Until recently, the European Union had refused to join the United States and punish Russia for its involvement in the Ukraine crisis.
But the attack on Malaysia Airlines Flight 17 shifted opinions in Brussels substantially. Germany, for instance, was once the country taking the most cautious approach to Russian sanctions. Now it’s one of the most vocal proponents of penalizing Moscow.
And this week, both the United States and the EU announced a series of new sanctions against Russia that will target broader sectors of the economy.
The addition of EU sanctions should give the West a little more leverage over Putin, but the question still remains: Will this strategy actually accomplish anything? Or will Russia shrug off the sanctions and learn to exist without exposure to the Western world?
A Futile Policy
Many analysts aren’t convinced that the new sanctions will have much effect on Putin.
Bloomberg BusinessWeek News called the latest restrictions merely a “warning shot to convince Moscow to change its Ukraine policies or face even tougher penalties.”
What’s more, the Russian markets seemed unfazed by the latest move. The Micex Index closed up 0.9%, while the ruble gained 0.7% against the dollar.
Part of the problem is that the latest sanctions avoid the natural gas sector. You see, the EU is heavily dependent on Russian natural gas for heat and industrial power, and it doesn’t want any punishment inflicted on Russia to come at the expense of its own citizens.
A source at the European Commission told reporters that “the gas sector is completely and totally excluded from the scope of sanctions,” and that’s undoubtedly because Russia provides about 30% of Europe’s supply.
Instead of targeting natural gas, the latest sanctions restrict oil technology licensing. The idea is that these restrictions will inhibit Russia from developing new oil fields, particularly deepsea and shale operations. Though not a short-term deterrent, the restrictions will have a “cumulative impact,” according to a White House background briefing.
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In addition to oil, Russia is now faced with an arms embargo that bans the export and import of weapons to and from the country. Unfortunately, the embargo – much like the energy sanction – is weakened by European interests.
You see, the ban only applies to new contracts, meaning deals that are already agreed upon will go through… including a $1.6-billion deal between France and Russia that will provide Putin with two new warships.
Finally, the sanctions also target the financial sector by limiting Russia’s access to the EU banking system. In theory, prohibiting Russia from selling bonds and shares on EU markets should squeeze Russian companies as they seek new financing.
However, Russia’s central bank made it clear that it’s prepared to help victims of the latest sanctions, saying, “If necessary, adequate measures will be taken to support the said organizations with the view of protecting interests of their customers, depositors, and creditors.”
Russia’s response has some analysts wondering whether Moscow could succeed without any exposure to Western infrastructure at all, including banks.
If that’s the case, then the sanctions would be truly useless in forcing Putin’s hand. Amazingly, Obama even hinted as much when speaking to reporters. He said that “obviously, we can’t in the end make President Putin see more clearly.”
No wonder Russia finds it easy to shrug off the latest sanctions… even our own president admits that they’re not a very big deal.
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