Barack Obama’s claim that “we have to see concrete actions, and not just words”, in an attempt to justify heightened economic sanctions on Russia, reveals a hidden optimism. The assumption being made is that the new sanctions will genuinely bring about material changes in the behaviour of Vladimir Putin’s shady regime.
The sanctions “have made a weak Russian economy even weaker,” claimed Obama. Maybe so, but this effect is not necessarily sufficient to bring success in altering Russia’s course of action. Moreover, there is the unpalatable potential for strongly adverse effects on the western economies themselves. That potential is now being realised. The US increased its economic sanctions on 16 July, and has done so again since. In the aftermath of the shooting down of flight MH17 on 17 July, the EU has joined it in imposing sanctions. The US’s sanctions began targeting particular Russian companies: two banks, two energy companies and eight arms ones. Four officials were also in the sights. The effect of these sanctions is to freeze assets, refuse financing and prevent the use of business links in the US.
This brings serious economic bite to bear against Russia. Since these are an example of “smart sanctions”, it is hoped they will avoid humanitarian damage, insofar as they are directed at specific members of Russia’s elite and not its people. Yet it is those same Russian citizens and companies with whom the west has the intimate, and mutually beneficial, business ties it uses for its own prosperity. This means that we must wield these particular sanctions as a double-edged sword.
For its part, the EU has also prevented Russian banks from accessing its capital markets. New contracts for military goods and oil-related equipment are also off limits. Yet as a backdrop to these moves lies Russia’s supply of energy to the EU. Thirty per cent of European energy is estimated to be imported from Russia, and the Baltic states, among others, are fully dependent on the nation for their supplies of gas. European companies with a stake in Russia are risking punitive action on their shareholdings and operations, as well as dreary prospects for the value of their shares at home.
This effect is not reserved for energy companies. Renault, the French automotive company, saw its shares fall by 4.5 per cent; BP is also set to suffer. It has a 20 per cent share in the oil group Rosneft, which is tied to the Kremlin. Today, Volkswagen and Siemens “voiced concerns,” and shares in Adidas have dropped by 15 per cent following its announcement of a profit warning. Britain is very vulnerable. The City of London is a global financial hub and Russian money is accustomed to flowing freely through it. The decrease in business for various overseas companies will result in further consequences for British banks. Now Anthony Bamford, chairman of JCB, has exerted his business influence, making his opinions known; he claimed that the sanctions seem “absurd” and “could put hundred of British jobs at risk”.
To the credit of western nations, they have noted these effects, trading them off against the changes they wish to instil in Putin’s regime. The new Foreign Secretary Philip Hammond’s eloquent recognition of this fact came in his point that “you can’t make an omelette without breaking eggs”. The western nations are breaking all sorts of eggs. The meal in mind is their objective of forcing Russia to quell the anarchy it is funding in eastern Ukraine. It is a noble aim, spurred on by the flight crash. Such a flagrantly unnecessary loss of human life is a worthy cause for international action. If we can forget the duplicity involved when considering the situation in Gaza, western leaders have shown admirable resolve. The Russians had already been permitted too much room for diplomatic cant and propaganda.
But what of concerns voiced over the supposed impotence of western nations; over how, in reality, the losses we in the west will have to endure will not be worth it? Economic sanctions are the only occupants of the middle ground between diplomatic pressure and military action. The latter is unthinkable. Despite claims that Asia will be Russia’s loophole, and condemnation of the damage these sanctions will do to relations in the future, western governments do need to take a stand. When we are positioned at the bridge between an epoch of hostility and war, and a supposed “new world order”, failure to enforce standards of decency on the international stage produces nothing. Worse, in fact, it sets a much more dangerous precedent. The secession of land that has taken place in Ukraine was the first in a series of unacceptable actions from Putin, which must not continue. The US and EU must let that be shown, at the very least by defending the principles they supposedly support. Perhaps stronger sanctions still will prove necessary. We should be ready to deliver them.
Hope stems from an unlikely voice – Iran. In April, officials from Tehran claimed that the US has a capacity for “vicious” sanctions, as the nation has experienced. They advised the Kremlin to avoid being on the receiving end of such punishment. “The Americans essentially forced businesses to choose between doing business in dollars or dealing with Iran. That’s a no-brainer for most,” read the complaint. Should such humility eventually come from Putin’s regime, then progress would be made.