Page 23 - bneMag April 2022 Russia living with sanctions

bne April 2022 Cover Story I 23
The world was shocked after Russian In effect the West has declared economic will be, how leaky the sanctions are, and
armour rolled over the Ukrainian
border on February 24. Few had expected Russian President Vladimir Putin to actually go through with the implied threat of the military build-up that was first reported four months earlier. The obvious consequences, the extreme sanction regime that had been threatened, made such a move unimaginable. Yet Putin did it anyway.
And the sanctions were harsh. Indeed, they were even harsher than anyone, including the Kremlin, had expected.
If Putin was banking on the EU staying true to form and dithering over details while interest groups within the Union lobbied to protect their special interests, that didn't happen.
Up until the last day before the invasion Germany was extremely reluctant to say that the Nord Stream 2 gas pipeline would be included in the package and earlier said that a ban on the SWIFT money messaging service was also off the table, according to a report in Handelsblatt. The day after the invasion both sanctions were imposed first, not last.
However, it was the sanctions on
the Central Bank of Russia’s gross international reserves (GIR) on February 27 that really came out of
left field. This idea had never been suggested at any time since the sanction regime appeared following Russia’s annexation of Crimea in 2014. And the Kremlin seems to have been caught totally unawares by the move that has frozen some $300bn – half of all the money it had accumulated in Putin’s fiscal fortress that was designed to sanction-proof Russia.
The impact of freezing the central
bank’s money is still not clear but it immediately threw Russia’s financial system into turmoil. The regulator scrambled to impose capital controls and husband what resources it still
had available. The ruble crashed and long lines appeared outside banks as ordinary Russians raced to get what
was left of their savings out of the banks. A financial collapse was avoided, but only narrowly.
war on Russia. EU President Ursula Von der Leyen specifically said in the last days of February that the sanctions were designed to “degrade the Russian economy.” They are not a diplomatic tool to be used in negotiations to persuade Russia to change its ways. They are designed to do as much damage to the Russia economy as the West is able to do. And Brussels still
to what extent can Russia re-orientate its economy away from the West and make a new life in the company of the Emerging Markets (EMs).
Limits on the sanctions regime
An easing of large-scale economic sanctions is possible, but unlikely in the short term, the programme director of the Russian International Affairs Council
“Up until the last day before the invasion Germany was extremely reluctant to say that the Nord Stream 2 gas pipeline would be included in the package”
has plenty more ammunition to fire. A fifth packet of sanctions is due to be discussed in April to close down the loopholes the fourth packet missed.
One obvious example is that although Europe had taken control of half Russia’s reserves, the latter still has $136bn of physical gold in Russia out
of Brussels and Washington’s reach. In late March the US tabled new secondary sanctions on any business, trader or bank that enters into a gold deal with Russia in an effort to lock up this block of money as well.
And more sanctions on Russia’s oil and gas business are very likely, particularly after the shocking reports of a massacre in Kyiv’s suburb of Bucha on April
3, where retreating Russian soldiers murdered a reported 350 civilians
in cold blood. Lithuania has already stopped Russian gas imports and the rest of Europe is likely to follow as soon as it is economically possible. As Russia exports some 70% of its gas to Europe, it has almost certainly lost a business that earned $146bn in 2021 forever.
Even if Russia’s "special military operation" ends tomorrow, its consequences will almost certainly remain with the country for a long time. But the questions are how bad the effect
and Russia's most authoritative expert on sanctions, Ivan Timofeev, explained in an op-ed for Izvestia.
From a technical point of view, these sanctions can still be lifted quickly and easily. British Foreign Secretary Liz Truss said on March 31 that if Russia ended the war now the UK would consider lifting some of the sanctions as an incentive.
Unlike the previous Jackson-Vanik trade sanctions imposed in 1974 on the Soviet Union that were legislated by the House, these sanctions have been executed by US Presidential executive order. The difference is that any sanctions that have been put in place by Congress need a vote in Congress to undo them – almost impossible to get. However, US President Joe Biden is in a position to overturn the current sanctions at his sole discretion at the stroke of a pen.
Removing the EU sanctions would
be a lot harder, as it requires a unanimous decision by the EU Council. Disagreements may arise here, but it is easier to overcome them than in the US Congress, according to Timofeev. Like in the US, in the UK the executive branch has a fairly wide manoeuvre room in modifying the sanctions regime, so technically their significant reduction
is simple.
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