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Here's Why Sanctions Actually Help Russia

... and why the are going to cause a serious political headache for EU leadership

This post first appeared on Russia Insider


Instead of hurting Russia and damaging Putin's popularity, leading economists are talking about how they will actually help Russia.  They will increase incentives to diversify away from oil and gas, support domestic manufacturing, build a more robust domestic financial system, strengthen the agricultural sector, and accelerate trade with other developing countries.  

The latter will strengthen Russia's diplomatic relations around the world.  Overall this will improve Russia's balance of trade and create jobs in Russia, particularly in the agricultural sector.  Seen in this light, sanctions are actually a blessing in disguise.

Sanctions will force the Russian economy out of its reliance on oil and gas. Russia will finally be encouraged to begin its re-industrialisation and manufacturing, diversifying its source of state income, thus strengthening its economy. In addition, it will be harder to take money out of the Russian economy and support an alternative financial system that benefits the country. Already, the Kremlin has revived plans to develop a national payment system and trade in rubles rather than dollars.  Considering Russia's huge international trade in oil and gas, this signals a serious threat to the petro-dollar system.

Sanctions will accelerate Russia’s pivot towards a prospering East and encourage cooperation with other growing regions, such as Latin America.  China in particular is becoming an important ally for Russia, as illustrated by the mammoth $400 billion gas deal signed between the two nations.

Agricultural producers stand to benefit the most. Forecasts estimate that by the fourth quarter of 2015, the Russian meat market will be self-sufficient in meat.  Domestic production over the next 18 months is expected to increase by $7.7 billion.

It many ways the sanctions will have the exact opposite effect of intended by the US.  They will spur Russia to rebuild itself as a strong state and lead to economic modernisation and cultural revival.


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