Ryan Crimmino. Harvard International Review. Volume 39, Issue 2, Spring 2018.
The hallmark of Russian President Vladimir Putin’s latest term has been record-breaking popularity on the home front and controversy on the global stage. Following his annexation of the Ukrainian province of Crimea in March 2014, Putin’s approval ratings among the Russian people soared to 83 percent, the highest level since 2008. In the same year, he was named Person of the Year by the Organized Crime and Corruption Reporting Project, was criticized by the Dalai Lama himself for his cavalier foreign policy, and was politically ostracized by most of the West. As his domestic approval ratings continue to hover in the 80 percent range, Putin seems to care little for the opinion of the outside world.
It may not be surprising, then, that the efforts of many Western nations to stymie Putin’s encroachments into Ukraine have met with little success thus far. While many analysts predicted that the pressure of economic sanctions imposed by the West would force Russia to reconsider its aggressive approach to Crimea, Putin’s foreign policy has yet to change course. In fairness, the Russian economy fared poorly for much of 2015, and sanctions likely contributed to its sub-par performance; its subsequent recovery, however, has called into question the efficacy of the current sanctions program. Indeed, as we gain a better understanding of the long-term economic and political impact of sanctions on Russia, the shortcomings of the current Western policy have become apparent.
The initial sanctions on Russia were jointly coordinated by the United States and the European Union in response to Russia’s 2014 annexation of Crimea, which President Obama condemned as a “flagrant” violation of Ukrainian territorial integrity. Targeting multiple sectors of the economy, the sanctions included an embargo on the sale of military goods and products related to oil production, restrictions on financial dealings between Western firms and their Russian counterparts, and asset-freezes on certain high-ranking individuals. Russia soon retaliated with an embargo on the export of agricultural goods to the European Union–a significant decision, as Russia plays an active role in European agricultural markets.
Initial economic analyses suggested that the sanctions were having their intended effect on the Russian economy: 2015 saw economic pessimism and capital flight from Russia, as investors balked at high inflation, budgetary concerns, and loss of access to many important international markets. According to the International Monetary Fund (IMF), the Russian economy contracted 3.7 percent in 2015, and inflation soared to 15.5 percent. In spite of this national economic decline, Putin refused to alter his course in Ukraine; instead, the Western sanctions provided an easy scapegoat for the faltering economy. His approval ratings hovered around 80-90 percent for much of 2015.
Two years later, with commodity prices on the rise once more, the Russian economy set into the path to recovery, as detailed in a 2017 World Bank report. As oil prices recovered and exports rose, Russia experienced an economic growth of about 1.7 percent in 2017. Apurva Sanghi, the World Bank Lead Economist for Russia, wrote that Russia’s “strong commitment to deepening macroeconomic stability” is marked by new fiscal and structural reforms aimed at targeting inflation and reducing the effect of “external volatility” on this year’s budget. While poverty still affects about 14.4 percent of the population, an uptick in wages brought about a “modest” decline in poverty over the first half of the year. Russia’s economic growth is projected to continue over the next two years, albeit at the slow rate of 1.7-1.8 percent. This recovery, despite sustained pressure from sanctions, has led many economists to suggest that Russia’s 2015 economic downturn was more closely tied to plummeting oil prices than the impact of sanctions.
As Russia’s economy continues to stabilize, support for sanctions has begun to dwindle in some Western nations, betraying a lack of unified resolve. Once touted as a victory of coordinated policy between the United States and the European Union, the sanctions no longer demonstrate the same spirit of cooperation. US Secretary of State Rex Tillerson recently abolished the office of Director of Sanctions at the State Department. While the responsibilities of this office have been transferred to another branch of the State Department, the new arrangement may make it more difficult to facilitate transatlantic cooperation in coming months. Within Europe, the economic toll of sanctions has not gone unnoticed–Russia is the European Union’s third largest commercial trading partner. The European Union succeeded in renewing sanctions at the end of 2017, but not without contention; Cyprus, Greece, Italy, and Spain pushed for a reduction in the sanctions program, while Germany advocated the continuation of strict measures against Russia. The eroding coordination and cooperation between Europe and the United States have diminished the efficacy of the Western economic stance against Russia.
