STOLYPIN: Sanctions, economic war and regime change

By bne IntelliNews July 28, 2014

Mark Galeotti of New York University -


The West’s anger about Moscow’s undeclared war against Kyiv, let alone about the shooting down of Malaysian Airlines Flight 17, is unfeigned, deep and collective. Alas, there is distinctly less clarity and unity about quite what to do about it.

In many ways the answer is not to punish Moscow directly so much as indirectly, by supporting Kyiv in its ambitions to defeat the rebellion on the ground and then build — at last — a working and genuinely independent Ukraine. Former US ambassador Mike McFaul, once architect of the abysmal “reset” and now seemingly reveling in his status as academic once more to become a born-again hawk, has joined the chorus advocating military assistance for the Ukrainian government. However, unless this means Nato boots on the ground, or cruise missiles taking out Russian-supplied armour and supplies, then this is probably an irrelevance. Kyiv does not lack for guns and bullets, and the time taken to integrate new systems into a military still equipped largely with Soviet-era kit would simply delay any campaign.

But of course sending military aid is always a tempting option. It is relatively cheap compared with systemic state-building support and also double-dips as a way to subsidize domestic arms suppliers. The real help the West could provide is not so much to help win the war, but protect the peace afterwards. The greatest threat facing Kyiv is impending economic collapse; averting this would require sustained and massive financial support. Of course, there is no appetite for this in a West only just emerging from bruising recession, especially in an EU still propping up wobbly southern economies. But crises tend not to explode obligingly at convenient moments, and the measure of the West’s real commitment to Ukraine will be in how far it is willing to suffer to make a difference.

However, supporting Kyiv in this way is both worryingly open-ended and also disappointingly long term. No wonder the real attention is being directed towards sanctions and other measures to punish, deter and challenge the Kremlin.

More shock and awe needed

The current sanctions regime, targeted largely on key individuals and some businesses directly implicated in Russia's campaign in Ukraine, is by no means pointless. The EU’s decision to officially add 33 more individuals, companies and institutions to their blacklist on July 25 does demonstrate that. It is certainly worrying elements of the elite and having some impact in financial markets. It is also unsatisfyingly cautious and proportionate, though, robbing it of any shock and awe.

EU ambassadors are meeting in Brussels on July 29 to decide on imposing sanctions on Russian companies’ access to financial markets, on energy firms, and on the provision of military equipment.

If this is to be the West’s tool of choice, then arguably the most effective extension of the regime ought precisely to embrace disproportionality, to abandon the scalpel for the chainsaw. Every parliamentarian could be targeted, for example, every civil servant above a certain rank, every professional Russian soldier.

Furthermore, the sanctions regime ought to be — for want of a better expression — much more petty and vindictive. Spouses ought to be swept up in the same restrictions as the principal targets, both to prevent their being used to bypass financial controls and also to bring the pain into the home. Sons and daughters, their student visas revoked, expelled from the schools and universities in which they enjoy the fruits of Western life, even while their parents seek to deny them to Ukrainians.

Would this provoke anger and outrage? Of course. But the whole point of this targeted sanctions regime is to cause pain.

The alternative, and one which especially concerns many in Europe, is to move onto sectoral sanctions, hitting wider economic interests. There is no doubt that Russia is vulnerable, even if energy supplies are exempted (as they would be), because if hydrocarbons are Moscow’s secret weapon, then finance is the West’s. The airy claims from Russia that China and the other BRICS nations would step in to fill the gap are implausible.

Again, there will be a serious economic cost to such sectoral sanctions, especially as Moscow will retaliate in kind. But sanctions of this kind ought to be called what they are, weapons of economic war. And wars always are brutal and expensive undertakings, with casualties on both sides.

