Despite the harsh economic measures imposed on Russia over Ukraine, the situation may not be as bad as expected
By Chad Johnsonpolitical analyst
“We are crippling Putin’s war machine by denying him access to the money and support he needs to fund his illegal war.” This is what British Foreign Secretary Liz Truss tweetedThursday.
The message would hardly have been questioned by Western audiences, as it is widely perceived that in response to the situation in Ukraine, the United States and its allies have indeed ganged up to impose significant costs on Russia. This involved the blacklisting of many wealthy Russian businessmen, often mistakenly referred to as “oligarchs”, the freezing of the assets of the country’s Central Bank, the expulsion of certain financial institutions from SWIFT, the closure of the airspace to Russian planes, as well as numerous other sanctions.
These collective measures have given the impression that the military offensive in Ukraine will eventually cripple Russia before it can achieve its objectives. But all is not what it seems. Beyond the fanfare and triumphalism of Western propaganda – made an echo chamber by the censorship now installed against anything that goes against the narrative – a more nuanced reality is beginning to emerge.
This reveals that Western sanctions have failed to deliver the fatal blow necessary to mortally wound the Russian economy or disrupt one of its most important sectors. Although bruised, Moscow is in a stronger position than they would like to admit.
Despite all the hype around the newfound unity, the European Union, at least for the moment, does not have the political capital, the will or the strength to impose an embargo on the import of oil and gas Russians, one of the main sources of income for Moscow. Despite some of the more hawkish members of the eastern bloc demanding it, the economic consequences of a Russian energy ban have made consensus impossible and Germany has publicly reined in such moves, warning of a economic disaster.
Although the hope of distant agreements with Qatar and the United States as alternatives has been floated, the geographical distance and inconvenience of these suppliers means that the feasibility is questionable and the prices will be considerably more expensive. This proposal did not allay market concerns which, along with the conflict, led to a global spike in natural gas and crude oil prices.
This, of course, is a gain for Moscow.
Identifying the European Union’s strategic weakness, this allowed Russia to retaliate with a countermeasure. President Vladimir Putin announced on Wednesday that Russia would only accept payment for gas exports to “hostile countries” in roubles. A decision that again caused natural gas prices to soar.
This effectively means that European countries dependent on Russian gas should first buy the Russian currency, thereby strengthening its role in international markets and, therefore, driving up the value of the ruble. Following the announcement, the Russian currency rose rapidly to a three-week high of 95 rubles against the dollar and has since stabilized below 100. Earlier this month, the ruble plunged to lows historical 132 rubles to the dollar and 147 rubles to the euro, the foreign exchange markets. Before the launch of the military operation in February, the exchange rate was around 75 rubles for one dollar and 85 rubles for one euro.
All this shows that the economic situation in Russia is not as bad as initially expected.
Moreover, the United States and its allies have not achieved global isolation of the Russian economy as far as they claim. Western commentaries have an annoying habit of exaggerating Western disapproval alone as representing the will of the “international community” or asserting “international isolation”. As two critical examples, the United States and its allies have been unable to dissuade India or China from buying Russian oil and gas. On the contrary, despite American threats, India is now buying even more Russian oil. Persian Gulf states, including Saudi Arabia and the United Arab Emirates, have also been supportive of Moscow.
No doubt worried that the same tactics could one day be used against them.
The Russian economy will no doubt take a few hits from the sanctions, but a month after the start of the operation in Ukraine, its most critical sectors remain largely unscathed.
The West ultimately cannot completely ban Russian oil and gas without triggering a catastrophe in global markets that would induce massive collateral damage, hence why the US would have resorted to Nicolas Maduro – the leader of Venezuela, which they tried to overthrow – to increase oil supplies.
This gives Russia time, money and space to reorient its economy away from the West, including diversifying its monetary transactions, building new industries, asserting its strategic independence and finding new markets. India and China will play the most important roles in this regard, but Pakistan, Indonesia, Vietnam and many countries in Latin America and Africa will also be important.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.