Author
dr. Denis Mancevič
In my previous column, I touched on two aspects of Western sanctions against Russia: their intended purpose and consequently how to assess their (in)effectiveness, as well as understanding some selected economic indicators that primarily serve to confirm the thesis of the sanctions' ineffectiveness. To summarize briefly: any sanctions will be a priori ineffective if their goal is to stop the war or change the regime, as such outcomes are impossible to achieve with economic sanctions, no matter how extensive they are, like the current ones against Russia. It is more appropriate to view sanctions as a tool to reduce Russia's military capabilities for conducting a long-term war.
Regarding the indicators selected for propaganda purposes, which tell the story that "everything is fine and stable" in the Russian economy; they need to be interpreted in a broader context while understanding the economic fundamentals behind their emergence and dynamics (this applies to GDP, as well as low unemployment and trade exchange). When we look at the picture from another angle, we see that the Russian economy has not collapsed under the weight of sanctions mainly because of the oil dollars still flowing into the country; these continue to finance the war (about 30% of the federal budget!) and drive the Russian economy (GDP).
Caution is also needed when interpreting opposing indicators, those that show a less rosy picture of the state of the Russian national economy; there are plenty of these as well. For instance, the key interest rate of the Russian central bank hovers around 15-16%, with which the Russian monetary authorities are fighting against the uncontrolled decline in the value of the ruble, and of course (as a negative effect) further fueling the inflationary spiral, which is already significantly eroding the real incomes of the average Russian. Furthermore, some economic sectors have literally collapsed under Western sanctions and the withdrawal of many multinationals from the market, as is the case in the automotive industry (domestic Russian production more than halved in 2022!), machine building, civil aviation, and more. The reason for this is that many sectors, especially those more technologically demanding, have been heavily dependent on Western (mainly European) technologies over the past 20-30 years, both in terms of imports and the specific knowledge needed to operate industrial verticals within Russia itself. Since these were severed in 2022, production has also come to a halt. Even today, in the third year of the war, many sectors lack spare parts, which of course affects both economic activity and productivity.
Lastly, the gas sector and Gazprom, the Kremlin's long-standing flagship and pride, are experiencing their hardest times since the collapse of the Soviet Union: in 2023, the company recorded a loss for the first time in 20 years because of reduced revenues from exports to the EU, Gazprom's most profitable export market. The forecasts are also not promising, as the vast majority of technologies for research and development and production in the oil and gas sector are also Western, and their lack (or at least more difficult and costly access) will have greater long-term consequences on Russia's ability to maintain current production levels, let alone develop new fields. These are not brake discs or railway wagons that Russia could easily import from China or Iran.
These issues are no state secret; it is possible to read and hear a lot about them even from Russian (para)state sources, only they are interpreted differently: that they do not have a long-term and systemic character, that they can be overcome with economic cooperation with other countries, and more: that they will even contribute to the flourishing of the Russian economy, which will become more self-sufficient and less dependent on importing technologies and economic cooperation with the West. Additionally, the situation is not so bad; as otherwise, there would not be economic growth (the leverage of which is enormous military expenditures) and other indicators that testify that everything is in the best order. Not only in Russia itself, but also abroad - unfortunately even in Slovenia - has such Kremlin propaganda fallen on fertile ground.
Since the beginning of the invasion, the EU has adopted 14 packages of sanctions against Russia, most of which have also been joined by other G7 members. The lists of bans are quite long and extensive, but this quantity often serves only Brussels' political PR and is the result of (too) hastily made political statements by European leaders, which are then reflected in administrative bans.
Since the beginning of the invasion, the EU has adopted 14 packages of sanctions against Russia, with most G7 member states also contributing substantively. The lists of prohibitions are quite extensive, but this quantity often serves merely as Brussels' political PR and is the result of hastily made political statements by European leaders, which are then reflected in administrative prohibitions. Even if these measures are either impossible to implement or effectively monitor compliance, or they have no impact on the desired outcome of the sanctions, aside from being symbolic.
Let us look at two examples. The sanctions list includes a ban on exporting luxury goods from the EU to Russia, such as watches, jewelry, luxury cars, etc. The logic and argumentation of these sanctions can be appealing from a public opinion standpoint (this would allegedly affect the ability of wealthy Russians to maintain their previous standard of living and consequently pressure them to oppose Putin's regime; moreover, it is not ethical for 'luxury' to travel from the EU to Russia while rockets fall on Kyiv and other Ukrainian cities daily, killing civilians). In addition, as it appears, this logic is very simple. However, it is fundamentally flawed in three ways. First, Western countries should welcome the flight of capital from Russia, even at the expense of luxury goods. The less capital remains in Russia, the fewer resources the Kremlin has to turn towards the war effort. Second, where there is demand, supply will eventually appear. In other words, luxury goods still find their way to Russia, only through opaque intermediary gray schemes and third countries. Thus, access to such goods cannot be effectively cut off. Third, how realistic is it that in the absence of such goods, hundreds of thousands or millions of wealthy Russians would rise against Putin? It is less likely than winning the lottery. People in Russia today receive decades-long prison sentences for likes and critical posts on social media, so organized resistance is quite far-fetched.
Another example is the numerous administrative restrictions against ordinary Russian citizens who are not on the sanctions list (those have frozen assets in the EU and are banned from traveling), but fall under broader restrictions regarding travel, study, and work in the EU. Many EU countries have thus introduced a ban on crossing borders with cars bearing Russian license plates, and Russian citizens (as well as legal entities not on the sanctions list) can practically not open a bank account in any EU country. This broader set of measures is similarly populist and actually works against the desired goals of the sanctions. It significantly restricts the brain drain from Russia to the EU (surprise, the vast majority of people would like to leave Russia for the EU or the USA, with very few wanting to go east or south), consequently, these individuals (including postgraduate students, researchers, engineers, etc.) remain in Russia en masse and help maintain productivity, precisely what the West would want to limit with an embargo. The correct logic should be diametrically opposite: the EU should open wide its doors to such individuals, not only allowing but also even assisting their migration to the West. This would serve both its own (economic, innovation, demographic, etc.) interests, as well as the goal of reducing intellectual potential within Russia.
The EU will need to do more, investing even more political, financial, and administrative resources to ensure that existing sanctions are actually respected. Otherwise, it could be a major shot in the (economic) foot. In addition, with a shotgun, not a slingshot.
In addition, there are several other examples of sanction measures that are not only ineffective but also even counterproductive. Of course, each of them requires a multitude of measures to monitor their implementation and numerous resources. Therefore, after more than two years, it would be worth, instead of adopting the 15th and all subsequent new sanction packages, thoroughly reviewing all existing ones to the core and objectively assessing whom and what (if anything) they have served. On the other hand, whether they should be turned upside down. And genuinely focusing on those specific measures that are crucial in terms of Russia's long-term capabilities to sustain the war: these are the oil cap and the gray fleet of tankers that continue to ensure Russian oil dollars almost unhindered, as well as all possible high-tech dual-use equipment that still reaches Russia from the EU through third countries. The EU will need to do more, investing even more political, financial, and administrative resources to ensure that existing sanctions are actually respected. Otherwise, it could be a major shot in the (economic) foot. Moreover, with a shotgun, not a slingshot.
The column was originally published in the newspaper Večer on June 8, 2024.