Why Sanctions Against Russia Can Still Make a Difference

Moscow Oil RefineryBy Richard Nephew & Simon de Galbert

The National Interest

Despite the role they played in achieving a nuclear deal with Iran, sanctions continue to face a steep challenge in arresting Russian adventurism in Ukraine. A year after their adoption in July 2014, it remains an open question whether the sanctions adopted by the European Union and United States will be effective. While sanctions against Moscow will never be as ambitious as they were against Iran, we believe they can still make a difference toward creating a more stable situation and giving Ukraine time to become a more successful, politically independent country. But to do that, sanctions require more realistic targeted objectives and time.

Sanctions imposed against Russia have already proven their efficiency on the economic front by capitalizing on existing Russian weaknesses. Even before the Ukraine crisis, loss of confidence in Russia had already started a significant amount of capital flight and brain drain.  The collapse of oil prices starting in the middle of 2014 further depleted the resources of the oil-export reliant country. International sanctions targeting two strategic Russian economic sectors – finance and energy – aggravated the situation by making capital more difficult to access and future investment in Russia’s oil and gas sector largely sanctionable. As a result, Russian GDP is expected to decline by 2.7 percent in 2015, according to the World Bank’s latest statistics.  The specific contribution of sanctions to that recession could be significant, as the European Commission estimated in October 2014 that sanctions would have a negative impact of 1.1 percent on the 2015 Russian GDP.

Longer term, sanctions will limit Russia’s ability to invest properly in its oil and gas infrastructure, reducing its growth potential. This will be a big deal for a country where demographic prospects already threaten low economic growth over the next decade. Russians continue to trust President Putin to lead their country and, in fact, he has grown more popular since the crisis erupted in December 2013. But even if President Putin’s grip over the politics of Russia is not weakened, he will preside over a country whose power will diminish if its economic situation does not improve.  It is reasonable to argue that the latest Russian adventure in Syria is, in part, an attempt to continue distracting the Russian population from its domestic economic troubles and to demonstrate an exaggerated sense of power to the outside world.

Continue to full article . . .

Picture: Aleksander Markin (Moscow.Oil repository.) [CC BY-SA 2.0 (http://creativecommons.org/licenses/by-sa/2.0)%5D, via Wikimedia Commons

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