The imposition of sanctions by Western countries on Russia has conflagrated the Ukrainian crisis with both sides indulging in an asymmetrical sanctions game. The hardening of positions has caused the Russian and the European economies to suffer, with no end in sight for the conflict
By Debidatta Aurobinda Mahapatra*
On 8 September 2014, the European Union approved new sanctions against Russia. But it delayed enforcement and attached it to a ceasefire in Ukraine. So far there are nine sanctions by the EU and six by the U.S. against Russia.
The sanctions may have economic implications, but the goal – peace and stability in Ukraine – for which they were imposed, has remained elusive. Since February 2014, despite the sanctions, the fighting between Ukrainian troops and pro-Russian rebels in east Ukraine has left more than 3,000 Ukranians dead. Western sanctions have only strengthened the rigid position of Moscow and contributed to a stalemate.
Sanctions and embargos are old tools in international politics by strong nations to pressure a weaker one to submit to their will. In the case of Russia, this policy has obviously not proved effective, for several reasons. First, the EU and Russia complement each other and are economically intertwined; so sanctions have proved counter-productive for Europe. Naturally, European leaders are prevaricating over the imposition of sanctions against Russia. Some reports say sanctions will cost the EU 40 billion Euro this year and, if continued, can rise to 50 billion Euros next year.
As retribution, Russia has threatened to impose sanctions on western airlines flying over its air space. Many European airlines pass over the Russian airspace towards Asia, and any diversion will cost them about four more hours of air travel and in turn, jet fuel. Well-funded airlines like Lufthansa are projected to lose about 1 billion Euros in the next three months if Russia indeed bans its airspace. Russia’s sanctions on food and agricultural products from some of the western countries have resulted in the European exporters looking to a new market for goods worth about $10 billion. Federica Mogherini, the EU High Representative for foreign affairs, recently argued that though the sanctions have weakened the Russian economy, the conflict on the ground is manifest. Mogherini has made a case for a political solution to the crisis rather than economic bullying.
However, it is also true that western sanctions targeted at the rich Russians as well as the Russian state – including travel bans, limits on technological imports and co-operation and financial borrowing restrictions for state banks – are creating the intended discomfort. If they persist, they will indeed impact the Russian economy in the long term. Major Russian banks like Sberbank, VTB, Gazprombank, Vnesheconombank and Rosselkhozbank have seen their share prices drop. Stocks of Russia’s largest bank Sberbank has seen a drop of 36%, while that of second largest VTB Bank is down by 21.3r% so far this year-to-date. Russian oil and gas giants Gazprom, Gazprom Neft, Lukoil, Surgutneftegas and Rosneft too have been impacted. ExxonMobil has cancelled nine planned deals out of ten with Rosneft. Exxon has also stated that due to the advanced nature of the gas exploration project in Kara Sea, it will take some time for the company to wind up the project. Rosneft recently requested the Russian government for a loan of $40 billion dollars to ward off the negative impact of the sanctions. In response to sanctions, many foreign investors have withdrawn capital from Russia — some reports suggest that the Russian economy could have seen a capital flight of upto $75 billion in the first half of 2014, sending its benchmark Micex index down 7.7 percent this year.
Second, the Ukrainian crisis is not one that revolves around territory only. Geopolitical rivalry, a clash over resources and spheres of influence, have played a part in the conflict. The scale of the crisis in February 2014 is not the same as in August 2014; rather, it has conflagrated, assumed international dimension and become more violent. The sanctions in fact have contributed to a negative peace.
Russia is taking counter measures. For starters, exploring deeper ties with old allies like India and China, which can be seen in the slew of deals signed with Chinese and Indian companies. Russia signed a landmark gas deal with China during President Putin’s visit to Beijing in May this year. During the St. Petersburg International Economic Forum in May 2014, India’s ONGC and Rosneft signed an agreement on cooperation in exploitation of resources in the Arctic. Early this month Rosneft also offered ONGC Videsh a 10% stake in the Vankor oil field off central-Siberia, and a 49% stake in Yurubcheno-Tokhomskoye oil field in eastern Siberia. In addition, a gas pipeline from Russia to India through Central Asia is being considered. India’s increasing involvement in Central Asia and its membership of the Shanghai Cooperation Organization, may help facilitate the prospects of the pipeline. There are two routes for the pipeline: one is through the Himalayas, most likely through the Xinjiang province of China, and the other is by linking it to the Turkmenistan-Afghanistan-Pakistan-India (TAPI) pipeline. The proposed cost is $40 billion, making it the most expensive pipeline ever, and the “biggest ever energy project in history”. This deal will surely increase the customer base for Russian energy.
To encourage new investment and boost trade, Moscow signed a pact with Beijing to trade more in ruble and yuan. In October, China’s Exim bank agreed to finance Russia’s Vnesheconombank, VTB and Rosselkhoz banks – to take the sting out of the sanctions. Similarly, India’s Export-Import Bank and Russia’s Vnesheconombank have started talks on a guarantees cooperation arrangement, under which loans can be facilitated for Indian and Russian companies in local currencies for bilateral investment.
Despite these efforts, the impact of the powerful Western sanctions will not be ameliorated completely. The recent ceasefire between various parties to the conflict has raised hope. For unless the conflict is depoliticised, the sanctions will only add layers to the conflict. Means of force, whether of economic sanctions or deployment of troops, induce negative peace – the violence comes to a temporary halt but fails to address the root causes of the conflict.
It is another debate whether a negative peace can be the only goal even as the conflict becomes protracted and the seeds of distrust and hatred develop deeper roots.
Dr. Debidatta Aurobinda Mahapatra is a member of the TRANSCEND Network and an Indian commentator. He is a Fellow at the Center for Peace, Democracy and Development, University of Massachusetts Boston. His edited book Conflict and Peace in Eurasia was published by Routledge in 2013.
Source: Gateway House: Indian Council on Global Relations.