Resolved: On balance, economic sanctions are reducing the threat Russia poses to Western interests.
For the introduction to this topic, click here.
This is a topic that is still unfolding. Nearly all of the evidence is 2015 and as far as economic sanctions go, we are very near the beginning of events. The Pro position is difficult because of a number of factors. One, as already mentioned, the sanctions campaign has only been in place for a year. Two, the politics of Russia is unpredictable and cloaked in an effective propaganda machine. Three, recent actions taken by Russia, such as joining in the fight in Syria against ISIL (among other groups) may in fact prove to be for reasons as yet undisclosed, since again, the events are so fresh they are unfolding hour-by-hour now. Still, talks and discussions behind the scenes and indeed some speculation may reveal that Russia is seeking ways to ameliorate its position with the west in order to gain some ground for lifting sanctions and this may indicate a softening of the Russian "threat". For sure, the west may have underestimated the resilience and strength of the Russians to endure hardship and certainly, Putin's government will take all action necessary to substitute lost economic trade with other BRICS nations and this will mean a much longer sanctions campaign could be required. For this position, we will wrest conclusions from the current evidence.
The SanctionsIn the US, economic sanctions on Russia were rolled out and expanded over the month of March in the form of two executive orders; 13660 and 13661. According to the U.S. Department of State these EOs impose financial burdens on Russia. Among these are restricted transactions with a number of Russian defense companies, a core group of Russian elites comprised of Putin's "inner circle", several large banks and energy companies. Most of these targeted sanctions were aimed at restricting the ability of the so-called power elite who owned or operated many of the targeted companies from freely conducting business as usual in international dealings. More important, perhaps, are the sanctions imposed upon the ability of entities to export vital goods and services to Russia.
U.S. Department of State:
We have also suspended credit finance that encourages exports to Russia and financing for economic development projects in Russia, and are now prohibiting the provision, exportation, or reexportation of goods, services (not including financial services), or technology in support of exploration or production for deepwater, Arctic offshore, or shale projects that have the potential to produce oil in the Russian Federation, or in maritime area claimed by the Russian Federation and extending from its territory, and that involve five major Russian energy companies.
The European Union has responded in kind and continues to take actions to extend their own sanctions against Russia. According to the European Council the actions include freezing the assets of numerous individuals and entities in Russia as well as imposing travel bans. Likewise, the EU has imposed export restrictions.
As a consequence of the EU's non-recognition of the illegal annexation of Crimea and Sevastopol by Russia, the Council imposed substantial restrictions on economic relations with Crimea and Sevastopol. These measures include an import ban on goods from Crimea and Sevastopol, imposed in June 2014, as well as restrictions introduced in July on trade and investment related to certain economic sectors and infrastructure projects. In addition, a full ban on investment has been in place since December 2014, along with a prohibition to supply tourism services in Crimea. Exports of further key goods for certain sectors are also banned, including equipment for the prospection, exploration and production of oil, gas and mineral resources. On 19 June 2015, the Council extended these measures until 23 June 2016.
The EU sanctions are closely linked to what is known as the Minsk II Agreement (The Telegraph 2015) which is aimed toward restoring peace in certain regions of Ukraine. However, earlier attempts to establish a cease-fire were shaky at best and it is the perception of the EU the Minsk agreements may not come to fruition in 2015 and for this reason, sanctions have been extended into January, 2016 (European Council 2015).
Now, nearly one year after the imposition of sanctions, we can try to determine the impacts. Unfortunately, since Russia is a leading exporter and distributor of oil (The World Factbook), Pro must acknowledge, the impact calculus is complicated by the fact the drop in oil prices has also had a profound impact on the Russian economy. Nevertheless, the effects of economic sanctions are being felt.
