Analysis

How Russia’s sanction-proofing failed

Published

2 years ago

March 18, 2022

“How could our government have been so stupid?” one Russian acquaintance of mine wondered, after the West imposed sweeping sanctions that froze around $300 billion of the Russian government’s foreign exchange reserves held in Western banks.

Over the past few weeks, the US, EU, UK, Japan, and other allies have hit Russia with a package of restrictions targeting its access to foreign financing and technology. Russia’s currency has plummeted, inflation is rising, living standards are slumping, and many factories across the country have stopped work due to shortages in components. Russia now faces the deepest economic crisis since post-Soviet collapse in the Nineties — a downturn so severe that it may eventually threaten Vladimir Putin’s hold on power.

Only one month ago, analysts were focused not on Russia’s vulnerability to sanctions but its supposed “sanctions-proofing” strength. The Russian government has dealt with Western sanctions for decades, from the technological restrictions the West imposed on the USSR to the most recent restrictions on oil drilling technology and access to capital markets imposed after Russia’s first attack on Ukraine in 2014. However, the strength of the latest came as a surprise to Russia’s leaders. They thought they had taken adequate steps to defend their economy and that Western leaders would be too worried about domestic prosperity to risk tough measures. Neither assumption proved correct — and now Russia is paying the price.

Like many adversaries of the United States, from North Korea to Iran to Venezuela, Russia sees American sanctions as a fact of life. Almost every year over the past decade, the US has slapped on a new set of sanctions, sometimes unilaterally, sometimes in conjunction with allies in Europe. Some have been linked to domestic human rights violations, such as those implemented under the Magnitsky Act, named after a Russian lawyer who died under suspicious conditions in jail after uncovering a government-linked fraud. Some have been sparked by Russian meddling in American elections. Others were motivated by Russia’s use of a nerve agent in an attempted assassination in the UK. As Putin said just before announcing his decision to attack Ukraine: “They will never think twice before coming up with or just fabricating a pretext for yet another sanction attack … their one and only goal is to hold back the development of Russia.”

From the moment Putin announced that Russia was beginning a “special military operation” to “denazify” Ukraine, more sanctions were inevitable. The Biden administration had threatened “devastating” sanctions, though after endured many rounds of not-very-tough Western sanctions, most Russian leaders thought America was bluffing. The fact that European leaders were divided about sanctions — and that Germany, Europe’s most important player, was putting the finishing touches on a new Russian gas pipeline — led the Russians to believe that the West wasn’t ready for full-scale economic warfare. The Kremlin, therefore, began the war expecting measures that were costly but survivable. In a public meeting right before the invasion, Prime Minister Mikhail Mishustin briefed Putin that “we have thoroughly reviewed these risks” and that “we have been preparing for months”.

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In fact, Russia had been preparing for years, knowing that sanctions were always a risk. America’s sanctions campaign against Iran, which cut off its ability to export oil, was a worrisome precedent — though Russia was a far more important oil producer than the Islamic Republic. The 2014 sanctions against Russia, meanwhile, showed that when the US, UK, and EU joined forces, they could sever Russian firms from financial markets in ways that no other country — not even China — could equal.

In response, Russia developed a five-pronged strategy to steel its economy. The first step was to build up a substantial war chest of foreign exchange reserves, including major currencies (Euro, sterling, dollar, yen, and renminbi) and over $100 billion worth of gold. These reserves, equivalent to over twice the value of goods Russia imports in a typical year, were supposed to give Russia financial flexibility in case the West tried imposing restrictions on its ability to export goods and earn foreign currency abroad.

The second prong in Russia’s “sanctions-proofing” strategy was to reduce its use of the US dollar, the currency in which most commodities — and thus most of Russia’s exports — are priced. Russia managed to substantially reduce the scope of dollars in its foreign trade, largely by shifting its trade with China to Euros. The Kremlin also cut dollar holdings in its foreign currency reserves, choosing to hold more of other currencies, including renminbi, instead.

Third, Russia tried developing internal payments systems in case it was severed from Western-dominated platforms. Many purchases in Russia are made using Visa or Mastercard, which are subject to US sanctions legislation. Most international banking transactions are mediated by SWIFT, a Belgium-based organisation subject to EU sanctions. Russia has rolled out a domestic card payment system, called Mir, and an interbank payment system modeled on SWIFT, trying to prepare itself for a potential future without access to these Western platforms.

