/ world today news/ The West threatens Russia with unprecedented sanctions, the list of which is expanding very quickly. The problem for the West is that there are no more options left to strike Russia without serious consequences for the US itself and even more so for Europe. And the Russian economy itself is now objectively more prepared for an attack than in 2014. Is the West capable of taking the strictest measures?
Two more sanctions have been added to the already well-known rather long list of potential threats. This is a reduction in funding for new gas projects in Russia and a ban on technology transfer in this sector. Such a project of sanctions is allegedly being prepared by the European Union and Great Britain with the support of the United States in the event that the Kremlin orders an attack on Ukraine, the Financial Times reports.
These are just part of the broader economic sanctions that are being prepared, and their severity will be adjusted depending on the scale of a hypothetical Russian attack on Ukraine, the Western edition notes.
The list of sanctions against Russia is already quite decent. On Thursday, German Foreign Minister Analena Berbock said the package of sanctions being discussed with allies also included the Nord Stream 2 gas pipeline. An information and sanctions war has been waged against the gas pipeline for quite some time. Construction and commercial commissioning have been delayed by several years due to sanctions imposed by the United States in December 2019 on those helping to build the pipeline and insuring ships. Now we are talking about closing the already built gas pipeline. Although, in fact, there is still nothing to close, because the pipeline is not put into operation and the gas is not transported to Europe through it.
The US is actively looking for alternative gas suppliers to Europe to replace Russian fuel, which could mean that direct sanctions against Gazprom or a ban on gas supplies from Russia to the EU in whole or in part are being discussed. After such sanctions, the current energy crisis will seem insignificant for Europe compared to the scale of the new gas crisis, which will inevitably affect both Asia and the United States.
The United States has repeatedly threatened sanctions against the Russian financial sector. In particular, we are talking about a threat to disconnect Russian banks from SWIFT or ban Russian banks from operating in dollars. In addition, a total ban on Western investors from lending to Russia by buying bonds for the federal loan was discussed.
Also the other day, a representative of the US administration assured that the sanctions list was discussing export restrictions. Apparently, it is about limiting the supply of high technology to Russia. Trade restrictions may apply to microelectronics created with some US involvement, such as using US software or other US tools. The aim is to strike at Russia’s civil aviation, maritime shipping, high technology and defense industries.
Another proposed measure is sanctions against the leadership of the Russian Federation. In the draft package of sanctions prepared by the Democrats, there were 12 items on the list. In particular, President Vladimir Putin, Prime Minister Mikhail Mishustin, Foreign Minister Sergei Lavrov, Defense Minister Sergei Shoigu.
Drafting sanctions packages against Russia has become a fine tradition in the United States. But this does not mean that all announced sanctions will come into force. Until now, the West has tried to act gradually and not to attack. Because, of course, it is possible to hit Russia, but the consequences of most sanctions will be not only for it, but also for the USA and even more so for the European Union.
The well-known list of pronounced sanctions can be conditionally divided into “soft” and “hard” sanctions. “Soft sanctions include personal bans – this is an ugly step from the point of view of diplomacy, but the real damage to the country is minimal. This can be called a gesture of powerlessness. Other restrictions to varying degrees threaten the economy, both ours and the European one. The same disconnection with SWIFT for the EU is a shot in the foot in order to hurt a close neighbor, that is, Russia,” says Vladimir Ananiev, an analyst.
The relatively mild sanctions also include two “fresh” measures – a reduction in funding for new gas projects and a ban on technology transfer. Western companies including BP, Total and Shell investing in Russian gas projects will suffer from this. France’s Total, for example, is actively investing in the expansion of LNG development on the Yamal Peninsula together with Novatek. At the same time, Asian companies, mostly Chinese, are most likely to take the place of Western investors.
As for the ban on technology transfer in the gas sector, a similar blow was dealt back in 2014-2015.
“The Americans have denied the Russians access to their most advanced drilling technology for years. But the existing base was initially sufficient, and over time alternatives were found or created,” says lead analyst Alexander Kuptsikevich.
Much, of course, will depend on which technologies will be restricted, but experience shows that these are not lethal sanctions for the industry. Some technologies can be replaced by alternative ones, others by import substitution, and still others by sourcing through third or fourth countries.
