Why the sanctions on Russia will fail spectacularly
The first thing you've got to ask is "How much pain will the sanctions inflict?"
Will they absolutely crush Russia's economy, or just throw it into recession? The correct answer is closer to the latter than the former.
However, the analysts warned that a war lasting into 2023 with tougher sanctions from western governments and Russia retaliating by restricting gas supplies would cause a sharper fall of 7% in Russian GDP next year.
7% is not insignificant. That's a very deep recession. However, it isn't "crushing" Russia's economy.
If the economy contracted by that amount on its own, it would be a political disaster and would trigger a change of leadership. However, it has a very different effect when imposed by foreign powers, because it allows Putin to blame the West for their economic woes.
That brings us to question number two, "Will sanction force a leadership change?"
“We must thank the Europeans for their agricultural sanctions. Well done. Thank you for all your sanctions,” Putin proclaimed on Oct. 21, 2021. Russia “doesn’t give a s--t about sanctions,” a senior Russian diplomat recently stated. These are not empty boasts. Western sanctions against Russia have a long, failed history.
According to a view popular among Russian elites, instead of harming Russia, Western sanctions make it stronger. First, they believe that sanctions harm the West more than they damage Russia. According to the Russian government’s newspaper, Rossiyskaya Gazeta, the EU, U.S., Australia, Norway and Canada lost up to $8.6 billion a year because of the sanctions war. By 2019, the EU alone lost $240 billion from the sanctions war, almost five times more than Russia did, Putin bragged.
More crucially, the sanctions forced Russia to heavily invest in domestic production. Western sanctions finally gave the Kremlin the pretext to self-isolate from global markets in strategically important economic areas and nurture Russian producers. Import substitution became the regime’s stated goal. The policy is economically inefficient but is crucial for Putin’s regime survival. Domestically, it allows Putin to create economic elites who owe the Kremlin their fortunes and are beholden to the regime. Not competitive internationally, their prosperity rests on Putin’s decision to disengage from international trade. Internationally, sanctions eventually reduce Russia’s reliance on, and thus vulnerability to, Western pressure and potential interference.
So if sanctions can't crush Russia's economy, and can't force a change of leadership, then question number three is "Can sanctions force a change of behavior?"
To achieve that goal requires more than a stick. It requires a carrot to. There has to be some reward for good behavior.
There's two problems with that. Problem #1 is how the U.S. backed out of Iran Nuclear Agreement despite Iran following the agreement to the letter. That means the U.S. has no credibility. "Good behavior" becomes a relative benchmark outside of Russia's control.
Problem number two is that sanctions on Russia never go away.
President Gerald Ford signed off on trade restrictions against the Soviet Union and other communist countries in a 1974 measure known as the Jackson-Vanik amendment, for its congressional sponsors.
...Nearly four decades passed before President Barack Obama finally lifted those restrictions and granted Russia full trade ties in a law he signed on Dec. 14, 2012. Yet that very same law, known as the Magnitsky Act, also imposed new sanctions that bar specific Russian human rights violators from entering the U.S.
So as one set of sanctions vanished, new ones appeared.
If Russia thinks the sanctions are permanent, and they most likely are permanent, then there is little incentive to change behavior. Or to put it another way: "Economic pressure—with no hope of an end—will likely not stop the fighting. If anything, it could make the situation worse."
Even Biden's aides don't think that sanctions will alter Putin's behavior.
The U.S. obviously has relied too much on the stick, while never using a carrot. Much like our domestic policies.
Given these facts, our sanctions on Russia appear to be aimed at inflicting pain without achieving any goals. Which is pointless in most cases, but is Standard Operating Procedure for the U.S.
Just look at our record for War on Terror, War On Drugs, etc.
Our policies create victims and enemies. Nothing more.
Finally, our sanctions regime doesn't come without cost, and those costs come in many forms. This includes the obvious one.
Penalties on oil and gas, for example, would impose severe costs for Russia. But the harder it hurts Russia, the harder it hurts the West — particularly European allies, who are more reliant on Russian natural gas. But this affects the US, too. Inflation and fears of even greater global energy price spikes — already happening in the wake of Russia’s assault — and the possible domestic fallout are all intertwined with one of the most consequential foreign policy decisions in decades.
A recession is a near certainty now, but the impact also has long-term costs.
At issue is the US president’s move to freeze a sizable portion of Russia’s foreign-exchange reserves as punishment for Vladimir Putin’s Ukraine invasion. In Biden’s words: Washington is “preventing Russia’s central bank from defending the Russian ruble making Putin’s $630 billion war fund worthless.”
In recent conversations with senior Bank of Japan officials, the decision to separate Putin from billions of state wealth is likely to cause China, Saudi Arabia and other regimes in Biden’s crosshairs to reduce their holdings.
We just proved that loaning money to the U.S. carries unknown political risks.
One way or another, this will turn out to be rising interest rates in the U.S. for decades to come.
This is a very bold gamble to make at a time when the U.S. is running record trade deficits and record budget deficits, while the Federal Reserve is engaging in monetary experimentation never before seen in history.
We've essentially no Plan B if Russia doesn't back down. Thus what is at stake in this financial war against Russia is the Hegemony of the U.S. Dollar. If this economic war fails then so will the U.S. Empire.