The fourth strategy was to intensify economic cooperation with China. The more China’s economy grew, and the more ties that Russia had with it, the more Russian leaders felt secure. The Kremlin knew it could rely on China to vociferously object to any Western sanctions that were applied extraterritorially to Chinese firms.

Finally, Russia counted on the West’s energy dependence to limit any willingness to apply economic pressure. The fact that the Germans were afraid of even mentioning the Nord Stream II pipeline demonstrated timidity that emboldened the Kremlin. However, though Germans were uniquely supine in their energy relations with Russia, they weren’t alone in their dependence. America liked to condemn Germany over Nord Stream II, but American politicians were and are highly sensitive to gasoline prices. Restrictions on Russian oil exports were, therefore, guaranteed to be a matter of acute domestic political concern, because such a move would drive up gasoline prices worldwide. The Kremlin assumed this was a price Western leaders would be unwilling to pay.

When Russian forces rolled into Ukraine, however, the West was jolted out of complacency. Though US and UK intelligence had been warning for several months that Russia was ready to invade, most people — and most Western European leaders — simply didn’t believe it. Images of Ukrainian cities aflame left them shocked. So it was Europe that led the drive during the first week of war for tougher economic sanctions, culminating in an almost unprecedented freeze on Russia’s central bank reserves.

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This was a level of sanctions escalation that Russian policymakers had never seriously contemplated. On its own, the move — grabbing control of around $300 billion worth of Russian foreign exchange reserves stashed in Western financial institutions — constituted the biggest bank heist in world history. The fact that these moves were multilateral meant that “de-dollarising” didn’t matter. The Euro, pound, and yen were no more accessible to the Kremlin. And it didn’t matter what payments system was used, Russian or otherwise, if a substantial chunk of the world economy simply refused to transact with you.

The Chinese — supposed allies in “sanctions-proofing” — were no less shocked than the Russians by this display of financial firepower. China has already announced that it is cutting off certain Russian industries under special sanctions, such as aviation. China’s banks, meanwhile, continue to undertake some non-sanctioned transactions with Russia, but according to reports they are broadly following the West’s lead. The Moscow–Beijing entente is more a marriage of convenience than a sanctions-busting partnership.

The only part of Russia’s sanctions-proofing plan that is proving somewhat effective is the bet that Western leaders can’t stomach a full energy cut off. The US and UK have announced bans on importing Russian energy, but this only has a minor impact. The EU has announced plans to cut Russian energy imports to zero — but only after several years. The move that would really hit Russia would be to block all its energy exports, via an Iran-style regime that severed its ability to sell to third parties such as India and China. This would dramatically escalate pressure on Russia. It would also push oil prices far higher.

For now, therefore, energy remains the one major loophole in the sanctions regime. Nevertheless, the Russian state faces a deep economic crisis. The ruble has slumped and prices are rising. Unemployment is set to spike as factory closures cause industrial bankruptcies. Living standards will fall far behind inflation, which will accelerate over the coming months. Foreign companies of all types, from BP to McDonald’s, are fleeing.

“I understand that rising prices are seriously hitting people’s incomes,” Putin admitted in a speech on Wednesday. What he didn’t say is that he has neither a plan nor any resources, to deal with this. On the battlefields of Ukraine, Russian forces have demonstrated incompetent organization and a horrible command of logistics. Despite much talk of “sanctions-proofing”, the Kremlin’s efforts to protect itself from economic warfare have been just as inept — and, for Russia, disastrous.

Via UH

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Analysis

Greece and Spain urged to donate air defence systems to Ukraine

Published

2 days ago

April 22, 2024

Abdul Rahman

EU leaders are urging Greece and Spain to provide Ukraine with air defence systems as Kyiv’s need is greater than theirs. This is in response to Kyiv’s urgent appeal to Western allies to provide seven additional air defence systems as reported by the Financial Times. Germany is the only country that has announced the supply of an additional Patriot system.

The pressure on Greece and Spain from their EU and NATO allies to provide more air defence systems to Ukraine is increasing. The urgency to enhance Ukraine’s air defence system comes after President Zelenskyy took a jab at Western allies’ “flagging political support” in the face of Russian aggression. The EU’s 27 leaders face mounting pressure to step up efforts to protect Ukraine’s skies from Russian airstrikes.