Against Russian government debt, sanctions were introduced in the summer of 2019. Then they stopped at banning Americans from participating in the initial placement of bonds, which is a less painful decision for both countries. A stricter option remains – a ban on buying OFZ on the secondary market. Therefore, this can be attributed to a stricter version of the sanctions.
“The recent threats of sanctions must be classified as very serious. These are no longer acts of warning, but a blow to the main areas of the economy. Shutting down Nord Stream 2 or drastically reducing oil and gas purchases from Russia could seriously undermine economic growth for many quarters and, in the long run, further reduce the economy’s growth potential. Disconnecting SWIFT will effectively cut off the financial system from the entire world. And here there will definitely be a way out, but it is not an easy and pleasant walk”, believes Alexander Kuptsikevich.
The ban on dollar transactions for Russian banks should also be considered strict. Although initially, such operations can be prohibited only for one or three banks, and not for all, which can be considered a relief.
In general, the sanctions discussed are unprecedented. But despite geopolitical passions running high, the likelihood of tough sanctions being imposed is still seen as low.
“Of all the above, personal sanctions and financial restrictions are most likely. It is unlikely that the US will be able to convince Europe to implement the remaining sanctions. But, of course, the likelihood of sanctions and their severity depend on the geopolitical situation. And we must understand that the fundamental contradictions between Russia and the US are insoluble, which means that sanctions will continue to be imposed, regardless of what happens around Ukraine,” Ananiev said.
Kuptsikevich ventures to suggest that the first signs of relief in geopolitical tensions have already appeared. “At least the rhetoric of the Russian and Ukrainian authorities speaks of a desire to stop fear-mongering and escalation. The same intentions exist on the part of some NATO representatives. Russia also expressed a willingness to “work” with those documents it received from the US and NATO earlier in the week. However, there is still some psychological pressure from the American and British media and a number of politicians in these countries. But in my opinion, it is worth paying attention to the desire to negotiate precisely between Russia and Ukraine, while the mediators can still do harm,” the interlocutor claimed.
Things will not come to harsh sanctions, because, firstly, there are no sanctions left in the hands of the West, which will create pressure, but will not destroy relations, says Grigory Sosnovsky, director of the regional network for working with wealthy clients of the “World of Investments “. “Disconnecting SWIFT, banning transactions with public debt, banning the use of dollars for banks – these are measures that are practically foolproof. There can be no going back from here. The difficult question for the United States is whether they are really ready for that level of escalation, or whether they are better off negotiating,” says Sosnowski.
At the same time, the already imposed sanctions did not work as a tool for political pressure, because the political regime in Russia has not changed and the rhetoric of the negotiations has not changed, he added.
The Russian economy, even under sanctions, is doing well and is counting on surplus profits for 2021. “The Russian economy is much more dependent on energy prices than on sanctions. “Oil at a price of 90 dollars and above allows the largest Russian companies to register excess profits, and the Russian gold and foreign exchange reserves to replenish and become one of the largest in the world,” says Sosnovsky.
The Russian economy is objectively better protected than in 2014. According to the Ministry of Finance of the Russian Federation, in 2014 the sectoral sanctions imposed by the USA and the EU cost Russia 40 billion dollars. In reality, however, Iskander Lutsko, chief investment strategist at ITI Capital, notes that the sanctions have been more expensive because of the decline in oil and the ruble. Thus, due to the collapse of oil and the Central Bank’s foreign exchange interventions, gold and foreign exchange reserves fell by $140 billion during the year, from $490 billion in February 2014 to $350 billion in March 2015. After that, oil prices fell from $112 per barrel in February 2014 to $31 per barrel in January 2016.
“The situation is different now, Russia has record gold and foreign exchange reserves of $630 billion, low external debt, including corporate and bank debt ($472 billion compared to $728 billion then), and oil prices are rising to their highest since the third quarter of 2014”, concludes Lutsko.
For the sanctions to significantly undermine the Russian economy and achieve the US political objective, they must be truly severe, capable of severely affecting the EU and the US itself. Therefore, the main question is whether the West is ready for this.
Translation: V. Sergeev
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