Sanctions fizzle out: Putin’s clever handling of Western pressure

Things are going well – but not for the West, but for Vladimir Putin. The Russian economy has demonstrated a high degree of resilience under the pressure of Western sanctions policy, the transition from a peace to a war economy has worked and the Western support front for Ukraine is crumbling. Here are the seven inconvenient truths that a wise Western foreign policy should no longer ignore:

1. The Russian economy has noticeably picked up speed again after the first sanctions shock. The claim of ARD stock market expert Anja Kohl – “The sanctions are working. “They seem massive” – is untenable in this matter. The International Monetary Fund (IMF) in Washington predicts growth for the Russian Federation of 1.5 percent in 2023 and 1.3 percent in 2024. 

For comparison: Germany, which is sanctioning Russia, is suffering significantly more from the loss of cheap pipeline gas and the resulting price effects. The local economy is expected to shrink by 0.6 percent in 2023 and only grow by 1.3 percent in 2024, according to a joint forecast by the leading German economic institutes.

Russia’s construction activity in Ukraine sends an unmistakable message

2. Russia also owes its growth to the switch to the arms industry, which now accounts for a third of government spending. But the main construction industry is also well utilized, as there is brisk construction activity in the occupied Ukrainian territories. “A lot is being invested in the areas occupied by Russia to repair roads and rebuild destroyed buildings,” says Michael Rochlitz, professor of economics at the University of Bremen. The sub-message of these investments: The Russians are here to stay.

3. Russia finds ways to circumvent Western sanctions. The G7 price cap of $60 a barrel on Russian oil was not applied to nearly three-quarters of shipments in August, according to analysis by the Financial Times, with crude oil prices instead approaching $100. The Russians are replacing European actors with alternatives and thus evading control. The crux: This means that Russia is becoming less and less dependent on the West and the price cap is becoming more and more irrelevant for the Russians. Ben Hilgenstock, an economist at the Kyiv School of Economics, said: “Given the changes in how Russian oil is shipped, it could be very difficult to meaningfully enforce the price cap in the future.”

China is playing the cleaner for Russia

4. The exclusion of the Russians from the Western payment system Swift, which was prepared in strict secrecy, is a non-starter. The reason: This instrument was discussed publicly after the occupation of Crimea. Although it was rejected at the time, the Russian side prepared fully for it. The proportion of Russian trade transactions with China that were invoiced in US dollars fell from a good 90 percent in 2013 to less than 50 percent in 2020, while dollar trade with India fell from 95 percent to 20 percent. China has stepped in with its own transaction system called “CIPS”.

5. In general, China has expanded its global importance as a trading power in the wake of the Ukraine war and is now playing the cleaner for Russia. Russian-Chinese trade increased by 32 percent to over $155 billion in the first eight months of 2023. India has by no means joined the phalanx of NATO states, but is instead helping Putin. Russian-Indian trade tripled, reaching $33 billion in the first half of the year, according to RIA Novosti news agency. The Russians’ comparatively cheap and definitely rich energy range has made the Indians sensual.

An entire continent sees the Ukraine war only as a regional conflict

6. A pragmatic view of things has also prevailed in Africa. The Ukraine war is seen as a regional conflict between Europeans and not as the archaic struggle between good and evil in the fight for peace and freedom. Africa expert Martin Kimani says: “African states are confronted with the consequences of the war, but they do not see it as their own crisis. They have other priorities, such as fighting poverty, hunger and violence.”

7. The Western sanctions regime works, but without substantially damaging Putin. Supply chains have been realigned and export and import flows have been realigned. “I have always doubted the effectiveness of sanctions and the use of the financial system as a silver bullet,” says Russian entrepreneur Oleg Deripaska in a major exclusive interview with the Financial Times. He had previously described the war in Ukraine as “no value” and called for speedy peace negotiations. He is not one of Putin’s friends. He says: “Sanctions are a 19th century tool. To anyone who believes that sanctions could end the war and bring about regime change, I can only say: No! We need another solution.”

Conclusion – Putin is still standing

The West has not significantly weakened warlord Putin economically, isolated him internationally and defeated him militarily. Conversely, this means that the “other solution”, the hour of diplomacy, is approaching. The fact that Putin isn’t particularly willing to talk is a challenge, but it shouldn’t be an excuse.

More about the war in Ukraine:

Markus Lanz is currently in Ukraine filming. In a podcast conversation with Richard David Precht, the ZDF talker explains to the philosopher why the Ukrainians can only laugh when asked about negotiations – and that they are prepared for many more years of war.

Britain plans to send its own troops to Ukraine for training, according to a report. A Russian commander must go. Borrell holds out the prospect of further aid for Ukraine. What has happened since last night in the war against Ukraine.

Hank Peter

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