Most Russians shrugged off the first several rounds of sanctions, which targeted people and institutions close to Putin. But after the July shoot-down of a civilian jetliner over eastern Ukraine, the West struck harder, and Russia retaliated with import bans on most Western food products. The Russian countersanctions have hurt European farmers, but they may have affected Russians most of all: Food prices soared afterward. The ruble’s plummet, which accelerated in November, only made things worse. The price of cabbage has almost doubled in the past year. Pork is up nearly a third, and potatoes a quarter. Late last month, Russia’s biggest grocery chains posted signs in their stores announcing temporary price freezes on key products, but many items are still getting costlier by the week.
Despite the fact Russian leaders and pro-government pundits may be blaming the West for all of its economic woes, Putin believes, "25 to 30 percent of Russia’s economic woes on the sanctions." (Birnbaum 2015). Russian banks, targeted by sanctions have curtailed lending and so leading Russian businesses are turning increasingly to the state for loans while Russia has hemorrhaged some $150 billion in the last year (Birnbaum 2015). Nevertheless, despite this somewhat conservative estimate of impact by Putin, more recent evidence will show, Putin is worried the state may soon be broke.
Oxenstierna & Olsson (2015):
Western sanctions have hit the Russian economy through three distinct channels. First, they have caused volatility on the foreign exchange market and a significant depreciation of the rouble (ibid.). This has led to capital flight and the deterioration of Russia’s international reserves. Second, the restriction on access to international financial markets has tightened domestic and external credit conditions and this had a negative effect on investment and consumption. These are the sanctions that have impacted the economy most in the short run since they inhibit investment and refinancing of major state banks and other financial institutes which affects the whole economy. In addition, the key income-earning state oil company Rosneft is directly targeted by these sanctions as well as companies in the defence sector. This adds to the general credit crunch. The third channel cited by the World Bank is the crisis of confidence that has developed as a consequence of the geopolitical tension and sanctions. It has resulted in great uncertainty regarding policy and economic development.
Con will claim Russia can and has mitigated the impact of sanctions by replacing the losses incurred by sanctions with increased transactions with other, non-western partners. Some literature speaks of an eastern pivot of the Russian economy toward the economic strength of China. However, the power of the U.S. lead sanctions regime to punish international financial institutions may deter flow of funds into Russia from the east.
...foreign investment banks are also faced with the fear of dealing with Western regulators. The US in particular has a track record of imposing massive fines on leading banks for international sanctions violations. This fear is not only felt by Western banking and finance entities, but also by those based in China, which, according to Yuri Soloviev, the first deputy chairman and president of the management board of VTB Bank, have refused to carry out interbank transactions with their Russian counterparts and have curtailed trade financing transactions in the wake of U.S./EU sanctions. While Chinese investment in Russia has indeed increased year-over-year in response to the flight of Western investors, Russia’s reliance on Eastern foreign investment to substitute Western investment may not quite be enough to make-up for the shortfall. Chinese banks with U.S. or EU operations are also subject to their sanctions policies and generally have little experience, especially compared to Western banks, in operating in the Russian financial sector...Even as Russia looks East to China for access to capital markets and technologies, it will find partners hesitant to undermine Western sanctions, especially given that both the EU and the United States are both much larger trading partners with China than Russia – in fact, in 2014 Russia was China’s ninth largest trading partner, whereas the EU and U.S. were first and second, respectively.
Finally I wll note that one important impact of sanctions may be playing right now and it too early to predict its impact on the Russian economy. Russia was a leading supplier of natural gas to Europe and was engaged in a 15 billion euro pipeline construction project to Bulgaria.The project was stopped in December 2014 "due to the European Union’s nonconstructive approach to cooperation, including Bulgaria’s decision [pressured by the US] to stop the construction of the pipeline’s stretch on its territory." As a result, Russia made a deal with Turkey create a southern route for the pipeline. However, the widening war in Syria has served to bolster the western sanction regime.
Following the downing of Russia’s SU-24 plane and the collapse of diplomatic relations between Moscow and Ankara, that “sole route” is no longer there, leading not only to a potential crisis in the supply of natural gas to the European Union, but also a major blow to Russia’s national economy, which depends heavily on the energy sector. From the point of view of Washington, Wall Street and the Pentagon: “War is good for business”.
The Threat to Western Interests
As I have stated in the opening analysis of this topic, we can loosely define western interests as those things which promote the preservation of the state and the well-being of its citizens. This encompasses a range of conditions which rise and fall in importance in response to changing world conditions. Broadly speaking, western nations like the U.S. have an interest in preserving democratic principles, which include preservation of basic liberties and human rights. Interests also incorporate a wide-range of economic interests which permit the free-flow of goods and services; and most importantly, interests include the maintenance of a security apparatus which ensures the protection of the state and citizens from hostilities both foreign and domestic. At the outset, it is fairly obvious that a sanction regime will undoubtedly negatively impact western economic interests. Indeed, this is the fact and Con will no doubt leverage many sources which will argue the sanctions ultimately damage western economic interests. The Pro response to this, is seen in Russia's own response to sanctions. The ability of a state to endure sanctions lies in its ability to find other sources for good and services and so the blow to western economic interests can be offset by shifting toward other markets. There is no doubt the Ukrainian crisis has served to strengthen US-EU relations, especially with respect to Russia and this fact itself is a positive outcome of the economic sanctions regime.
No doubt a favorable image with the Russia people is within the scope of western interests which must, despite the view that perceived Russian threats to Ukrainian sovereignty harm western interests, the western-Russian cooperation is still essential in managing other crises such as the expansion of ISIL in the Middle-East. However, as with many sanction regimes, the target government is able to spin a lot of political capital employing a "rally around the flag" mentality by painting the West as hostile to the people and government of Russia. Indeed, Putin's support at home is strong (Bolen:12).
However, the political exploitation of the sanctions as a rallying point for Putin's internal support is not unexpected. In many ways, it can be argued Putin's grip on Russia is the heart of the problem and the tightening of his grip on power further serves to justify western resolve to undermine his regime. It can be argued that all that is seen "wrong" with Russia and its approach to international affairs can be personified in its leader, Vladamir Putin.
Vladimir Putin is a threat to virtually everything the West stands for. The system he has overseen at home for the past fifteen years is antithetical to our own; the effects of his foreign policy have been damaging to Western interests. Putin has consciously supported Bashar al-Assad’s slaughter of the Syrian people by arming Syrian forces; he has agreed with the mullahs to construct new nuclear reactors in Iran; he has menacingly reminded the world of Russia’s nuclear weapons capability; and, continuing his energy blackmail by other means, he has challenged NATO states and others with provocative military flights and submarine maneuvers. Given these challenges, we should set aside the reset button as long as he’s in power...we are in a crisis because of Putin, not because of us. We should stop seeing him as anything other than a paranoid authoritarian leader who oversees one of the most corrupt regimes in the world. Preventing his corruption from infiltrating and infecting our own systems should be a top priority. The West had no interest in picking a fight with Russia and turned to sanctions reluctantly. While Western policies over the years have not been perfect by any means, those who argue that NATO enlargement, EU outreach to Russia’s neighbors, or American policies over the years are to blame make an unconvincing case.
Leading political analysts, concur. The spread of democracy is the defining value of European interests and so the EU continues to direct focus on its eastern "neighborhoods" despite other world-wide crises in Syria, Iraq, and South China Sea (Adebahr 2015). The EU even more than the US sees Russian interventionism in Ukraine as a direct intervention is EU affairs. This "intrusion" is an affront to an initiative known as the European Neighborhood Policy which extends well beyond the traditional borders of Europe.
The fact the some of the protesters on Kyiv’s Maidan square took to the streets with European flags is only the more visible reason for this. What is more important is that the crisis puts into question the core of European values: Democracy and the rule of law, spreading which is the rationale of the EU’s Enlargement and its toned-down Eastern Partnership (EaP) policy; the inviolability of borders as enshrined in the Helsinki Final Act of 1975; and of course the broader international system with the United Nations and its central principles on the use of force. Russia’s annexation of Crimea and its continued meddling in Eastern Ukraine have clearly violated these values.
To be sure, the EU, much more than the US, has a large stake in the Russian economy relying heavily on Russian oil and defense and technology contracts, which are now threatened in the blow-back of sanctions. Europe has been reluctant to push Russia too hard and this is explained well in the Adebahr analysis. But I don't reference it to review the impact of sanctions on the EU, rather to establish some background of what constitutes western interests. The argument is advanced the damage to EU interests spawned by blow-back from Western sanctions is outweighed.
After the coup d’état in Kiev, Russia, quite unexpectedly for itself, had to take certain steps to protect its interests by incorporating Crimea and supporting pro-Russian movements in Donbass. In this extraordinary situation, the Russian leadership failed to calculate the consequences of these steps. It obviously had not expected that the European Union would support the anti-Russian sanctions imposed by the U.S., which, as French politician Jean-Pierre Chevenement wrote, “through a widely echoed ideological crusade […] is attempting both to isolate Russia and to tighten its control over the rest of Europe.” The EU’s common interests with the U.S., especially at a time of important negotiations on the Transatlantic Trade and Investment Partnership agreement, the excessive ideologization of foreign policy, and the growing tendency in the West to “export democracy” outweighed the damage the anti-Russian sanctions were inflicting upon Europe. Russia also neglected the factor of an ascending Germany, which is turning into the EU leader and has always had “historical interest” in Ukraine. Chevenement writes that there are now 1,500 German industrial enterprises in Ukraine, and just 80 French businesses.
The US Secretary of Defense, Ashley Carter, the Chairman of the Joint Chiefs of Staff, General Joseph Dunford, and the recently retired Chief of Staff of the Army, General Raymond Odierno, agree that Russia represents a significant threat to the United States and its allies. So does NATO’s top military commander (SACEUR), General Philip Breedlove. However, decisions of the highest importance in critical moments are made at the White House. Even though a Russian attack against a NATO ally is a rather different issue than Russia’s continued aggression against Ukraine, one should keep in mind that the decision to offer Ukraine legitimate lethal self-defence aid has passed through all relevant US authorities to the very top, but has been on hold for months, pending final approval by President Obama. This decision may be, of course, ultimately enforced if Russia escalates the situation in the Donbas and tries to extend occupied territories.
From the earliest days of the pro-western movement in Ukraine and increased pressure from Russia to turn away from western support; right up until the Ukrainian regime of Yanukovych buckled under citizen pressure, the U.S. has enjoyed a favorable position in the region. This has provided an opportunity for western powers to gain influence in the region and one may presume time continues to enhance that advantage.
the U.S. has gained a lot politically from the Ukrainian crisis: a long-term wedge has been driven between Russia and Ukraine, and between Russia and Europe, which has long been a strategic objective of U.S. diplomacy in the region. The popularity of the U.S. in Ukraine has increased. This is all the more surprising because the U.S. must have had little idea of Ukraine as a country and of how fragile its statehood actually is. Yet it had for years promoted “Western values” in Ukrainian society, especially among young Ukrainians. During my business trips to Ukraine from Strasbourg, I often saw large groups of Ukrainian high school or university students leave for the U.S. or Canada for on-the-job training, accompanied by “guides” from Western NGOs. And, of course, the U.S., unlike Russia, had actively worked with the opposition. Therefore, during the Maidan Revolution the U.S. had no problem choosing protégés, who are now conducting a more anti-Russian policy than the West.
This advantage will continue to undermine Russian efforts to curtail western influence in Ukraine and may serve to complicate the Russian position.
