Criticism mounts today in the West with the strong encouragement of Kremlin propaganda against the sanctions put in place following Russian aggression against Ukraine. These sanctions were adopted in order to “weaken the Kremlin’s ability to finance the war and to impose clear economic and political costs on the political elite of Russia responsible for the invasion”. Some pundits have lately insisted that sanctions are useless, that they have hurt Western economies more than the Russian economy. What is the truth?
by Françoise Thom — DeskRussia — April 24, 2023 —
The International Monetary Fund would have us believe that the Russian economy will grow more quickly than the euro zone in 2024. One wonders what this assessment is based on, when the Kremlin has classified and not released a good deal of the information on its economic situation, including most recently data on the volume of production and exports of Gazprom. Dmitry Peskov has justified this restriction of access to economic statistics by the hybrid war waged by the West against Russia. Moreover, one cannot compare the GDP of a country at war with that of a country at peace: the production of tanks and missiles is not the production of wealth. As in the Soviet era, it is better to rely on observations on the ground and significant details that can speak volumes. For example, car production is now lower than it was in the Brezhnev years; new car sales have fallen by 60%. Currently, the pharmaceutical industry is in serious crisis. Imports are far from fully compensating for the decline in production, and import substitution is not working as well as the propaganda would have us believe. The oil embargo and the price ceiling will be “a new economic shock that could significantly reduce the level of economic activity in the coming months”, according to analysts at the Russian Central Bank (January 6, 2023). In 2022, Russians transferred 63.7 billion dollars abroad (compared to 5.4 billion in 2021): “This is unprecedented. This means that the population has transferred part of its savings, either in cash or rubles, abroad. This is not very good for the country and for the system because it is a net outflow of capital from the country,” according to economist Mikhail Zadornov, former director of Otkrytie Bank.
Let’s not forget that Putin’s regime was accustomed to living the high life, having very early on become accustomed to solving its problems and achieving its aims in Russia and abroad by showering the involved parties with money. Putin’s “vertical power” is a clan structure held together by sharing loot, “raspil” in Russian.
These are the famous “staples” of Russian power. Draining Moscow’s finances means compromising the entire Kremlin power pyramid, including the networks of influence abroad. It is clear these days that Chechen chief Ramzan Kadyrov is worried about federal financial flows the drying up. In a recent interview the satrap of Grozny blamed the West for not supporting Chechnya when it struggled for independence; he then justified his decision to collaborate with Russia by saying that Chechnya could not be self-sufficient, it needed subsidies to function. These words can be interpreted as a discreet blackmail of Moscow in case the Kremlin decides to reduce subsidies to Chechnya. (In January 2022, Kadyrov had boasted that the federal center paid 375 billion rubles a year to Chechnya.)
Cartoon by Mari Semenova
There is also another factor to consider. As Russia sinks further into war, the pressure for a Bolshevization of the economy will become more insistent. Prigozhin is already gaining popularity in some circles by advocating the “dekulakizing” of the rich. The drift towards the “Kriegssozialismus” [German war economy during WWI] claimed by Lenin as a model can only accelerate the decline of the Russian economy.
Let us turn to the fundamental criticisms of the sanctions. One of the most serious is that sanctions actually play into Putin’s hands, as he dreams of cutting Russia off from the West.
In fact, since 2004, the Putin regime has been preparing for a confrontation with the West on both the domestic and foreign policy fronts. Vladislav Surkov, at the time the chief ideologist of Putinism, remarked that “The main goal of [foreign] intervention is annihilation of the Russian state. …We all need to realize that the enemy is at our doorstep. The front line crosses every city, every street, every house… And in our beleaguered country a fifth column of radicals of the right and left has formed”. This quote dates from… 2004. We already find the conception of Russia as a besieged citadel. It has dictated an entire political program that would be methodically implemented and that culminated after February 24, 2022.
The Chekist oligarchy that became dominant with the advent of Putin has been traumatized by two experiences: the decomposition of the party under Gorbachev and Russia’s economic dependence on the West under Boris Yeltsin.
It believes that the state must above all be monolithic, compact, and self-sufficient because the enemy infiltrates through the slightest crack to carry out its project of corruption and dismemberment. To achieve this, the regime has first secured control of vital sectors of the economy. And while working internally to achieve economic independence, it has tried to create a situation of energy dependence in Europe. During the period 2005-2007, Vladislav Surkov formulated the concept of “sovereign democracy”, which is opposed to the liberal democracies of the Western countries, the bête noire of the Kremlin. The practical translation of this slogan is to put Russia in a position to blackmail and threaten the West, while at the same time to protect it from possible reprisals by the “collective West” by working to build an “alliance of resentment” built on countries where it is possible to strike an anti-Western chord. Western experts have not seen here that the logic of expansion is embedded in the concept of “sovereign democracy”, nor that Russia is a market economy only on the surface. For the Kremlin clan, the economy is reduced to the control of the rent by the ruling group, which is then distributed to the favorites of the day in the interest of the ruling clique.
It is an economy of predation, which explains the obsession of the Kremlin leaders with the acquisition of new territories. The economist Inozemtsev recently observed that the Kremlin’s men reason like princes in the 16th century. All that matters to them is the territory they control and the people they annex. And the more Russia is caught up in the mirage of self-sufficiency, the more urgent becomes its aspiration to recreate an empire populated by submissive subjects, an empire bordered by a halo of countries under Russian influence.
The main component of Putin’s policy after the 2012 elections was “nationalization” of Russian elites.
Putin wanted to ensure that these elites were totally dependent on the Kremlin by forcing them to cut their ties to the West. As journalist Igor Moisseev would later explain: “as soon as you mentally connect to the West, send your children there to study, buy real estate there, and relocate your assets, you are doomed to be a Russophobe and an ideological enemy of Russia. It’s inevitable.” The annexation of Crimea was a first step towards creation of this empire on route toward self-sufficiency that the Russian president now dreams of building. But let’s not forget that the large space under Russian hegemony that the Kremlin strives to organize includes Europe, which would ensure that Russian expansion will not result in a drop in living standards and, much more importantly, in blocking access to Western military technologies.
In September 2015, Dmitry Medvedev reaffirmed Russia’s European vocation and advocated the creation of a “united economic space” on the European continent.
The Kremlin was encouraged in its assessment by the weakness of sanctions introduced after the annexation of Crimea and, in particular, by the fact that despite the embargo on arms exports imposed by the EU in 2014, three European countries sold weapons to Russia for 350 million euros, the French share amounting to 152 million euros, including bombs and missiles. This emboldened President Putin enormously and led him to decide to defy the United States with his ultimatum of December 2021, and then, when faced with the rejection of this ultimatum by the West, with the invasion of Ukraine in February 2022. The Russian president was convinced that the West would only react in a symbolic way, so that he would have his cake and eat it too, that he would enslave Ukraine, and that he would maintain access to Western technology. The adoption of real sanctions, sanctions that hurt, which is to say sanctions that hinder the vectors of Russian power, finance, energy and the military, was as such a very bad surprise for the Kremlin.
Another argument against sanctions, related to the previous one, is that, far from revolting against Putin, the oligarchs have become even more dependent on him, their assets abroad having been frozen or threatened. This is true for the time being. But everyone agrees that the disaffection of this privileged group with its leader is deep. Putin is narrowing the base on which his power rests. And no matter how much he doubles funds allocated to the siloviki, as he plans to do in 2023, or how much he relies on paramilitary groups, he will not be able to indefinitely compensate through repression for the alienation of the major beneficiaries of his system. This is what the end of the USSR showed, which was caused in large part by the disaffection of the ruling class. Some Russian officials have denounced the autarkic ideology of “import replacement”.
For example, Mikhail Zadornov recently declared, “To believe that we can produce everything ourselves, even for a while, is of course an absolute illusion or a political slogan.”
In part, Russia will be able to replace imported software, but “we have never produced and will not be able to produce certain equipment. This will result in a slowdown in development, including in the oil and gas industry.”
Mikhaïl Zadornov — Photo Roscongress
Even Sergei Ivanov, a Chekist close to Putin, a permanent member of the Russian Security Council, has said that the substitution of imports of “everything and anything” was unnecessary and stupid when so many “friends” of Russia were offering to provide missing goods. Today the drying up of petrodollars has prompted Putin to extort 250 billion rubles in “voluntary” contributions from the oligarchs. Significantly, a first attempt to do so in early February was rejected.
Sergueï Ivanov, Head of the Presidential Administration of the Russian Federation
As a result, the government has now demanded 300 billion rubles! It hopes above all to force the oil companies to fill the holes in the budget. However, these companies have taken advantage of the EU oil embargo and the ceiling on Russian oil prices to sell fuel at prices allegedly lower than the real price and are hiding their excess profits in offshore locations away from Russian authorities. The difference between the actual price of oil and the declared price is estimated at $1 billion a day, according to Bloomberg. This money goes to the carriers, as well as to many intermediary companies set up to circumvent the sanctions, such as the United Arab Emirates. However, Russia has built up a “shadow fleet” of nearly 100 tankers, leaving part of the revenue in the hands of Russian companies.
Finally, let us do justice to the third major argument made by Russians, mentioned above: sanctions have weakened Western economies more than have weakened the Russian economy. We are told that no blockade has ever worked. Here again, we need to think in the long term. Yes, Western nations were hit hard in 2022, but we can now say that withdrawal from Russian hydrocarbons is coming to an end, whereas the Russian economy must now bear the shock of implementing the gas embargo, the ceiling on oil exports, and the embargo on oil products. In January 2023, Russia has run a huge budget deficit. Spending has increased by 60% and revenues have fallen by 30% compared to January 2022.
But we must recognize the specificity of Russian power, which is fairly indifferent to the miserable conditions of its principal electorate, provincial Russia, and which prefers to see the most dynamic and enterprising elements of its population leave the country rather than risk a political revolt. The instruments of power projection are a priority for Russian leaders.
