For all the costs that sanctions are inflicting on the Russian economy, the Russian flag still flies over Crimea, Moscow remains undeterred and the ceasefire in Ukraine is at risk. Worse still, Russia is using its own form of economic warfare as a shield and a sword.
Western strategy has focused on blocking future deals with the Russian military sector, restricting Russian banks’ access to long-term capital, depriving elements of the Russian oil sector of technology they need for deep sea and shale drilling, and freezing the overseas assets of individuals tied to the Kremlin.
But most existing contracts between western interests and their Russian clients have been allowed to continue. Rather than dealing an instant blow, the aim has been to starve the country of capital by sowing doubts among western investors about the wisdom of investing in Russia. Contracts and capital have evaporated, growth has slowed and major Russian companies such as Aeroflot have been unable to acquire necessary investment.
But there is a limit to the amount of financial pain that the west can inflict on a major economy with substantial economic ties to Europe and the rest of the world. Russia’s entanglements are vulnerabilities but they also allow Russia to exact a price of its own.
Companies subject to western sanctions are making moves to circumvent the restrictions. Rosneft, the Russian oil company, is set to buy 30 per cent of Norway’s North Atlantic Drilling, enabling it to access offshore drilling capabilities in the Arctic despite technology export bans and financial restrictions.
Meanwhile, Russian investors deepen their economic interests in London, Frankfurt and New York. And the Russian sovereign wealth fund will be tapped for billions of dollars to shore up necessary capital requirements for its banks hit by sanctions.
Moscow is biting back. In June it ended flows of oil and gas to Ukraine, and it is restricting exports to other European customers as winter approaches. The Kremlin has banned agricultural imports from countries that have participated in the sanctions. It has closed four McDonald’s restaurants, using health inspections as a pretext, and it is flirting with a national payment system that could replace Visa and MasterCard. Western airlines may find themselves unable to fly over Siberia, forcing flights to Asia to take big detours. American consulting and accounting firms may be prevented from operating in Russia.
Russia has more cards to play. It could cut off supplies of engines to the US space programme. It is a big exporter of titanium and other resources needed by western companies. Moscow could emerge as a sanctions-busting financial partner to a country such as Iran, at the height of nuclear negotiations. The Kremlin could also enlist criminal networks to attack the computer systems of western targets, including major banks.
The west needs a comprehensive strategy that intensifies financial pressure on Moscow while deterring Russian escalation. Sanctions should no longer be tied to diplomatic milestones. Instead, they should be seen as a continuous campaign that leaves Mr Putin and the markets guessing. This approach has proved highly effective in Iran.
New Russian investments in the west need to be carefully scrutinised and western commercial contacts with suspect individuals and companies further constrained. Europe needs to secure alternative sources of oil and gas, though this will take time. Other countries, too, should seek back-up supplies of resources they buy from Russia.
Unless Washington and Brussels are willing to endure some economic pain, their sanctions campaign will prove ineffective. They should be prepared for a frozen conflict in which Moscow is willing to use its own economic weapons.
Juan Zarate is author of “Treasury’s War: The Unleashing of a New Era of Financial Warfare”
Fonte: FT
But there is a limit to the amount of financial pain that the west can inflict on a major economy with substantial economic ties to Europe and the rest of the world. Russia’s entanglements are vulnerabilities but they also allow Russia to exact a price of its own.
Companies subject to western sanctions are making moves to circumvent the restrictions. Rosneft, the Russian oil company, is set to buy 30 per cent of Norway’s North Atlantic Drilling, enabling it to access offshore drilling capabilities in the Arctic despite technology export bans and financial restrictions.
Meanwhile, Russian investors deepen their economic interests in London, Frankfurt and New York. And the Russian sovereign wealth fund will be tapped for billions of dollars to shore up necessary capital requirements for its banks hit by sanctions.
Moscow is biting back. In June it ended flows of oil and gas to Ukraine, and it is restricting exports to other European customers as winter approaches. The Kremlin has banned agricultural imports from countries that have participated in the sanctions. It has closed four McDonald’s restaurants, using health inspections as a pretext, and it is flirting with a national payment system that could replace Visa and MasterCard. Western airlines may find themselves unable to fly over Siberia, forcing flights to Asia to take big detours. American consulting and accounting firms may be prevented from operating in Russia.
Russia has more cards to play. It could cut off supplies of engines to the US space programme. It is a big exporter of titanium and other resources needed by western companies. Moscow could emerge as a sanctions-busting financial partner to a country such as Iran, at the height of nuclear negotiations. The Kremlin could also enlist criminal networks to attack the computer systems of western targets, including major banks.
The west needs a comprehensive strategy that intensifies financial pressure on Moscow while deterring Russian escalation. Sanctions should no longer be tied to diplomatic milestones. Instead, they should be seen as a continuous campaign that leaves Mr Putin and the markets guessing. This approach has proved highly effective in Iran.
New Russian investments in the west need to be carefully scrutinised and western commercial contacts with suspect individuals and companies further constrained. Europe needs to secure alternative sources of oil and gas, though this will take time. Other countries, too, should seek back-up supplies of resources they buy from Russia.
Unless Washington and Brussels are willing to endure some economic pain, their sanctions campaign will prove ineffective. They should be prepared for a frozen conflict in which Moscow is willing to use its own economic weapons.
Juan Zarate is author of “Treasury’s War: The Unleashing of a New Era of Financial Warfare”
Fonte: FT
