Russia has been preparing for this moment for years.
In 2014, when the troops of Vladimir Putin entered Crimea, annexing part of Ukraine, a first round of international sanctions fell on the Kremlin. And that taught Moscow an important lesson.
Since then, Putin has developed better defense mechanisms, ceasing to depend on the dollar and trying to protect the Russian economy.
However, a new package of restrictive measures was announced this Tuesday by Western powers as reaction to Putin’s decision to recognize two pro-Russian territories in Ukraine as “independent republics”, which is seen as a first step towards a broader intervention.
The US president. , Joe Biden, when announcing a series of financial measures against Russia, considered that, with Putin’s decision, the invasion of Ukraine had begun.
“In short, Russia has just announced that it will is taking a large part of the Ukraine. In my opinion, it is establishing a reason to take more territory by force. This is the beginning of a Russian invasion of Ukraine,” he said.
Biden indicated that he will hit with “blockade sanctions totals” to two large Russian financial institutions: a military bank (Promsvyazbank) and the VEB, the state bank that is in charge of supporting the development of the economy, managing the state debt and pension funds.
The US president also announced additional sanctions on Russia’s sovereign debt, “which implies that we are cutting off the Russian government from Western finances,” he said.
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“Russia will not be able to make money from the West and will not be able to negotiate its debt in our markets or in European markets”, he affirmed.
Previously, Berlin had announced the suspension of the approval process for the entry into operation of the Nord Stream 2 gas pipeline, which connects Germany and Russia, and the United Kingdom also advanced sanctions against banks, politicians and Russian entities.
The European Union, for its part, announced that it will sanction the 351 deputies of the Russian parliament who voted this Tuesday in favor of recognizing Donetsk and Luhansk as independent republics, as well as 24 individuals and legal entities.
As explained by the head of European diplomacy, Josep Borrell, these are “people and entities that are playing a role in undermining or threatening the territorial integrity, sovereignty and independence of Ukraine.”
Both United States like Europe promised more sanctions in case Russia continues its escalation against Ukraine.
But how effective can these measures really be? Is Russia prepared to evade them?
A more prepared Russia
The Russia of today is not the same economically as the one that annexed Crimea eight years ago.
Putin’s government has accumulated during these years huge foreign exchange reserves and has cut its budgets to keep its economy and government services running, even under isolation.
Thus, it has reoriented trade and sought to replace Western imports, in such a way that it easier for him to evade sanctions.
To the point that, according to analysts, the Russian president is able to show that he can withstand sanctions for longer than the West assumes.
On Monday, in a meeting with his Security Council, Putin asked several ministers how prepared Russia is to deal with sanctions, to which his officials replied that the West would hinder Russia in any way any way and that the country was prepared for it.
By January of this year, the Russian government’s international reserves in foreign currency and gold were at record levels, with a value of more than US$640.000 millions.
That is the fourth highest amount of such reserves in the world and could be used to help prop up the Russian currency, the ruble, for a considerable time.
So around the % of Russian currencies are currently held in dollars, compared to 40% five years ago. Around the 13% is now held in Chinese renminbi.
While about half of Russia’s total bank foreign assets and liabilities are in US dollars, according to bank data central.
It is an approximate reduction of the 80% on 2002 and the 70% at the beginning of 2014.
All this is designed to protect Rusi to as much as possible from US-led sanctions.
Less dependency
There have also been other changes in the structure of the Russian economy.
Over time, the country has reduced its dependence on foreign loans and investments and has been actively seeking new business opportunities outside of Western markets.
China has a good part in that strategy.
Recently, Putin traveled to Beijing to participate in the opening of the Winter Olympics, while most Western governments desisted from sending their officials to the ceremony in diplomatic boycott due to abuses against human rights in the Asian country.
And on Monday night, while the majority of nations condemned in the UN Security Council Putin’s decision to recognize as a “republic icas independent” the rebel areas of Donetsk and Luhansk, the Chinese government was one of the few that did not join the questioning and concentrated on calling for understanding “of all parties”.
Other mechanisms
The Moscow government has also taken the first steps to create its own system of international payments, in case it is cut off from Swift
The EU, for example, gets the 24% of its natural gas supply from Russia, while the UK gets around 3%.
Germany’s decision to suspend the Nord Stream 2 pipeline is therefore detrimental to Russia, but will also have a direct impact on prices of energy in Western Europe.
Targeting the oligarchs
Another of the measures on which the West has focused is to target sanctions against individuals with high power and great influence in the government: the so-called oligarchs.
It is said that Putin has no money or ters active abroad in his name (for obvious reasons), but that a network of ultra-rich sympathizers looks after him.
“There have been some sanctions against the oligarchs since 2014, but they haven’t gone far enough. Change will only happen if they are much more targeted against them,” says Professor Tomila Lankina of the London School of Economics.
London is a particular focus, with its long-established network of front companies , properties and political influence.
The UK government has now announced new sanctions against specific individuals, but the anti-corruption group Transparency International says there are around 1.158 million pounds sterling (about US$2.033 millions) of Russian money invested alone in London properties, much of the funds held in tax havens.
“Western governments are not only failing the Russian people by allowing this to happen, they are also failing their own people” , asserts Lankina.
EPAThe impact
Western leaders have made it clear that the sanctions announced in recent days are only the first of several potential steps.
The pressure may increase considerably depending on what Putin’s next step is.
But will it be enough to force Why is Russia to change course?
There is no doubt that sanctions can have an impact, but such a comprehensive package has never been imposed on an economy as large as Russia.
And to make it effective, the West would also have to pay the long-term consequences.
In fact, Biden himself said on Tuesday that his government is studying mechanisms to prevent sanctions against Russia from being reflected in the price of gasoline in the US
“I want to limit the pain that feel the American people at the gas station. This is fundamental for me”, he said.
“As I said last week, defending freedom will have costs also for us and here at home. We have to be honest about it. But while we do this, I will take strong action to ensure that the pain of our sanctions is directed at the Russian economy, not ours,” he added.
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