To Weaken Putin Dump Russia Sanctions

Economic war on Russia has bolstered Putin's position. "The only way to make Russia adopt the liberal values we hold dear in the west is by supporting Russia’s prosperity and engagement"

The stated goal of sanctions is to change Russia’s behaviour and more specifically to change its aggressive policy to its neighbours – Ukraine first and foremost.

In this sense they are a complete failure. If anything they have bolstered the position of President Vladimir Putin, who was, for the first time since he took office in 2000, politically vulnerable after the petro-economy was exhausted and growth fell to zero – well before the showdown with Ukraine started.

Putin has used the sanctions to rally the Russian population to his flag with the idea of “fortress Russia” and quite rightly points out that Russia is under attack.

The financial sanctions are an economic act of war and as they escalate his job gets easier, he becomes more entrenched than ever and his foreign policy become more aggressive than ever. In the March 2018 elections Putin successfully played on the increasingly hysterical Russophobia in the west to garner an extra 10mn votes to bring his total to 76mn and a landslide victory.

The Russian elections are fixed, but the bulk of the votes are genuine. The Kremlin tampers with the result to cross important thresholds – in this election it was to ensure Putin won an absolute majority of votes.

The logic of the April 6 round of sanctions that targeted Kremlin insider Oleg Deripaska and his aluminium giant Rusalh ave no bearing on the stated goal of sanctions. The idea that the state will change its policies if one top businessman is hurt is nonsensical. Clearly the Kremlin will be annoyed by the interference in its domestic affairs, but no state would change its policy because one of its businessmen is being targeted. This move is guaranteed to produce precisely the opposite result to that desired. Deripaska is close to Putin but Putin doesn't care if one oligarch is impaupered.

And added to that, the sanctions on Deripaska backfired. The effect his problems had on the metals market cost everyone, the US included, a lot of money. According to one estimate, if the sanctions had been carried through then the cost of a can of Coca-Cola have risen by 15% thanks to the rise in the global price of aluminium. In December the US Treasury Department (USTD) was forced into a humiliating climbdown and cancelled the sanctions all together.

I take it as axiomatic that the best, and probably only, way to make Russia adopt the liberal values we hold dear in the west is by supporting Russia’s prosperity and engagement.

This argument is rolled out often in the case of Ukraine, where clearly the biggest threat to Putin is a flourishing Ukraine where personal freedom, and more importantly, personal incomes soar. However, that is not happening. According to the World Bank Ukraine is now the poorest country in Europe, after it fell behind Moldova. The irony is that Ukraine’s “turn to the west” is actively discouraging dissent in Russia as the Russians are as concerned about maintaining the hard won standard of living gains of the last two and half decades as they are with becoming even more prosperous. The last thing they want to do is smash Putin’s system in the hope of building something better because the example of Ukraine is that even if life will improve in the long-term, in the short-term it means misery and poverty. And Russia already did that in the 90s.

Prosperity will change the political agenda. Presidential Ombudsman for Business Boris Titov pointed out to bne IntelliNews in an interview that in the boom years money rained down on everyone and the government turned to putting in place the institutions of a normal country; the education reforms and maternity support programmes introduced in these years were standout successes and almost entirely unreported outside Russia.

Since 2008, Titov says, the game has changed. All the money coming into Russia comes in through a state controlled enterprise, with Rosneft and Gazprom being the most important. That means all the money is now controlled by a few men at the top of the state. Everyone, businessmen included, have been forced to turn inwards to get access to this cash. The upshot has been to bolster both the Kremlin’s power and the corruption.

Encouraging prosperity and engagement with Russia is not appeasement. Neville Chamberlin’s deal with Hitler was appeasement but Putin, unlike Hitler, doesn't want to annex territory or rebuild the Soviet Union. He did annex Crimea of course, but I argue that was a special case as Europe’s decision to partially welcome Ukraine into the EU family meant that it was only a matter of time before Russia lost control of its naval base on the Crimea.

Article 10 of the Association Agreement Ukraine signed with the EU, nominally a trade agreement, is a clause that calls for closer military cooperation: “The Parties shall explore the potential of military-technological cooperation. Ukraine and the European Defence Agency (EDA) shall establish close contacts to discuss military capability improvement, including technological issues.”

This clause is vague and does not specifically mention Nato, but given that all the EU members are Nato members, Russia’s paranoia about Nato expansion and the broken promises made to Gorbachev at the end of the Cold War by some 30 western leaders that Nato would not expand westward, Putin took a calculated decision to secure the naval base once and for all.

Of course the annexation was illegal and so retribution of some sort is warranted. Targeted sanctions here are appropriate. But the annexation was also a function of the perceived aggressive expansion of Nato’s military eastward as much as it was Russia’s own expansion westward.

The row over Crimea will never go away. Ukraine will always insist on the return of its sovereign territory and Russia will never give it up. There is no solution to this problem in the foreseeable future short of military action. And sanctions certainly will only entrench Russia further as only the threat of the complete collapse of the Russian economy could possibly provide enough leverage to force Russia to give up the Crimea.

But if Russia and Ukraine both flourish then they will naturally be drawn together and solutions will start to present themselves. Russia’s economic relations are flourishing on the back of energy ties and Putin has met with Japanese Prime Minister Shinzo Abe 24 times. The two men are meeting this week and there is a chance that Russia will give back the disputed Kuril islands that it occupied at the end of WWII.

Engagement and trade is a difficult option as there is a need amongst politicians to be seen to “do something” about Russia. But the policy of sanctions only makes things worse. During Putin’s annual press conference a Wall Street Journal journalist asked Putin if he wants to rule the world.

After accusing the US of that goal he went on to say: “The main goal of our foreign policy is to provide favourable conditions for the development of the Russian Federation, its economy and social sphere, to ensure unconditional movement forward and the strengthening of our country inside, above all, so that it takes a worthy place in the international arena as an equal partner among equals. We are in favour of strengthening the system of international law, ensuring the unconditional fulfilment of the Charter of the United Nations, and developing equal relations with all participants of international communication on this platform.”

Having said all this, I don't see sanctions being withdrawn for decades. If anything more stringent sanctions are coming in 2019. The west has painted itself into a confrontational corner with Russia from where there is no escape. There is no specific goal to sanctions now other than to cause Russia economic pain in the misplaced hope that over time it will force the Kremlin to compromise.

I would argue that instead it would be far more effective to apply the flourishing argument currently applied to Ukraine to Russia itself: Russians have already passed the “subsistence” phase of simply putting food on the table and a roof over their heads that Ukraine is going through now. Once their incomes rise enough to provide a decent quality of life, the people start to become political and demand from their government better quality services, good schools, functioning health care and a moderately comfortable pension. Putin can face down the west with impunity but he is terrified of his own people. They are the ones with the power to change the Kremlin’s policy and adopt liberal values. Ironically instead of undermining Putin’s regime, today Ukraine’s chaos is bolstering it.

The only hope is that over time business ties will develop despite the sanctions and while the situation on Planet Politics is fraught, life on Planet Business goes on, with big international companies still investing and expanding in Russia because it is the biggest consumer market in Europe and they can’t ignore it. Over time this flow of trade and profits will act as a salve on the red rash of relations with Russia. But realistically there is no hope of fundamentally improving relations between the west and Russian until Putin steps down in 2024 – and even then it is unlikely things will get better.

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