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Why is Russia Immune to Economic Sanctions and how should Georgia act?

It has been more than a year and a half since the European Union and the United States have imposed an array of economic sanctions against Russia. Economic sanctions of Western countries followed the annexation of Crimean peninsula by Russia in March 2014. Prior to the annexation, Viktor Yanukovych – the President of Ukraine – was forced into resignation following massive street protests caused by his refusal to sign the Association Agreement with the European Union. In parallel, the so-called Crimean Crisis developed, leading to the Russian-backed referendum held on the peninsula asking people about joining Russia.

The sanctions of the United States were based on three executive orders of President Obama issued in March 2014. Over time the scale, types and number of targets of sanctions have increased. Incomplete list of US economic sanctions against Russia included: a) Asset freezes and restrictions on financial transactions for specific entities, particularly, state-owned banks, energy companies, arm producers and certain individuals; b) export embargo on oil-related and dual-use technology; c) asset freezes for certain individuals close to Vladimir Putin.

As for the measures taken by the European Union, on March 18 2014 – the day of Crimean annexation – it launched the first sanctions against those individuals and legal entities that were someway connected to this process. The sanctions included measures like asset freezes and travel bans for the mentioned individuals and legal entities. After further escalation of military actions in Ukraine similar one year long sanctions were also initiated against Russian officials and companies accused of helping separatist groups in eastern Ukraine. On March 2015 these sanctions were further prolonged and by that time 132 individuals and 28 legal entities had been targeted.

After the Malaysian Airlines flight MH-17 was shot down on July 17, 2014 over separatist-controlled area, the EU decided to launch new sanctions restricting the opportunity of five state-owned Russian banks to get financing on European capital markets and trade with certain sectors. Moreover, the European Union imposed an embargo on export and import of arms from Russia and connected services. The export embargo included dual-use products and advanced technologies in use by the oil industry.  Later the EU increased the number of sanctions targets and prolonged them twice up to July 31, 2016.

Source: http://www.frontiere.info/
Source: http://www.frontiere.info/

One might ask what Russia should have done to consider the imposed sanctions as effective. It is not easy to answer this question because the real interests of Moscow in Ukraine are not very clear. If we suppose that Russia wanted to annex entire territory of Ukraine, the economic sanctions would be considered a failure. However, this presumption does not seem plausible due to the following reasons:

Firstly, Russia would had to sacrifice much more lives of its citizens and non-human resources. Secondly, reaction of the West would be fiercer in case of disappearance of entire state from the map of Europe. Finally, maintaining influence and taking care of Ukraine would be much more expensive for Russia. Based on these arguments, it is more plausible to believe that Russia wanted to seize Crimea – strategic territory for the Black Sea region, and also destabilize eastern Ukraine to have important leverages over Kyiv and send a strong signal to the West showing its dominance in this region. If this is true, then we can say for sure that Western economic sanctions have not worked so far since the Crimean Peninsula is still occupied by Russia and large parts of Donetsk and Luhansk regions are controlled by Russian-backed separatists.

Based on multiple analysis of this data, some suggestions about effectiveness of economic sanctions proved their plausibility, but others – did not.  During the last couple of decades quite diverse conclusions about sanctions have been observed. There was a time when economic sanctions were considered almost useless. However, over time this opinion has changed. New studies showed that economic sanctions could work quite well under certain circumstances.

  • Alexyei

    I think the author is underestimating the impact of the sanctions. In the past couple of years Russia has tapped into its reserves at an alarmingly high rate and has drastically cut its budget to accommodate for its deficits. Yes, the economic sanctions will not destroy the Russian regime, but it sure does cripple them and kill any hopes of their currency stabilizing. This will have very serious repercussions in the long-run, both in economic and political terms.