That is also true of embargos. Paris is rightly coming under dire for its decision to go ahead with its sale of a Mistral-class assault carrier, something that not only provides the Russian navy an unprecedented new capability, but also technology transfer for its defence industries. President François Hollande’s statement that the sale of the second will depend on Moscow’s future actions is a rather sad recognition that salvaging as much as possible of a €1.1bn contract is more important than the lives of those killed on MH17.

British Prime Minister David Cameron is outraged. But not yet outraged enough to block British arms exports to Russia — including the sniper rifles used by Putin’s bodyguard — let alone to touch the intimate relationship of the City of London’s financial sector with Russian money. Even though only a reported 1% of the UK’s financial services exports go to Russia (almost certainly an understatement, given that much “Russian money” will seemingly come from places such as Latvia, Israel and even Ukraine, its place of origin artfully obscured), there are certain interests and individuals especially heavily involved, and they are lobbying for all they are worth.

In short, the European countries must realize that if they are to commit to a wider sectoral sanctions regime, they cannot hope to so in a way that leaves them unscathed. Just as a founding principle of Nato is shared military guarantees, so too an EU sanctions programme must ensure that member states shoulder an equitable portion of the burden, even if that means those taking more of a hit are subsidized by those which are not.

Sport as politics and business

Then there are the boycotts primarily designed for moral and political impact. Already, there is talk of trying to take the 2018 World Cup from Russia, for example.

Is it flippant to wonder how far the elites of apartheid-era South Africa influenced not by the prospect of an end to economic sanctions — they had adapted to autarky surprisingly well — but by the thought of once again playing cricket and rugby in the world championships?

To some, this is a pointless intrusion of politics into sport, but this is a naïve and often self-serving notion. Sport is not just politics but business, and in Russia more so than in many other places. As we saw from the Sochi Winter Olympics, major sporting events become the focus for massive government-backed megaprojects. They not only drive efforts at regional revival, they become channels whereby funds are channelled to loyal allies of the Kremlin. In other words, they create a King Lear moment, in which the monarch dangles priceless opportunities and demands outspoken pledges of allegiance in return.

Of course, such measures also play directly into Putin’s narrative that Russia is the victim of a ruthless West seeking to assert their dominance through bullying and manipulation. In the short term, it could encourage the very isolationist or revisionist tendencies that he is currently encouraging. Moscow will certainly retaliate by stepping up its role as a spoiler in the wider world, not least over Iran and Syria.

However, in the longer term it is clear that Putin cannot modernize Russia the way he wants when locked away from western markets, finance and know-how. Even if he is willing to make this trade, sacrificing development for dreams of Eurasian hegemony, it is far from clear that most Russians, from oligarchs whose businesses are embedded within the global economy, to ordinary Russians saving up for their imported car or foreign holiday, will ultimately be happy with that deal.

But this raises one absolutely fundamental question, one that few in the West seem comfortable addressing. Is the West’s goal simply policy change — or regime change? It is all very well stating that the aim is “simply” to make Russia withdraw from its interference in Ukraine, never mind handing back Crimea (is this really an aim any more?), but how far can Putin comply with these goals without suffering a catastrophic political hit? Besides which, from my own experience, there are those in the West who talk the language of limited policy change, but their real ambition now is to see systemic change in the Kremlin.

Fair enough: it would be foolish to pretend that governments— from Moscow to Washington, and points beyond and in between —do not sometimes seek, or at least desire wholesale political change in other states. Who would shed a tear for the Kim regime in North Korea? Likewise, there is no attempt to conceal the ambition to see the Assad regime in Syria removed.

But it is essential, even if only behind closed doors, for the West to know what it wants. The scale of its ambitions must determine its strategy, and also the resources it is willing to devote and the pain it is willing to bear in the name of victory. Whether the aim is to push the Kremlin out of eastern Ukraine, or to push Putin out of that Kremlin, this will not be without cost and without risk. But then again, what is?

Mark Galeotti is Professor of Global Affairs at the SCPS Center for Global Affairs, New York University, who writes the blog In Moscow’s Shadows


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