Evaluating the Current Sanctions Against Russia

Konark Sikka, MPP, Staff Writer, Brief Policy Perspectives

2014 saw Russia’s reemergence in the global sphere of geopolitics when the EuroMaidan protests developed and grew, and when Russia seized the moment to wrest Crimea away from Ukraine. This action led to United States and European Union (EU) sanctions. Now that Russia has militarily intervened in the Middle East, there is need for further sanctions against Russia. Here’s a look at what the current sanctions apply to, as well as new sanctions that would force the Russian government to look away from foreign affairs.

THE CURRENT SANCTIONS

The current sanctions issued by the US, as outlined in the Executive Order 13662 — Blocking Property of Certain Persons Contributing to the Situation in Ukraine, bars Russian companies from entering and making transactions in the United States or with people from the United States. In other words, the sanctions prohibit banking institutions such as Sberbank and Gazprombank from trading bonds and equity services, and from receiving loans. Sanctions from the EU similarly restrict state banks, in addition to freezing assets and levying travel bans to individuals involved in Russian interventions in Crimea.

The impact from these sanctions is evident. The US sanctions include energy companies such as Rosneft and Novatek with ties to the  class of elites  in the Russian power and economic structure. Rosneft’s chairman is Igor Sechin is also a member of Vladimir Putin’s inner circle while Gennady Timchenko, one of the richest businessman in Russia, has a stake in Novatek. Furthermore, there has been an increase in the capital outflow from  Russia, essentially leaving a gap in the capital required for businesses to grow. The value of Ruble has also been falling since the start of the sanctions, incurring a 10% drop since July 2015.  The sanctions have also had a negative impact on foreign investments, further compounding  the problems facing the Russian economy.

The impact on the Russian energy sector is evident as well. The sanctions disallow support  to Russian companies in the form of equipment, goods, or services used in mining, drilling, and oil extraction. Due to these sanctions, a proposed pipeline project called the South Stream Project has been discontinued.  

POTENTIAL NEW SANCTIONS

The effect of the sanctions on Russia’s economy is clear, however, they haven’t entirely reduced Russia’s appetite for foreign intervention.  This is why additional sanctions are needed. Potential new sanctions should include bans on trade import and export, and more stringent sanctions on the energy sector. Both would further harm the Russian economy, forcing the government to focus more upon domestic issues instead of intervening in foreign nations.  

Russia relies on countries within the EU and western allied nations (such as Japan) for car and computer exports. Both automobiles and computers are important for maintaining infrastructure in today’s world, hence an export ban on both would provide further distress to Russia, its economy, and day-to-day business operations. Such a ban would be achievable for two reasons. First, automobile and electronic components are products with demand from developing countries across Asia and Africa. The demand from these countries  will make up for the loss of the Russian market for such goods.  Second, European nations as well as Japan and South Korea already have strong diplomatic relations with the US and crafting such a deal would be likely.

Comparatively, what would hurt Russia more, but be tougher to accomplish, would be expanding sanctions on Russia’s energy sector.   Further sanctions in this area would be difficult to enact due to  European reliance on Russian energy.  Nevertheless, sanctions could be applied in this area area, but they would have to focus on long term impacts.    For Europe to make up for the lost gas from Russia in the event of tougher energy sanction, pipelines extending from Norway would need to be built in Eastern Europe. Norway already supplies gas to Germany, France, Belgium, the Netherlands and Italy and has pipeline infrastructure in place linked with these countries. An extension of these existing pipelines towards Eastern Europe would, in time, lessen the reliance on Russian energy in Europe. Once those pipelines are extended, the moment would be  ripe to impose further sanctions on Russia’s energy sector, leaving only Central Asian nations as the main clients of Russian energy .

WHAT NEXT?

Economic sanctions are a foreign policy tool that have worked as evidenced by the downturn in the Russian economy in the past year.In the wake of Russian intervention in the Middle East, additional sanctions should be considered to deter Russia from additional foreign interference. Import/export sanctions, plus a long term goal of reducing European reliance on Russian energy, would cripple the Russian economy and force the Russian government to focus on domestic economic issues instead of focusing on increasing their global footprint.

One comment

  1. Great article Konark!

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: