Russia Sanctions: ‘Ill-Planned, Ill-Timed and Foolhardy’

By Kenneth Kopf | January 8, 2015 | 9:10am EST

Russian President Vladimir Putin attends a meeting with local officials in Voronezh, Russia, Tuesday, Aug. 5, 2014. Putin says he has ordered the government to develop measures in response to Western sanctions. In a meeting with state officials in the city of Voronezh on Tuesday, did not specify what the measures might be but said: "I have given the order today to formulate them," Russian news agencies reported. (AP Photo/RIA-Novosti, Alexei Druzhinin, Presidential Press Service)

In order to understand the effect of Western sanctions on Russia, one must understand the Russian people, their history, political infrastructure, and leadership. Imposition of purely financial sanctions on Russia very well may have unintended results for the E.U. and the United States.

The current economic sanctions imposed by the United States were aimed at specific Russian individuals (and their companies).  These sanctions were, ostensibly, intended to deter Putin from continuing its illegal and immoral incursion into Ukraine.  But a question could be raised as to what the true Obama Administration intent was given the evident, resultant effects of these sanctions.  A question could be raised whether those sanctions were adequate, properly designed or effectively implemented. If the true intent was to bring Russia to its knees – economically – then it was a good start.  If it was, as we are told, to stop the Ukraine incursion, and bring them to “the table”, then it was, in my opinion, misguided and totally ineffective.

Russia’s oil and gas problems – and resulting Ruble devaluation – are not the result of the U.S.’s (nor E.U.’s) sanctions.  They would have happened anyway.  The U.S.’s sanctions only helped exacerbate the situation – and actually created a “boomerang” effect.  However, if the price of oil, arguendo, would rise again (as anticipated even by O.P.E.C.), the sanctions would have even less resultant effect on the Russian economy.  Russians have previously survived numerous years of hardship, adversity and suffering.  They have survived defaults before.  They survived massive devastation in WWII and rebuilt their economy.

U.S. policy creators may not have anticipated Putin’s retaliation, or his turn to China (or possibly India and North Korea), or the effect that the Ruble devaluation would have on Russian, E.U. and U.S. banks in the event of defaults.  Nor considered the negative effects on E.U. countries in mutual trade agreements, or the additional import sanctions Putin is planning on various (E.U. and U.S.) products. If they did consider and calculate those resultant effects prior to imposing the sanctions, then the policy is misguided.  If they did not consider them, then the Administration is negligent at best.  The E.U. economy is not totally healthy and entering into a “sanctions war” with a country that is able to stand “toe to toe,” may not have been the most efficacious route.  Most E.U. countries are not at a point in recovery where they are willing to, economically or militarily, act with force to achieve the stated military goal.

Economic embargos have failed to succeed in Cuba (over 50 years); nor have they been effective with Iran; nor with North Korea.  None of those countries have, to date, acceded to the stated demands of the U.S. (contrary to the administration’s spin). Sanctions imposed on third world dictatorships, who lack ability or will to “fight back,” nor who have a real trade-based relationship with the U.S., have only hurt the peoples of those countries.  They have, to date, however, utterly failed to achieve the Administration’s stated political goals.  So, trying to impose sanctions on a country that does have the will and ability to ‘fight back’ (economically and militarily) and does have an established, substantial trade basis with the world, cannot be imposed on the same basis and with the same logic as the Administration would utilize to impose sanctions on an “economically impotent” country. This philosophy and approach is both foolish and quite possibly seriously harmful to U.S. economic and political interests.  We have spent 65 years attempting to change the USSR into a world partner instead of a world enemy.  Why should we undo that?

If the U.S. were serious about attempting to stop Russia’s Ukraine military incursion (and not the collapse of the Russian economy), then it should have been pursuing direct intervention efforts with the U.N. and a coalition of E.U. countries.  IF the U.S. wanted to impose economic sanctions, it would impose import embargos rather than attempting to “fiscally starve” a certain few individuals’ accounts, blocking Russia from the SWIFT network, and banning American banks from financing Russian enterprises.

The basic problem I see with imposing draconian financial sanctions on Russia via “related” entities (U.S. or E.U. banks, etc.), is that those actions could:

1. Deprive U.S. companies of potentially profitable activities; 2. Destabilize the Russian economy to the point where it causes a negative ripple-effect on ‘partner countries’; 3. Further delay the E.U. recession recovery; 4. Force Putin to engage in harmful counter-sanctions; 5. Create a stronger alliance between Russia and China (and other antagonistic countries such as N. Korea) which could lead to more currency manipulation; 6. Enable Putin to simply create ways around the ‘banking bans’; 7. Embolden Putin to not alter his beliefs about Crimea or Ukraine, which, in turn, will not deter him from continuing his grab of Ukraine, further emboldening him to seek additional annexations (such as the Baltics, etc. for additionally needed resources); 8. Have little or no effect if the price of oil goes back up to around $80 a barrel; and 9. Cause a trade deficit problem for the US and other countries (equating to reduced revenue and taxes, and increased debt).

While Putin’s naked, unjustified and illegal land grab by the use of military force, the current approach by the Obama administration is feckless, ill-advised, and impotent.  Such policy could very well give impetus to Putin to expand Russian influence and control into former Soviet lands. Without a more comprehensive, focused and result-oriented approach, the collateral economic damage occurring to the world economies will be significant and long-lasting.  Should the U.S. sanctions be intended to, or result in a collapse of the Russian economy (and the related non-Russia economies), it could trigger an inevitable political upheaval as well.  With the current composition of the Duma and political and social fracturing, such sanctions could force Putin to make a political retreat to a less democratic path, or could result in an even less “open” replacement for Putin.  An ill-formed U.S. sanctions policy could very well undo decades of world efforts to end the Cold War and further contribute to world-wide instability. In the apparent “new world norm” of terrorism, we do not need yet another military and economic adversary to watch.

It seems clear that the goal of sanctions is to institute a series of political, economic and/or military actions in a manner and nature which will affect the segments of a country which are the most sensitive to such pressure in the expectation that negative decisions or behavior of a government will be changed positively.  The type of sanctions applied must be evaluated on an individual basis, dependent on the many variables involved.  Each target country’s political, economic and military infrastructure must be evaluated to determine the type, quantity and timing of sanctions.  Sanctions to coerce a dictator to allow free and open elections should be totally different than those applied to force a country to stop “dumping” or manipulating currency. Similarly, the same sanctions utilized successfully against a developing country may have little or no effect on a major world power.

In the case of Russia, the Administration’s approach is confusing.  It is attempting to coerce a military withdraw by placing limited (graduated?) financial/economic pressure on certain individuals within the country (albeit some of the wealthiest).  Given the “Statist” political and economic make-up of Russia, this approach would have limited effect and certainly not a short-term positive result.  While “monetary starvation” (particularly of individuals) has the logical effect of putting pressure on government to relieve the financial effects to them, these sanctions only create other and related issues (as discussed infra).  These sanctions do have an economic effect, but does not increase the likelihood of the target country will relent politically. Various sanctions have been placed against Russia for decades, with limited success.  It is against this background that sanctions now must be placed.   Putin’s standing among his electorate (and Duma) is solid.  The Russian people blame the U.S. for their ills.  Russia has economic avenues to turn to – China (who has substantial capability and power to help off-set and oppose sanctions). Russia has the capability to fend off the effects of certain economic sanctions (related to oil, defense and high-tech).

If the Administration’s intent is to dissuade Russia from continuing its military incursion into Ukraine, the more effective methodologies would be to attack the areas which are incapable of sustaining prolonged sanctions:

1. First, obtain a coalition of E.U. nations to issue a unified condemnation of the action; 2. Use the same coalition to impose the following sanctions: a. sanctions on importation or exportation (and transportation) of Russian military industrial complex products and services; b. sanctions on exportation to Russia of oil production hardware, software or services; c. establish a monetary fund to help E.U. countries affected by Russia’s counter-sanctions; d. limit any international monetary funds from flowing into Russia; e. Prohibit importation of E.U. food supplies into Russia (their domestic capability to replace these sources is very limited and would be a strong political pressure for change); f. limit immigration of Russian people; g. for monetary sources flowing into the U.S. (and E.U.) monitor and manage the exchange rate to make the “exit of capital” from Russia prohibitive.

I believe using “capital” sanctions, in this case, to achieve a military result is ill-planned, ill-timed and foolhardy.  It simply won’t work with Russia like it may have against a third world country dictatorship. Had the Obama Administration been executing a comprehensive foreign relations program and effectively anticipating Russian events, it could have interceded at an earlier point in the crises.  By operating a foreign policy of neglect, silence, and appeasement, it signaled Putin (as it did to Iran and others) to proceed with his misadventures.  Additionally, playing “hard-ball” with Russia (and Putin) will push Russia into a new Cold War.  Even if these “capital sanctions” do have limited effect, it will not affect the nationalistic mentality (and thus annexation mentality), and will have a serious, long-term boomerang ripple effect on the rest of the world’s economy, effectually prolonging the U.S. and E.U recovery.  The Administration’s policy toward Russia is as short-sighted as its economic policies toward U.S. recovery.  At least they are consistent.

Kenneth Kopf, Esq. is an attorney that has been practicing international law for over 30 years, has authored numerous writings on various U.S. and international political subjects, was a candidate for U.S. Congress, and has served as a Russian linguist within the U.S. intelligence service.

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