Barante, Louis Philippe’s ambassador to St. Petersburg from 1835, had already noted shrewdly that the tsar was ready to sacrifice the material improvement of the condition of his subjects if this would lead to a weakening of the autocracy: “If the development of internal prosperity should bring as a necessary consequence a greater independence of his subjects […], I believe that the emperor is quite ready to sacrifice the commercial increase. He would like the Russian merchants to become rich by remaining humble and in servile adoration of the sovereign”. Further on Barante summarizes the eternal Russian dilemma: “The problem that the emperor is trying to solve is to develop trade and industry in Russia, in order to increase the state budget and to show itself equal to Europe by becoming independent of it, but at the same time to maintain the obedience, humility, and ignorance of Russian merchants”.
Prosper de Barante by Anne-Louis Girodet
As such, obsession with police control is at the bottom of the preference of Russian leaders to obtain their technologies from abroad rather than to allow the climate of freedom essential for any progress. If we manage to thwart strategies of “parallel import” developed by the Kremlin, if we succeed in imposing on foreign companies the discipline required by the sanctions, then the Western embargo will really threaten the Russian military-industrial complex and, therefore in the long term, Moscow’s power policy.
Of course, this is not without its difficulties.
For example, Ukraine’s Foreign Minister Dmitry Kouleba accused the French company Auchan of having “become a weapon of Russian aggression”. An investigation revealed that Auchan supplied goods to the Russian army in the occupied territories even after February 24. It also turns out that Auchan collected and transferred data on its employees to the military recruitment offices even before the announcement of the mobilization last September, and that Auchan employees received subpoenas to report to their workplaces. However, if the West is serious about plugging the channels of “parallel imports” through which the Kremlin obtains high-tech components needed for its missiles and tanks, the sanctions will become unbearable and the political reaction will not be long in coming.
Dmitri Kouleba — Photo Mfa.gov.ua
We remember that the Gorbachev perestroika was born from the sense of Russian leaders that they were losing the arms race.
Above all, it is necessary to mention a consideration that is rarely taken into account in the West. That is, sanctions can have a positive educational effect on the Russian population. They show that Putin, far from being infallible, has made a big mistake. Far from coming crawling to Moscow to beg for the resumption of gas and oil deliveries, as Russian propaganda trumpeted in 2021, the West stood firm and showed a united front that stunned the Kremlin. The whole cynical conception of mankind that the official propaganda had instilled in Russians for 20 years — according to which the West was venal and thought only of material comfort, draping itself in the pretext of defending human rights and European values only out of hypocrisy, all this conception has been shattered. Russians can see that Ukrainians have chosen to die or shiver at home in darkness in order to remain free; that the Europeans have helped them selflessly for this very reason; all this because the Europeans have distinguished between justice and injustice and between truth and falsehood.
In other words, the resolve with which they have stood on the sanctions is a resounding blow to the entire ideological edifice built by the Putin regime, reminding us that freedom is not a sham and a mask, as the arrogant Surkov claimed, even in the societies of the degenerate West.
By criticizing the sanctions, the West risks neglecting or underestimating the prodigious asset it has acquired with so much effort. This instrument will need to be used in the future, regardless of the outcome of the armed confrontation. If Russia seizes new Ukrainian territories, the sanctions will have to be maintained and, indeed even increased, until Moscow liberates all the territories seized from its neighbors. As we have seen, the sanctions compromise the development of the military and gas and oil sector, impeding the main vectors of Russian power. In recent months, Russia has been producing about 9.8 to 9.9 million barrels, but starting in March, oil production in Russia will be reduced by 500,000 barrels per day, supposedly to support price, but in reality because of a lack of buyers. This situation will force the Kremlin leaders, Putin’s likely successors, to make reforms to obtain the abolition of sanctions, regardless of their situation, defeat, or partial success. They will initially try to deceive the West with symbolic concessions (the release of Navalny and other political prisoners, for example).
The West must not to be fooled, it must stand strong. Sanctions should only be lifted when Russia has dismantled the autocratic matrix of its regime, when it has become a true parliamentary democracy, with real parties, real federalism, real freedoms, and a media free of hate propaganda. We now can clearly see where the obsession with “not humiliating Russia” has led us.
The crimes committed under Putin must not be swept under the carpet, just as were the crimes of the communist regime, with the result we know. The Russians must understand that their nationalistic madness has led them to such a historical catastrophe that the international community will have to monitor them for as long as necessary, as was the case with Germany after the war. If Ukraine fails to impose a decisive military defeat on the Russian army, the economic decline caused by the sanctions will rub the Russians’ nose in it, and will force them to acknowledge the abyss into which their “national leader” has plunged them. In order to become true Europeans, they must undergo a similar evolution to that of France and Germany: two world wars have inoculated them against the virus of chauvinism and militarism, whereas World War II had the opposite effect in Russia. In order to bring this awareness in Russia, apart from military means we have only the tool of sanctions. Let us not abandon them lightly.
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