Page 80 - bne Magazine August 2022

80 Opinion
bne August 2022
MOSCOW BLOG
Sanctions hit a brick wall
Ben Aris in Berlin
Turkish President Recep Tayyip Erdogan got what he wanted. Sweden and Finland agreed to crack down on the various Turkish dissident groups, including the PKK, sheltering in their countries to unblock Turkish objections
to their joining Nato. Erdogan came to the Nato summit in Madrid with a shopping list of requests and it was clear that he was going to play hardball. With Russia blasting Ukraine into the stone age it wasn’t hard for the Scandinavians to roll over.
Of course, the irony is if Russian President Vladimir Putin was paranoid about Nato expansion before, his war in Ukraine has brought about what he most feared. Russia had a tiny border with Nato before with Estonia. Now it has a much longer one with Finland. But I suspect that Putin accepts this. The only difference is that Russia is now in open conflict with the Nato members, and we are in effect back to a Cold War set-up. He was always prepared to go there, as he assumed that a conflict with Nato was inevitable.
The world is being divided into two: the West vs Russia and the non-aligned countries. The race to shore up these new relations is on and expect to see the majority try to sit on the fence, especially in the Global South.
But is it really such a bad bet? The Global South accounts for 80% of the world's population and just over half of global GDP. Russia is already a major player there and the only one of the big emerging markets to be classed as "high income" by the UNDP after Putin’s 20 years on the job.
Going forward, EMs are where all the growth is, and while the West is not stagnating exactly, it is not dynamic either. Almost all of Europe is suffering from exactly the same demographic problems as Russia and already facing labour shortages: Germany's demographic replacement rate was 1.48 last year – less than Russia's 1.5 – and the EU average is currently about 1.55. You need 2.1 for the population to grow. You’ve got that and more in most EMs.
Of course, the developed world has all the technology and is
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The West has run out of sanctions that hurt Russia, but do little damage to Western business interests. It's time for the West to step up and put itself on a war footing if it wants to bring the war to an end.
denying it to Russia – the only sanction that is really working well. But this has been true since the industrial revolution a 100 years ago and the basis for the West’s leap forward to dominate the planet. That advantage has still not been undone, but surely it is only a matter of time before the EMs close this gap, even if it does take decades. In the meantime, what the EMs lack in tech they will make up for with babies as a locomotive for growth.
It will be fascinating to watch this story play out.
The addition of Finland and Sweden to the Nato family further consolidates and expands the North Atlantic block and the EU has shown remarkable unity on imposing sanctions on Russia, but that process has now hit a brick wall. All the easy “one- way” sanctions (that hurt Russia, but don’t hurt the West)
that could be applied have been.
I have posted an explainer from our sister publication NewsBase.com on the proposed oil price cap sanctions that are supposed to be part of the seventh package. I have also posted a piece about Russia’s Dutch Disease, where the only way the government can control the value of the ruble is by reducing the amount of oil and gas it exports. The Central Bank of Russia (CBR) was once probably one of the best run central banks in the world and now it is reduced to using the crudest of all possible tools.
The oil price cap was supposed to be the centrepiece of the G7 summit in Bavaria this week, but I think that we can call that meeting a failure, as nothing concrete came out of it other than “proposals”. French President Emmanuel Macron admitted there were “technical problems” with the idea, which is putting it mildly.
The whole issue turns on using the threat of sanctions on oil tanker insurers to enforce the caps, and that has two problems.
First, the non-aligned countries are not on board. India has already given Russia’s fleet operator Sovcomflot safety certifications it needs to get non-Western insurance, which India will accept, and so in effect Delhi has opted out of any oil sanctions.