October 2, 2014

Western Sanctions Against Russia: Putin’s First and Last Major Defeat?

A woman walks along a street past a board showing currency exchange rates in Moscow, October 16, 2014. A steep plunge in the rouble, caused by sanctions over the Ukraine crisis and falling oil prices, has underlined Russia's heavy dependence on Western finance to balance its dollar-thirsty economy. REUTERS/Maxim Zmeyev (RUSSIA - Tags: BUSINESS)
A woman walks along a street past a board showing currency exchange rates in Moscow, October 16, 2014. A steep plunge in the rouble, caused by sanctions over the Ukraine crisis and falling oil prices, has underlined Russia's heavy dependence on Western finance to balance its dollar-thirsty economy. REUTERS/Maxim Zmeyev (RUSSIA - Tags: BUSINESS)

Russian president Vladimir Putin thus far has not suffered a single defeat that could have seriously threatened his regime. He has been the undisputed Russian czar for almost 15 years, enjoying now absolute power that even Louis XIV of France would envy. But Putin has more in his arsenal to rely on than his “musketeers” (that is, his newly reshuffled and strengthened corps of bodyguards). He has much more powerful instruments and weapons at his disposal: most notably, the FSB and the state controlled media, to suppress and impress his own people (and many others in the West), the quickly upgraded armed forces, and the hydrocarbons exports used to intimidate Europe and – eventually – attack neighbours of choice and opportunity. There are only two failures in Putin’s foreign policy until 2014 that are worth mentioning: the independence of Kosovo in February 2008, and the NATO-led military intervention in Libya in 2011, which Russia could not or failed to prevent. Both of them enraged Putin, and have been used as pretexts for doing nasty things in the international arena.

Russian president Vladimir Putin thus far has not suffered a single defeat that could have seriously threatened his regime. He has been the undisputed Russian czar for almost 15 years, enjoying now absolute power that even Louis XIV of France would envy. But Putin has more in his arsenal to rely on than his “musketeers” (that is, his newly reshuffled and strengthened corps of bodyguards). He has much more powerful instruments and weapons at his disposal: most notably, the FSB and the state controlled media, to suppress and impress his own people (and many others in the West), the quickly upgraded armed forces, and the hydrocarbons exports used to intimidate Europe and – eventually – attack neighbours of choice and opportunity. There are only two failures in Putin’s foreign policy until 2014 that are worth mentioning: the independence of Kosovo in February 2008, and the NATO-led military intervention in Libya in 2011, which Russia could not or failed to prevent. Both of them enraged Putin, and have been used as pretexts for doing nasty things in the international arena.

Following the puppet-presidency of Dmitri Medvedev – during which Estonia was provoked and subjected to cyber attacks, while Georgia had to face an outright invasion and loss of its territory– a much more belligerent and anti-Western Putin emerged. Since then, the master of the Kremlin has not hesitated to confront the West and pursue his ambitious goals by any thinkable or – until recently – unthinkable means. He has pushed for the creation of the Eurasian Union, which would, in his ideal world, be dominated by Russia through intimidation, brute force and a chauvinistic if not fascist-like Russian World ideology. This mission has escalated Russia’s confrontation with EU and NATO, and raised anxieties among all Russia’s neighbours.
Putin will certainly go on with his aims and deeds, as long as the West refuses to stop him. Ukraine seems to be, after many years of Western tolerance and ambiguity towards Putin’s aggressive policy, the real red line. The EU, the US and other nations have been constrained – given their unwillingness to give military assistance to Ukraine – to impose economic sanctions on Russia, posing for the first time a serious challenge to Putin’s regime. The czar seemingly considers himself to be God, sitting in Heaven, omnipotent and untouchable, having a special mission to fulfil. Unfortunately for him, the West has the ways and the means to bring him back to Earth. Putin can only be brought to justice if the West has enough determination and shared solidarity, and above all patience to ensure that the sanctions actually work, and that Putin is forced to alter his course.
The financial sanctions have already begun to prove their efficacy. The Russian rouble continues its fall against the US dollar (-18% thus far this year) and the euro (-10.2%), impoverishing Russian business as well as society as a whole. The inflation rate for 2014 is expected to be no less than 8%. Russian companies preferring to use hard currency instead of quickly-depreciating roubles, must now pay a far higher price, almost double premiums. The biggest Russian banks (e.g. Sberbank, Gazprombank) have not issued bonds lately, probably because they are facing great difficulties. The Russian government may have to practically deplete the National Welfare Fund (i.e. national reserves), to help stabilize the rouble, and – even more so – to aid such monsters as Rosneft to repay foreign currency-denominated loans due by the end of 2014.
Oil prices add to the financial pressure. Russia’s state budget for 2015-2017 has been projected on the assumption of an average oil price of US$100/barrel, and provides for a significant increase in military expenditures. But recently, the oil price has plummeted to approximately $94/barrel; this will be a blow to the Russian state budget (about half of revenues come from oil production and export taxes). The US has managed to keep the oil price down in the past as well, striking deals with countries (e.g. in the Persian Gulf) that Russia can barely influence. Even China would have no good reason to be unhappy because of a low oil price.
The Russian Central Bank has forecast GDP growth of 1% in 2015, rising to 2.3% in 2017. That may prove to be true if there is no escalation of sanctions and retaliations. But Russia could still be disconnected from the international payments system causing the oil price potentially to fall below $ 90/barrel. In that case, Russia’s best forecast for GDP annual growth would be a mere 0.5%.
However, Putin continues to add fuel to the fire. Tens of millions of ordinary Russian citizens have to spend more and more of their miserably low salaries on food that is not of Western quality, and may not even be available in sufficient quantities. The super-rich economic elite is losing big money, is kept away from the admired and lucrative West, and is increasingly discontent. If this trend continues, the Kremlin will be shaken by a cataclysm by next year at the latest.
Around 70 years ago there was a mad tyrant who fought to the end for an evil cause, sitting in his bunker. He even ordered – not accepting defeat – the destruction of his own country, because he thought that his people were no longer worthy of a place under the Sun. The Russian people deserve a prosperous and free life, living peacefully next to Europe. That will happen one day, no matter what Putin and his cronies do. Putin’s inevitable economic and political defeat, in Ukraine and well beyond, will be decisive.

Filed under: BlogTagged with:

No comment yet, add your voice below!


Add a Comment