7 reasons why sanctions won’t hurt Russia

Sanctions are often viewed strictly in terms of the amount of economic havoc they cause, in which case they do have a strong record of success, but if sanctions are seen as a coercive tool to pressure governments into changing their policies, then their record is not as impressive.

There are many reasons why sanctions have proved such a disappointing instrument of Western policy towards Russia:

1- the Russian economy is large enough to absorb the impact of even the most severe sanctions. The central bank holds USD$630 billion ($878 billion) in foreign currency and gold reserves. The sovereign wealth fund accounts for another US$190 billion. Russia is a global strategic supplier of oil and gas. And public debt is a very modest 20 per cent of GDP. Fortified by this resilience, the Kremlin’s reaction to the threat of further and tougher sanctions is “bring it on”. It is especially confident that Russia can absorb more pain than the Europeans, some of whom remain heavily dependent on Russian energy imports.

2- Sanctions work effectively on tiny economies like Cuba, but they don't work well against large economies like Russia, especially those which are heavily reliant on oil and gas exports. Oil and gas are hot commodities, and they are what economists call ‘fungible goods’, meaning they can be easily interchanged with another form of the same product. If we try to block Russian oil and gas exports, we will have to buy from another producer and the countries that once bought from that producer will simply turn to buy from Russia. Supply and demand sorts it out.

3- Since the last Ukraine invasion in 2014, Russia has taken steps to buffer itself from the vulnerability of sanctions. Natural gas and coal exports to the European Union have increased, even as European countries ramped up investments in wind and solar power.

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Don’t forget Moscow just last month signed a lucrative, 30-year natural gas contract with China, further cementing an existing energy partnership between the two countries.

4- It is known that governments are acutely sensitive of the costs to themselves of imposing sanctions. Witness Berlin’s initial reluctance to abandon the Nord Stream 2 gas pipeline project, and London’s determination to protect the City “Londongrad” from action against Russian dirty money. The presence of such vested interests weakens the impact of sanctions. Over the years, Moscow has played on the venality of Western governments and institutions to considerable effect.

5- No one can deny that West can't totally isolate Russia, not just China, but even countries like India and Iran will remain escape valves for Russian export and import.

6- It is clear that the Russian economy has become well-insulated against sanctions. Thanks to Russia’s orthodox version of monetary policy, approved by the International Monetary Fund, and the recent rise in oil prices, Moscow’s foreign currency reserves have recovered since their post-2014 dip.

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7- Sanctions have minimal impact on Putin’s decision-making. The alternatives are not obvious. Military intervention is out, with some NATO member states such as Germany even opposing the delivery of weapons to help the Ukrainians defend themselves.

The only effective sanction would be one that isolated Putin within the Russia hierarchy, leading to him being overthrown from within. Nothing else will stop this. On the other hand, Putin’s current popularity within his nation is high by Western standards

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At last, The Kremlin doesn’t care about sanctions, as they have been around for years with little visible impact.

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