Table of Contents

EU’s Call for Defence Aid to Ukraine

The European Union (EU) is putting pressure on Greece and Spain to provide Ukraine with air defence systems. The EU hopes that Athens and Madrid will donate a shipment of air defence systems to Kyiv, whose need is greater than theirs.

Athens and Madrid’s Potential Contributions

According to the Financial Times, Greece and Spain are under intense pressure from their EU and NATO allies to provide more air defence systems to Ukraine. The EU and its member states have already mobilised €33.1 billion in military support for Ukraine, including €11.1 billion under the European Peace Facility. However, EU leaders believe that Athens and Madrid can do more to help Ukraine defend itself against potential Russian airstrikes.

Kyiv’s Urgent Need for Air Defence

Ukraine has been facing a military threat from Russia since 2014, when Moscow annexed Crimea and supported separatists in eastern Ukraine. The conflict has killed more than 13,000 people and displaced millions. Ukraine’s President, Volodymyr Zelensky, has been urging the EU to provide more military and economic aid to his country. He has also been calling on Athens and Madrid to donate air defence systems to Ukraine.

In conclusion, the EU’s call for defence aid to Ukraine is a clear indication of the bloc’s commitment to support Ukraine’s sovereignty and territorial integrity. The EU hopes that Athens and Madrid will respond to its call and donate air defence systems to Kyiv.

Military Analysis

Comparison of Defence Capabilities

Ukraine has been in a state of conflict with Russia since 2014, and the country is in dire need of air defence systems to protect its cities and infrastructure. Greece and Spain have been urged by their EU and NATO allies to donate air defence systems to Ukraine, as their need is greater than Greece and Spain’s.

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Greece and Spain have modern air defence systems, including the Patriot and SAMP/T, respectively. Ukraine, on the other hand, has an outdated air defence system that is no match for Russia’s modern air force. The donation of air defence systems from Greece and Spain would significantly enhance Ukraine’s defence capabilities and deter Russia’s aggression in the region.

Impact on Greece and Spain’s Security

The donation of air defence systems to Ukraine would have a minimal impact on Greece and Spain’s security. Both countries have modern air defence systems, and the donation of a few systems would not significantly impact their defence capabilities. Furthermore, the donation would strengthen their relations with their EU and NATO allies, which is crucial in the current geopolitical climate.

It is worth noting that the donation of air defence systems to Ukraine could potentially strain Greece and Spain’s relations with Russia. However, given the current state of conflict between Ukraine and Russia, it is essential for Greece and Spain to prioritise their alliances with their EU and NATO allies and support Ukraine’s defence capabilities.

In conclusion, the donation of air defence systems to Ukraine by Greece and Spain would significantly enhance Ukraine’s defence capabilities and deter Russia’s aggression in the region. The donation would have a minimal impact on Greece and Spain’s security and would strengthen their relations with their EU and NATO allies.

Political Implications

EU Solidarity and Strategic Interests

The pressure on Greece and Spain to provide air defence systems to Ukraine highlights the EU’s solidarity with a country that has been facing territorial aggression from Russia. The EU’s strategic interests in Ukraine include the promotion of democracy, human rights, and the rule of law. The EU has been providing financial and technical assistance to Ukraine since the 2014 Maidan Revolution. The EU’s support for Ukraine has also been an important factor in the ongoing conflict between Ukraine and Russia.

Bilateral Relations with Ukraine

The EU’s pressure on Greece and Spain to provide air defence systems to Ukraine also reflects the importance of bilateral relations between the EU and Ukraine. The EU’s Eastern Partnership policy aims to strengthen relations with six Eastern European countries, including Ukraine. The EU has signed an Association Agreement with Ukraine, which includes a Deep and Comprehensive Free Trade Area, and a visa-free travel regime for Ukrainian citizens. The EU has also been supporting Ukraine’s reform efforts in areas such as the judiciary, public administration, and energy sector.

Greece and Spain’s donation of air defence systems to Ukraine would not only enhance Ukraine’s defence capabilities but also strengthen the EU’s relations with Ukraine. It would also send a strong message to Russia that the EU stands with Ukraine in the face of territorial aggression.

