Because this time the sanctions against Russia are effective

Economic sanctions as an instrument of political pressure against a country that has violated international law were first introduced by the League of Nations in 1935 against Mussolini’s Italy which had invaded Ethiopia. Since then they have been adopted on different occasions but without ever having enjoyed a good reputation. There are four main criticisms addressed to them:

  1. Ex post generally proved to be ineffective: the sanctioned country did not suffer significant consequences and in any case it did not retrace its steps, removing the behaviors for which they were imposed.
  2. They are rightly considered as double-edged weapons: by contracting economic exchanges and financial transfers that are mutually beneficial to the parties, they prove to be mutually penalizing, therefore both towards those who suffer them and towards those who impose them.
  3. They are criticized for their distributive effects: they are more likely to significantly harm ordinary citizens rather than the political decision-makers who have made reprehensible choices and the social groups that support them.
  4. At best, they produce perceptible and significant effects only in the medium / long term while on the contrary the political decisions that should be opposed generate negative effects already in the short and very short term, as is the current case the Russian invasion of Ukraine and it was in the times that of Italy in Ethiopia.

These four criticisms must be carefully considered in analyzing the recent sanctions on Russia, to evaluate their validity and effectiveness. In general, it can be argued that in the specific case they apply very little, or in any case much less, than in the past history of economic sanctions.

The sanctions against Russia are in fact substantial, wide-ranging, never seen in previous cases, and concern numerous types of economic relations as well as being implemented by a multiplicity of countries, thanks to the coordination that has taken place between the United States, the United Kingdom and European Union, to which Switzerland is also associated. Therefore their impact is expected to be relevant with respect to past experiences and their effects are able to manifest themselves immediately rather than being diluted over time.

One reason for the greater and more rapid effectiveness is the fact that, in the latest enlargement that has taken place, they have focused on financial relationships rather than trade, which was the standard form of old-fashioned sanctions. In general, they worked with the ban on exports to the sanctioned country of key goods for the functioning of that economic system, and of its military apparatus, but also of consumer goods with a wide circulation, with the specific aim of signaling to the public public of that nation the dissent of the rest of the world.

So it was for Mussolini’s Italy but even if the sanctions were approved by about fifty countries, quite a few of them did not put them into practice or they did it in a careless manner and with the unconfessed desire to be able to remove them as soon as possible. Furthermore, some large countries such as the United States and Germany did not adhere to the League of Nations and therefore did not adopt them at all.

In the end they were removed after only seven months and achieved the opposite effect to the desired one as the regime exploited them propagandistically to increase its consensus and launched contrast programs, more media than significant, such as those of gold for the homeland and of economic autarky, aimed at producing at home substitute products for those that would have ceased to exist (from fuels and synthetic fabrics to artificial leather and substitutes for colonial goods, such as barley or chicory coffee and other food items with somewhat dubious product content like the synthetic egg …).

Only two goods could have brought the Italian economy and the regime’s war effort to its knees but were not included in the export ban: oil and coal, for which there was almost total dependence on foreign supplies. On the other hand, the ban on selling foie-gras to Italians had no great effect.

In the case of Russia, the export ban, which is easily circumvented through triangulations with third countries that do not apply sanctions, was limited to armaments, as in the previous sanctions of 2014, technological goods liable to military use or in any case of mixed use. , such as spare parts and components of aircraft, or for the exploitation of natural resources. On the other hand, no luxury goods were included, the lack of which could have threatened the standard of living of the upper and very upper classes, favored by the regime compromised with it. Thus the EU High Representative for Foreign Policy Josep Borrell immediately had to back down after announcing on Twitter that the oligarchs would no longer be able to “shop in Milan, party in Saint Tropez and buy diamonds in Antwerp” or in the jewelers of Moscow and St. Petersburg.

However, the non-effect of the ban on exporting luxury goods and providing tourist services has been achieved even better by other ways: sanctions in financial relations, the blocking of air transport with the total cancellation of transport flows to and from Russia and the seizure of assets held in the West by the great oligarchs such as yachts and real estate. So in theory they could still come shopping in Milan or Antwerp or party in Saint Tropez but no longer with their private planes nor could they, if the kidnappings go on like those seen in these days, find their boats and their homes ready. . And renting on Airbnb to then reach the Côte d’Azur taking the train from St. Petersburg to Helsinki together with mere mortals is certainly not part of their lifestyle.

