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US and G7 increase sanctions against Russia, but are they working?

WorldUS and G7 increase sanctions against Russia, but are they working?

The challenge currently facing Ukraine and its partners is the disconnect between the West’s powerful long-term sanctions and the shorter-term military advantages Russia still enjoys.

London: It’s been quite a week for coalitions against Russia for its unprovoked war against Ukraine. On Tuesday, leaders of the world’s wealthiest countries ended their three-day G7 summit in Germany promising to increase the economic and political costs on President Putin and his regime for the war. As if to issue a “yah-boo” to the G7 for its decision, Russia immediately attacked a kindergarten in Kyiv, followed by a missile strike on a packed shopping centre in the Ukrainian city of Kremenchuk, resulting in the death of many children and shoppers. Now a tradition, Moscow claimed that Ukraine itself had carried out the atrocities in order to blacken Russia’s reputation; but intelligence reports show that Russian Tu-22 M3 long-range bombers launched X-22 missiles from the Kursk region of Russia. After western television carried remarkable CCTV videos of the rockets landing on the packed shopping mall, Moscow changed its story, claiming that the missiles hit an arms depot close to the “empty” shopping centre.
Later in the week, NATO gathered in Madrid for a summit which reached an early agreement to admit Finland and Sweden, following Turkey’s withdrawal of its objections to the move. In itself, this would have been particularly galling for Putin as he has long been attempting to seduce Turkey’s President Erdogan into leaving NATO. So now Russia will see a significant expansion of NATO on its borders as a direct result of its attack on Ukraine, ironically premised on Moscow’s unfounded charge of Ukraine about to join NATO. Many would say that Putin had shot himself in the foot. Prior to 24 February, Finland was perfectly content with its neutral position, preferring peaceful coexistence with Russia along its 800-mile border. Russia’s invasion changed all that. Finnish public opinion quickly became massively in favour of joining the alliance and the government duly obliged by requesting membership. It’s also remarkable that Sweden, a country which has so valued its neutrality in the past, now wants to join NATO for its protection, a clear indication of how much Russia’s revanchism is changing people’s thinking. It was all so predictable, so why didn’t Putin see it before giving the order to attack Ukraine?
As the war enters its fifth month, the challenge currently facing Ukraine and its partners is the disconnect between the West’s powerful long-term sanctions and the shorter-term military advantages Russia still enjoys, despite Western arms shipments to Kyiv. Although sanctions are causing pain to those countries imposing them, the US and its allies have made it clear both publicly and privately that they intend to sustain and even intensify their support for Ukraine and pressure on Russia. While military support remains the critical pillar of Western policy, especially in the short term, economic pressure in the form of sanctions is key to the longer-term goal of isolating President Putin.
Critics of sanctions say they are not working, at least in the way they were intended. Russia’s current account surplus for the first four months of 2022 was $95.8 billion, up from $27.5 billion in the same period last year. In fact, Russia is on track to post a record high current account surplus this year after its imports of goods and services fell due to the sanctions, while commodity export revenues are boosted by globally high prices. Russian oil, the nation’s biggest source of income, is still being purchased as China and India are picking up the slack left when the US and allies started to ban Russian oil. So while overall oil sales are down, prices are up, helping to generate billions for Putin’s war. At the moment, he’s raking in roughly $800 million per day, and spending much of it in Russia in order to stimulate the economy. If the aim of sanctions was to starve the Russian economy and war machine, then it’s hard to call them a success.
But hold on, says the White House. “Sanctions never deter”, President Biden said last week, “we will sustain what we are doing not just next month, the following month, but for the remainder of the year. That’s what will stop Putin.” In other words, prepare for a long economic game. The strategy is no longer financial shock and awe, but to chip away at the Kremlin’s coffers and the pockets of the Russian people, in the hope that Putin surrenders.
As if to prove the point, the US said last Monday that its G7 allies planned further action to support Ukraine with a host of new commitments. These include sanctions on hundreds of individuals and entities, adding to the more than 1000 already targeted, sanctions on identified companies in several countries, and the imposition of tariffs on hundreds of Russian products. For example, the US will target Russian defence supply chains by imposing blocking sanctions on major state-owned defence enterprises and defence-related entities and individuals. Some 570 groups of Russian products will be subjected to higher tariffs, worth approximately $2.3 billion to Russia, and the revenue collected will be used to help Ukraine. New sanctions planned by the G7 countries will target Moscow’s military production and crack down on its gold exports. After energy, gold is the second largest export for Russia and the country’s source of significant revenue.
Noting that sanctions have already had the perverse effect of increasing the energy profits financing the war, the G7 came up with a new plan to cap prices on Russian oil. This looks good on paper, but the main problem will be to convince countries which so far haven’t been willing to boycott Russian oil to at least gang up and agree to only buy it at rock-bottom prices. The result would be that Russia gets less cash, willing buyers still get cheap crude, and the overall global supply doesn’t shrink, meaning energy prices don’t spike. Such a daring scheme would be complicated to set up and onerous to enforce as it would involve dealing with the insurance markets, oil distribution chains and a hefty dose of diplomacy with big buyers such as India and China. The idea is to allow Russia to earn enough to continue exporting, but too little to fund its war machine. Price cap proposals range from a few dollars above the so-called “break-even price” it costs Russia to produce a barrel of oil (which averages around $42 but for certain oilfields is as low as $10) to using an average of last year’s global oil price of around $70 per barrel.
Having failed in its initial plan to take over the whole of Ukraine in the first few days of the invasion, the Kremlin will now be taking the view that the best strategy is to play the long game, in the hope that countries such as France and Germany will press for a peace deal sometime this year. Already there are signs that public opinion in these countries is turning towards some form of settlement with Russia, especially if the Kremlin calls for a ceasefire after taking control of the whole Donbas region, expected in the next month or two. Such a move would test the resolve of the NATO alliance. Last month, multiple open letters backed by high-ranking politicians, urging the German government to pressure Ukraine into a compromise with Russia, were gathering support. As cold weather approaches and the demand for energy increases, these calls will get louder. There is also speculation that President Putin is aiming to split the western alliance by upping the level of atrocities inflicted on Ukraine. Last weekend some 65 missiles were launched at the country, 14 of them hitting Kyiv, all designed to harden appetites in favour of a ceasefire on Moscow’s terms.
Without doubt, time is the critical factor in this war, which many observers see lasting several years. Aware of the danger of prolonged fighting, which could sap western interest, President Zelenskyy told the G7 that it could be over by the end of the year if he was given the weapons he wants. The G7 declared that they would support Ukraine “for as long as it takes”. As winter approaches, we shall see.

John Dobson is a former British diplomat, who also worked in UK Prime Minister John Major’s office between 1995 and 1998. He is currently Visiting Fellow at the University of Plymouth.

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