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Logistical Challenges

Transport and Delivery of Systems

The transport and delivery of air defence systems from Greece and Spain to Ukraine pose logistical challenges due to the distance between the countries. The systems, which include Patriot and S-300 missile batteries, are bulky and require specialised transport vehicles. The transport process must also adhere to strict regulations and safety standards to ensure that the systems are not damaged during transit.

Integration into Ukrainian Defence

Once the air defence systems are delivered to Ukraine, they must be integrated into the country’s existing defence infrastructure. This process involves training Ukrainian personnel on how to operate the systems, as well as ensuring that the systems are compatible with Ukraine’s existing defence technology. Integration can be a time-consuming process, as it requires coordination between multiple agencies and personnel.

To address these challenges, EU leaders have urged Greece and Spain to expedite the shipment of air defence systems to Ukraine. The urgency is due to Kyiv’s greater need for air defence systems to protect its cities from potential Russian aggression. Despite the logistical challenges, both Greece and Spain have expressed their commitment to providing aid to Ukraine.

Public and International Response

Domestic Opinions in Greece and Spain

The pressure on Greece and Spain to provide Ukraine with air defence systems has sparked mixed reactions in the two countries. In Greece, there is a sense of reluctance to donate the systems, with some arguing that the country has its own security concerns to address. Meanwhile, in Spain, there is a growing sense of frustration at the EU’s demands, with many questioning why their country should be the one to provide the systems.

Despite these opinions, both countries have publicly expressed their willingness to help Ukraine. Greek Prime Minister Kyriakos Mitsotakis and his Spanish counterpart Pedro Sanchez have both stated that they are open to donating the systems, provided that certain conditions are met.

Global Perspective on EU’s Defence Support

The EU’s push for Greece and Spain to donate air defence systems to Ukraine has been met with mixed reactions from the international community. While some countries have expressed support for the move, others have raised concerns about the potential impact on regional stability.

The United States has been one of the most vocal supporters of the EU’s efforts, with President Joe Biden calling on Greece and Spain to “step up and provide the assistance that Ukraine needs”. Other NATO allies have also expressed support for the move, with many arguing that it is necessary to counter the threat posed by Russia.

However, some countries have raised concerns about the potential impact on regional stability. Russia has warned that any move to provide Ukraine with advanced weapons could lead to a dangerous escalation of the conflict, while China has called on all parties to exercise restraint and avoid actions that could lead to further instability in the region.

Overall, the international response to the EU’s push for Greece and Spain to donate air defence systems to Ukraine has been mixed, with some countries expressing support and others raising concerns about the potential impact on regional stability.

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Analysis

Israel’s Retaliatory Strikes Against Iran: A Deep Dive into the Implications and Potential Escalation of Conflict in the Region

Published

4 days ago

April 19, 2024

Abdul Rahman

Introduction

In the past few days, Israel has launched retaliatory strikes against Iran, raising concerns about the potential escalation of conflict in the region and its implications for global peace. The attacks, which were in response to Iran’s continued support for terrorist groups and its nuclear program, have been met with condemnation from the international community. The question on everyone’s mind is whether this is the beginning of World War III, as some have predicted. In this article, we will take a closer look at the situation, examining the implications and repercussions of the conflict in the region.

Background

The conflict between Israel and Iran has been ongoing for decades, with tensions escalating in recent years due to Iran’s nuclear program and its support for terrorist groups such as Hezbollah and Hamas. Israel has long been concerned about the potential for Iran to develop nuclear weapons, and has taken a hardline stance against the country’s nuclear program. The United States has also expressed concerns about Iran’s nuclear program, and has imposed economic sanctions on the country in an effort to curb its nuclear ambitions.

Retaliatory Strikes

In response to Iran’s continued support for terrorist groups and its nuclear program, Israel has launched several retaliatory strikes against Iranian targets in recent days. The attacks, which were carried out using advanced military technology, targeted Iranian military bases, missile factories, and other strategic assets. The Israeli government has stated that the attacks were necessary to protect the country’s security and to deter Iran from further aggression.

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Implications and Repercussions

The retaliatory strikes by Israel against Iran have significant implications and repercussions for the region and the world. The conflict has the potential to escalate, drawing in other countries and leading to a wider regional war. The United States has expressed support for Israel’s right to defend itself, but has also called for restraint and a peaceful resolution to the conflict.