In theory they can still buy Western luxury goods while staying in their country but they should pay for them with hard currency which Putin instead needs for much less voluptuous supplies. And these goods, which usually travel by air cargo, should be loaded on merchant ships. A rather long and complicated journey.

Compared to trade sanctions, historically ineffective and with long-term effects, the key sanctions instead concerned financial flows for payments, investments and savings. In this way, the severance of financial relationships has been privileged, which in any case also brings with it that of commercial relationships, given the impossibility of making the payments that they make necessary.

This type of sanctions developed along three lines. First of all, the prohibition of access to Russian banks and companies, but also to savers, to Western financial markets, precluding the possibility that they receive loans or can make deposits. This sanction, one of the first adopted, is also destined to produce its effects diluted over time and is therefore not the key one, while the remaining two are.

The ouster of Russian banks, unfortunately not all, from the international payment platform Swift makes it extremely problematic to make and receive payments from the European Union and the United States and therefore also creates difficulties for commercial exchanges, since no one is available to sell except can be paid. Precisely for this reason, although many of the major banks were included in the sanction, two of them – Sberbank and Gazprombank – were left out precisely to allow Western countries to continue to pay, and therefore also to continue to receive Russian gas and oil. .

This is no small flaw in the sanctions that should be closed as soon as possible but it can only be done by renouncing the Russian supply and therefore replacing it with that of other countries and, at least in part, trying to save on consumption. The struggle to defend the freedoms of Ukrainian citizens and the independence and integrity of their country is well worth a few limited sacrifices in terms of less warm homes and less mileage for our cars.

The most impactful measure was undoubtedly the freezing of the Russian central bank’s foreign exchange reserves held with other Western central banks and financial institutions. These reserves, which have increased over time with the income in hard currency from the sales of gas and oil, have grown in recent years, going from around 400 billion dollars in 2017 to the current 640 billion, corresponding to 40% of the Russian national GDP. They represented Putin’s Uncle Scrooge’s depot, hay on the farm ready to be spent in the West or elsewhere to finance foreign supplies required during, and presumably after, the military campaign.

Here, however, a significant mistake was made: the Russian central bank drastically reduced the assets held in the US as early as 2018 but moved them to other Western institutions including France, Germany, the United Kingdom and Japan, evidently not fearing that they could be at risk. . Instead, they have all been blocked, for an amount estimated at at least 350 billion, but could also reach 400, of the 640 total. Therefore, they can no longer be used for Russian hard currency payments or to support the ruble exchange, contrary to what the original plans certainly were.

Of the remaining 240-290 billion it is estimated that at least 130 are gold reserves, these usually physically held at the central bank, but in the current phase much more difficult to convert into currency and even to transport, given the closure of the airspace. If they are sold they will almost certainly have to fly to China (just as in 1936 those of the Bank of Spain had to be taken to Moscow, a not very auspicious precedent), further increasing the influence of this country.

Basically, Russia could soon find itself short of money to make foreign payments and to procure supplies outside its borders and if the West were able to buy less gas and oil from it this moment could be significantly approached.

The sanctions adopted were enormous, even if they did not lead to the total severing of economic and financial ties, and evidently also completely unexpected in their scope and for the breadth of the countries involved.

Their effects on the Russian economy were evident right from the start: the ruble, whose exchange rate was around 75 units per dollar at the beginning of the crisis, quickly rose to around 120, losing almost 40% of its value, and this despite the doubling of the main rate of the central bank, which rose from 9.5 to 20%, with foreseeable significant recessionary effects on the Russian economy. The Moscow Exchange has been closed and is expected to remain there for a very long time.

The collapse of the Gross Domestic Product will be inevitable even if we will have to wait to be able to measure it. The economy therefore works against Putin, it is hoped that Western politics also knows how to do it.

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About Alex Marcell

He likes dogs, pizza and popcorn. Already a fanboy of Nintendo and Sony, but today throws anything. He has collaborated on sites and magazines such as GameBlast, Nintendo World, Hero and Portal Pop, but today is dedicated exclusively to Spark Chronicles.

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