Sanctions So Far Are Failing To Blunt Moscow's Efforts

"Sanctions on Russia, offset by a windfall from high-price energy exports, haven't inflicted enough economic pain so far to hurt Moscow or push President Vladimir Putin to the negotiating table.

That resilience isn't expected to last, with many economists predicting a deep recession later this year, a rise in poverty and a long-term degradation of the country's economic potential. For now, the slow pace of sanctions, Russia's successful efforts to stabilize its economy and its ability to keep oil and gas flowing overseas have cushioned the blow for Moscow.

That is allowing Russia to continue as before, said Janis Kluge, an expert in the Russian economy at the German Institute for International and Security Affairs.

"Right now, the economic sanctions are not an incentive for Russia to negotiate," Mr. Kluge said. "The Kremlin is convinced it can withstand a few years with a bad economy and wait for better days. Russia is emboldened by its own success in fending off the West's sanctions."

On Thursday, some of Russia's top economic officials spoke at the annual St. Petersburg International Economic Forum, which was empty of its normal crowd of global political, economic and business leaders. While staying positive, they acknowledged the long-term problems the economy faces.

"We've managed to persevere, we're a strong people and we just need to believe in ourselves," said Maxim Oreshkin, economic adviser to Mr. Putin.

The economic resilience means Moscow can exert pressure on European countries, which are dependent on its oil and gas supplies. Russia's energy leverage was on display this week as state-owned Gazprom PJSC curtailed gas shipments to Germany and Italy in what the German economy minister, Robert Habeck, called "an alleged strategy to unsettle and drive up prices." Russia already cut off gas supplies to Poland, Bulgaria and Finland.

Despite Europe's frantic efforts to wean itself off Russian energy, including through a phased oil embargo by the end of this year, Russia is still earning hundreds of millions of dollars daily from its oil and gas sales because of elevated global prices.

Even as Europeans limit purchases, Moscow has been able to reroute some of its oil flows to India and other customers across Asia.

As a result, Russia's current-account surplus, a broad measure of its foreign trade, more than tripled in the first five months of the year to $110 billion, and is on track to finish the year at a record, allowing Russia to accumulate significant reserves. Russia has been spending money to stimulate the economy, rather than stashing it all away in a rainy-day fund.

"The country's structural current account surplus inevitably reduces sanctions' effectiveness over time since it leads to a quick rebuilding of buffers," the Institute of International Finance, a global association of the financial industry, wrote in a report this month.

The IIF estimates that if commodity prices remain high and Russia's oil and gas exports hold up, Moscow could receive more than $300 billion in payments for its energy sales this year -- roughly equivalent to the amount of Russia's foreign reserves frozen by sanctions.

"We're not seeing the Big Bang crisis that many people were expecting," said Christopher Miller, assistant professor of international history at the Fletcher School at Tufts University who focuses on the Russian economy.

 "The real impact will be felt over time."

The challenge for Western countries is augmented by the fact that the more they tighten the screws on Russia, the more they risk collateral damage on their own economies, already facing fast-rising consumer prices. To balance that risk, Western countries are going slow on sanctions tied to energy. One of the most significant moves so far was the European Union's deal to halt oil imports that would cover 90% of previous Russian shipments. The sanctions won't take full effect until the end of this year.

Mr. Putin has played down the economic impact of sanctions, saying that the West's economic blitzkrieg has failed. A short-term crisis was prevented by quick action from Russia's central bank, which Mr. Putin has long relied on to keep the economy running smoothly.” [1]

 

 The Landsbergiai boasted of their role in imposing sanctions on Russia. Now that sanctions only harm us, whom will we punish for that?

 

1.  The Ukraine Crisis: Sanctions So Far Are Failing To Blunt Moscow's Efforts
Kantchev, Georgi; Hannon, Paul. 
Wall Street Journal, Eastern edition; New York, N.Y. [New York, N.Y]. 17 June 2022: A.7.