The conflict between Israel and Iran also has implications for the global economy. The Middle East is a major source of oil and gas, and any disruption to the region’s stability could lead to a spike in energy prices. The conflict could also have a negative impact on global trade and investment, as businesses and investors become increasingly wary of the region’s instability.

The conflict between Israel and Iran also has implications for global security. The region is already home to several ongoing conflicts, including the civil war in Syria and the ongoing tensions between Saudi Arabia and Iran. The conflict between Israel and Iran has the potential to further destabilize the region and to draw in other countries.

Expert Opinions

Experts have expressed a range of opinions on the conflict between Israel and Iran. Some have expressed concern about the potential for the conflict to escalate, while others have downplayed the risk of a wider regional war.

According to Dr. John Allen, a former U.S. Marine Corps general and the former special presidential envoy for the Global Coalition to Defeat ISIS, “The conflict between Israel and Iran has the potential to escalate, but it is not inevitable. The international community must work together to find a peaceful resolution to the conflict and to address the underlying issues that have led to the current tensions.”

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Dr. Kori Schake, a senior fellow and the director of the International Security Program at the American Enterprise Institute, has expressed a more optimistic view. She states, “The conflict between Israel and Iran is a complex issue, but it is not the beginning of World War III. The international community has the tools and the resources to address the conflict and to prevent it from escalating into a wider regional war.”

Conclusion

The retaliatory strikes by Israel against Iran are a significant development in the ongoing conflict between the two countries. The conflict has the potential to escalate, with significant implications for the region and the world. The international community must work together to find a peaceful resolution to the conflict and to address the underlying issues that have led to the current tensions.

In conclusion, the conflict between Israel and Iran is a complex and multifaceted issue, with significant implications for the region and the world. The retaliatory strikes by Israel against Iran are a reminder of the ongoing tensions between the two countries and the potential for the conflict to escalate. The international community must work together to find a peaceful resolution to the conflict and to prevent it from escalating into a wider regional war.

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Analysis

Breaking Down the Xi-Biden Phone Call: A Step Forward in China-US Relations

Published

3 weeks ago

April 2, 2024

Abdul Rahman

In a significant development, Chinese President Xi Jinping and US President Joe Biden engaged in a ‘candid’ direct conversation, marking their first call since 2022. This conversation holds immense importance as it comes at a time when tensions between the two global powers have been escalating. Let’s delve into the details of this crucial phone call and its implications for China-US relations.

Table of Contents

Understanding the Context

The backdrop against which this phone call took place is crucial to grasp the significance of the dialogue. Tensions between China and the United States have been on the rise due to various issues ranging from trade disputes to human rights concerns. The need for constructive dialogue between the two leaders has never been more pressing.

Key Points of Discussion

During the phone call, Xi and Biden reportedly discussed a range of topics, focusing on areas where their interests align. This ‘candid’ conversation indicates a willingness on both sides to engage in meaningful dialogue despite the challenges that exist in their relationship.

Progress Made and Areas of Agreement

The fact that progress was achieved in limited areas of aligned interests is a positive sign for China-US relations. This could potentially pave the way for further cooperation on issues of mutual concern such as climate change, global health, and regional security.

Implications for Global Dynamics

The outcome of this phone call has broader implications for the global geopolitical landscape. As two of the most influential countries in the world, any positive developments in China-US relations can have far-reaching effects on international trade, security, and diplomacy.

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Analysis of the Tone and Approach

The use of the term ‘candid’ to describe the conversation between Xi and Biden suggests a level of openness and honesty in their exchange. This could indicate a shift towards more transparent communication between the two leaders, which is essential for building trust and resolving differences.

Future Prospects and Challenges

While the phone call signifies a step in the right direction, it is important to acknowledge the challenges that lie ahead. Both China and the US have complex issues to address, and sustaining this momentum towards improved relations will require continued effort and cooperation from both sides.

Conclusion

The recent phone call between Xi Jinping and Joe Biden marks a positive development in China-US relations. By analyzing the key points of discussion, progress made, and implications for global dynamics, we can gain valuable insights into the evolving dynamics between these two global powers. This dialogue sets the stage for future engagement and cooperation, highlighting the importance of constructive communication in navigating the complexities of international relations.

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