After one year, can Pro claim that sanctions have reduced the threat posed against Western interests? It is still early. We can say, since sanctions have been put into place they EU and Russians have agreed to the Minsk II accord in February of 2015. This agreement provided for an immediate cease-fire and eventual withdraw of weapons from contested regions of Ukraine. While the deadline for implementation passed and the shooting continued, the agreement itself suggests a willingness by Russia and the west to reduce tensions and find a way out of the crises. This along could signal a reduction, or least a willingness to reduce threats to western interests and vise-versa. Since the failure of Minsk II, the west has insisted upon linking the reduction of EU sanctions on compliance with Minsk II and Russia wants to see the two actions as separate. Nevertheless, a cease-fire finally did go into place on September 1, 2015 and despite sporadic violence and accusations of violation, held for over a month and has recently begun to increase. In any case, the cease-fire is still a long way from fully implementing Minsk II.
The fighting and a failure by Russia-backed separatists to implement measures of the cease-fire agreement reached in the Belarussian capital, Minsk, make it unlikely the two sides will meet a self-imposed year-end deadline to end the conflict, NATO Supreme Allied Commander Philip Breedlove said last week. NATO’s Secretary General Jens Stoltenberg warned of renewed war after a meeting about Ukraine with foreign ministers of the U.S.-led alliance last week. “Russian-backed separatists have not yet withdrawn their troops and equipment. Illegal groups in eastern Ukraine have not been disarmed. And Ukraine has not been able to re-establish control over its border,” Stoltenberg said.
Heavy Weapons Pullback
Nevertheless, there are more reasons to believe the sanctions are taking effect. In early October of this year, the withdrawal of heavy weapons began in the Luhansk region of Ukraine, a separatist stronghold. To date, the draw-down of weapons required by the Minsk II agreement is not complete and there are signs and signals of deception by preventing inspectors to enter some of the contested regions. Since October, progress continues to be made amid set-backs. OSCE inspectors are back in the region and their reports are published frequently. The draw-down, as incomplete as it may be, seems to indicate some shifting of the Russian position from their hard-line in Ukraine. Recall, compliance with Minsk II is a prerequisite to the lifting of sanctions.
Russian Troop Withdrawal
In early December, the first signs of Russian troop withdrawal from the border regions of eastern Ukraine were observed and reported. This withdrawal corresponds with an agreement between Ukrainian and pro-Russian separatists to strengthen the cease-fire and draw back from contested borders. Once again we are witnessing the earliest moves toward Minsk II compliance. We conclude sanctions are reducing threats.
The New Tone
In the Pro position, we have to take these signs as evidence of sanctions reducing threats. The mere willingness to strike a deal, yet to be implemented puts in place a framework for reduction of war (Jarabik 2015) which no doubt reduces the threat to western interests. While the current situation in Ukraine will be reviewed at the end of the year and depending on those findings the sanctions may be extended, there may already be signs of softening. On December 3rd, during Putin's yearly presidential address, a less confrontational tone emerged.
As usual, he implied that America was to blame for “decid(ing) to oust the unwanted regimes (in the Middle East) and brutally impose their own rules”, precipitating civil war. He lashed out against Turkey, Russia’s new nemesis since it shot down a Russian fighter-bomber two weeks ago, threatening that further measures would follow the trade sanctions Russia has already imposed. But most of the speech was more pacific, focusing on the economy, the need to prepare for low oil prices, and social issues. Ukraine was not mentioned; Crimea appeared only briefly. Anti-Americanism was nearly absent. No one expects the Kremlin to make an about-face in its opposition to the West, but the shift in tone was notable. Mr Putin may simply be reading the weather. Recent polling by the independent Levada Centre finds that 75% of Russians think relations with the West should be improved. Mr Putin may also be reconsidering the wisdom of further antagonising the outside world. Russia’s economy is in a precarious state, as he came close to acknowledging in his speech: “By changing nothing, we will simply run out of reserves and the economic growth rates will linger around zero.”
For all these reasons and more, we urge a Pro ballot.
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