banks are also targeted – Vnesheconombank and Promsvyazbank – which represent 70 billion euros in assets (which is much less than the main banks in the sector). Washington is also attacking five relatives of the Russian president, who see their assets in the United States frozen.
Here again, certain measures remain in reserve. For the time being, there is no question of banning exports to Russia of equipment with American components, or of disconnecting Moscow from the Swift financial information system, which would have dreadful effects for Western companies.
Has Russia ever suffered such sanctions?
After the annexation of Crimea by Russia in 2014, the EU and the United States adopted a series of economic sanctions. This had resulted in massive capital flight, a plunge in investment and a sharp drop in the rouble.
However, the cost of these retaliatory measures “wasn’t strong enough to favor a Russian withdrawal but merely signaled what the Europeans found unacceptable”explains to World Sven Biscop, professor of strategy at the University of Ghent and director of the “Europe in the world” program at the think tank Egmont, in Brussels.
In fact, these sanctions have not prevented the Kremlin from carrying out massive cyberattacks, assassinating or attempting to assassinate political opponents, and threatening the Donbass with invasion. Their effect on Russian growth has been limited: − 0.2% of gross domestic product (GDP) per year between 2014 and 2018, according to the International Monetary Fund. The colossal gas projects carried out in the Arctic by the Russian group Novatek and the French Total were financed without recourse to the dollar. A recent report from the US Congress even notes that Russian oil exports to the United States have increased, despite the restrictions on certain technologies imposed by Washington.
Will the new sanctions be more effective?
The first sanctions decided by the West should have limited consequences. In any case, certainly not to the point of weakening Vladimir Putin. The banks targeted by the EU and the United States are relatively minor, and much Russian capital outside the country has already been repatriated as a preventive measure. Ads targeting certain oligarchs will also have little impact on the Russian economy.
On the other hand, the increased difficulties for the Russian State to access Western capital markets to refinance its debt could weigh on the value of the rouble, and by extension on the purchasing power of Russian consumers for imported products.
Benoît Vitkine, the correspondent of World in Moscow, nuance: “Russians are poor, but the state coffers are full. For ten years that the standard of living has been falling in the country, reserves have been accumulating, they are immense and they allow us to see what is coming. It’s a bit as if Moscow had been preparing for this tough confrontation for a long time. » Russia can indeed boast of having accumulated nearly 640 billion dollars (566 billion euros) in its foreign exchange reserves (savings allowing a country to continue to import despite the vagaries of international trade). It also has a sovereign fund of 183 billion dollars (162 billion euros), a huge woolen stocking that will allow it to cushion the shock of the sanctions, for a time at least.
” Pardon the expression, but we don’t give a fuck about all their sanctions”warned bluntly the Russian ambassador to Sweden, Viktor Tatarintsev, in an interview with the Swedish newspaper Aftonbladet February 12.
It should be remembered here that the sanctions announced on Tuesday are part of a graduation strategy: in the event of Russian escalation, the West reserves the possibility of carrying out additional actions. A first “package” of sanctions with limited scope also gives diplomacy a chance. “This is the start of an invasion and this is the start of our response”summarized a senior official of the American administration.
What are the consequences for Europeans?
Could the reprisals decided against the Kremlin turn against the Europeans? This is possible if Russia in turn decides on sanctions, particularly in the energy field. Europe indeed imports 40% of its gas needs from Russia, with a strong heterogeneity between the Twenty-Seven. Slovakia and Austria source exclusively from Russia. Conversely, Spain does not buy anything from Moscow. In Hungary and Finland, 80% of the supply is Russian; this percentage drops to 50% in Germany, it is just over 20% in France.
The Kremlin therefore has real power over its neighbours. Especially since members of gas-exporting countries, including Qatar, warned on Tuesday that they have limited capacity to quickly increase supplies to Europe. And in recent months, tensions between Brussels and Moscow over Ukraine have already contributed to soaring gas prices on the European market.
On the agricultural market, Russia is the world’s largest exporter of wheat and represents, with Ukraine, a quarter of world exports of this essential cereal. The country is also one of the world’s largest producers of nickel and aluminum.
Within the EU, Germany has the strongest trade ties with Moscow, but only 2% of its exports go to Russia.
In Paris, the Ministry of Finance notes that the impact of economic sanctions “will be stronger for Russia than for the EU. [Cette dernière] exports the equivalent of 1% of its gross domestic product [PIB] to Russia, [celle-ci] exporting 11% of its GDP to the EU”. Even if there are obviously disparities between the Member States. For France, Russia is the fifteenth market and the seventeenth importing country.
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