Moreover, a lack of resolve among corporations and financial players contributed to the undermining of the rollout of sanctions. Many German corporations, for instance, were not supportive of strict sanctions in the first place, and pushed for the European Union to reconsider its stance. While investments from German companies in Russia dwindled after the initial imposition of sanctions in 2014, their Russian direct investments in 2016 amounted to USS2.1 billion, an even greater amount than had been invested the year before sanctions were imposed. Even at the height of the sanctions program, some Russian entities succeeded in skirting restrictions altogether, as explained by the Economist.
While the impact of sanctions can be quantified at the economic level, some of the most significant effects of the program are political in nature. In 2015, many political analysts noted that sanctions provided the Kremlin with a convenient explanation for economic downturn. The Chatham House, a prominent foreign policy think-tank, noted that on the short term, it is not uncommon for sanctions to bolster the authority and public support of totalitarian policies; this phenomenon is called the “rally-around-the-flag” effect. Unsurprisingly, polling data has shown that support for the United States among the Russian populace noticeably declined in the wake of sanctions, further undermining Western credibility in the region. In a stroke of irony, Sergei Ryabkov, Russia’s deputy foreign minister, recently denounced the latest expansion of US sanctions as “yet another attempt” to meddle in Russia’s upcoming election. By fostering patriotic sentiment against the West, Putin has escaped much of the blame for the faltering economy and continues to maintain high levels of support among his own people.
Beyond leveraging the domestic political capital supplied by the sanctions program, Putin may seek to underscore and further encourage the weakening of resolve among Western nations, with an eye toward bolstering Russia’s international posture. A 2017 special report from the Council on Foreign Relations explains that while Putin’s intentions remain unclear, his increasingly aggressive foreign policy may be a response to the perceived encroachment of the NATO member countries into Russia’s traditional sphere of influence. Concerns over the inefficacy of the sanctions program along with fears of growing US isolationism have taken their toll on relations between NATO members. In particular, the Baltic states have expressed concerns over their defensive preparations in the case of Russian military maneuvers. The 2017 arms deal between Russia and Turkey, a NATO member, further highlights the mounting concerns over cohesion between NATO states. Putin may use the sanctions program to justify his aggressive stance toward NATO states, and to foment fears of NATO encirclement. In this sense, his response to Western sanctions plays into his pursuit of Russian hegemony in Eurasia, perhaps seeking to cast Russia as an alternative to the West.
In response to decreased access to Western markets, Russia has also accelerated its so-called “Pivot to Asia,” whereby it seeks to foster closer economic and political ties with China and Central Asian nations. In 2015, Russia and China agreed to integrate the Eurasian Economic Union (EEU) and the Belt and Road Initiative (BRI) into a larger economic program known as the BRI-EEU, marking an important milestone in Sino-Russian relations. This was soon followed by a number of bilateral trade agreements between Russia and other Asian nations, including the Philippines, Indonesia, Vietnam, and South Korea. Asian markets have offered an outlet for Russian corporations seeking to bolster exports to non-Western nations, and closer political ties have brought about important agreements in arms trade, military technology, and energy cooperation.
Furthermore, through the Shanghai Cooperation Organization (SCO), a forum of Central Asian nations founded in 2001, Russia has pursued joint military exercises with member nations and sought to expand on new energy and manufacturing deals with China. In a 2015 summit held at Ufa, the SCO paved the way for the membership of India and Pakistan, upgraded Belarus to observer state status, and introduced Armenia, Azerbaijan, Cambodia, and Nepal as “dialogue partners.” As the Organization grows to encompass a broader swathe of Asian nations, it has also discussed plans to create an SCO Development Bank to promote infrastructure and energy development in member nations. The expansion of the SCO, which has accelerated since 2014, could strengthen the organization’s regional sway and bolster the political initiatives of Russia and China, which serve as the “twin engines” of the forum.
As the immediate impact of sanctions remains blunted by Russian economic recovery, policymakers in the European Union and the United States must reassess their strategy toward Russia. A new policy must account for the strengthening of Eurasian markets, led jointly by Russia and China, and also reaffirm economic and political cooperation on both sides of the Atlantic. NATO members states should emphasize their commitment to mutual defense, while also working to assuage Russian fears of encroachment and interference. Whereas it is possible that the latest renewal of sanctions will halt Russia’s economic progress, they may also serve to strengthen Sino-Russian rapprochement. In order to remain committed in its response to the annexation of Crimea, and more broadly to the dangerous foreign policy this represents, the Western coalition must adapt its own foreign policy to today’s rapidly changing circumstances. A lack of resolve could spell a costly failure.