Wednesday 2 March 2022

Can sanctions really work?


Some reports have suggested that the sanctions being imposed on Russia for its invasion of Ukraine are having a major impact on the Russian economy already, with interest rates rising, and banks running out of cash. It is comforting to believe that the sanctions taken to date are having a dramatic effect, but there is a danger of seeing what we want to see. The initial impact may be more a result of the suddenness than of any real underlying impact – and they certainly are nowhere near leading to any rethink by Putin. Some estimates – and it’s difficult to estimate accurately – suggest that the impact overall will be a hit of something like 4-6% to Russian GDP. That’s significant, but hardly crippling. As a comparison, the best estimates of the impact of Brexit on the UK are that it will reduce GDP by around 4%. That’s bad news – especially for those on lowest incomes, who will (as always) bear the brunt – but no-one is suggesting that it’s akin to the sort of economic collapse which would ‘force’ the UK to go begging to Brussels for readmission, to the Single Market if not to the Union itself. And a government which cares even less about the fate of ordinary people than the Johnson government, which is where Russia finds itself, is hardly going to lose much sleep over even the worst case 6% drop in GDP.

In any event, Russia has plenty of chance to mitigate the effects of at least some of the sanctions. The UK has kindly given the oligarchs sufficient advance notice for them to be liquidating their assets and moving them out of the UK, and those who keep their assets hidden behind nominee and shell companies in the UK’s myriad of tax havens have been given even more time to prepare by the snail’s pace progress of legislation to deal with those tax havens. Add to that those states in the world which are prepared to try and find ways around the sanctions, and the apparent determination of some European countries to continue buying – and paying for – supplies of Russian hydrocarbons, and the reports of the damage being done to the Russian economy look hopelessly over-optimistic.

Accepting the argument that military intervention leading to direct armed conflict with Russia is too dangerous to contemplate, we are left with nothing better than sanctions. But whilst sanctions could be strengthened considerably (moving rapidly towards a complete trade embargo) and action could be taken faster (preventing the movement of assets), sanctions have never proved to be an effective mechanism, and certainly not in a short time frame. More extreme sanctions, such as a complete trade embargo would hurt more. There would be a cost to ourselves as well as to ordinary Russians, of course – although nothing remotely comparable to the price currently being paid by the Ukrainian people. The biggest problem we face is international disunity as individual states try to protect their own peoples and interests. And the underlying cause of that comes down to the fact that we have a competitive world order rather than a collaborative one – it's driven, in effect, by an ideology which encourages selfishness. All of the problems likely to be faced by individual states as a result of more resolute international action against Russia could be resolved – or at least mitigated – by a willingness to share the pain equally rather than protect individual interests. Without that, we’re probably doomed to a long term war of resistance and attrition from which the biggest losers are the Ukrainian people and the only winners are the suppliers of armaments.


Anonymous said...

Now that was a useful and thought provoking post! I enjoyed reading it and I will enjoy the rest of the day pondering upon it.

So much better than the nonsense you read in the newspapers!

dafis said...

Anon - just to add to your commendation. It is a well written piece. I don't always agree with John Borthlas but his stuff is generally stimulating and worthy of study. Plenty to contemplate in this piece, maybe Boris and Co should visit and weigh up the rational way in which the pro's and cons are reviewed, that all actions have consequences positive and negative.
That the EU and others have undermined their short term strength by dependence on Russian gas supplies is a direct result of a brief period of apparent detente with the then new leaders of the Bear which failed to readjust to the subsequent chilling of relationships.
I was reminded the other day that Russia invaded Georgia way back in 2008. what were the EU leadership doing in the wake of that? Then we had the Crimea/E Ukraine annexation of 2014 which again did not stimulate a sufficient change in direction.

And not only the EU - the UK has been foremost in sucking up to the Bear both in formal and covert behaviours. The disgrace of UK banking's fawning over as nasty a bunch of kleptocrats as one could ever find is a stain on its reputation.

It's going to be a long and painful haul for many before we recover from this disaster. UK Gov has nothing to be proud of and most of Western Europe is to varying degrees in the same boat.