The history of sanctions is mixed at best. They have not worked on Cuba or North Korea. They worked too well against Japan, leading to World War II and it is unclear whether they will lead to productive negotiations with Iran.
In the short run, there is no evidence that the targeted sanctions against Russian industries and specific individuals have been effective. The Russian economy is a basket case and the combination of the sanctions and falling oil prices will only make the situation worse. The Russian people are suffering but they have a long history of enduring suffering. Russian public sentiment favors Putin because he has promised to restore Russia’s rightful place in the world. As long as the Russian people believe that, they will persevere increasing hardships.
The asset freeze on people close to Putin will only have an effect when those people actually want access to those funds. If their desire for power is greater than their need for cash, it may be along time before they feel squeezed. On the other hand, there has been a flight of capital from Russia and that is not good for domestic investment. In spite of Putin’s efforts to get oligarchs to bring money back to Russia, it has not happened and the flight has probably increased.
Russia is not powerless to respond to the sanctions. It has threatened asset seizures and as winter approaches in Europe, it can raise the price of natural gas. While western European nations are scrambling to diversify their energy sources, they are nowhere close to being independent of Russia. Putin may squeeze Western Europe this winter to test its resolve. If France, Germany, and the UK begin to waffle, he is likely to adopt a strategy that cause the European sanctions to collapse. If that happens, the ball game is over.
The sanctions currently are causing pain in Russia. That is obvious. But, they are not intended to cause so much pain that Russia retaliates militarily by taking more of the Ukraine. Putin has already established a meaningful influence in the Ukraine and when he is satisfied that it firmly entrenched, he may decide that for the short run, he can take steps that cause the sanctions to be relaxed or removed. Falling oil prices may cause Putin to take indirect actions to get the sanctions relaxed because the effect of the drop in oil prices may have a greater effect than the sanctions. Russia gets most of its foreign exchange from oil and gas exports. The recent decline in oil prices that shows no signs of stopping is inflicting a heavy economic cost on Russia.
The West wants a change in behavior on Putin’s part and Putin wants a safe buffer between Russia’s western border and NATO forces. Neither Russia nor the West can appear to capitulate to the other. So, a process has to play out where both sides can claim success. Exactly how that will occur is still to be determined.
This article appeared on the National Journal’s Energy Insiders weblog at http://disqus.com/wokeefe/