The Ukraine Crisis: The West’s sanctions against Russia are not deterrent

Sanctions are no longer an effective strategy for controlling the hostile behaviour of countries and governments. As we are witnessing, the West has imposed several sanctions, But it seems none of these is effective, or we can say it prevents Russia from its invasion of Ukraine.

The United States must try deterrence strategies in the new decade; Sanctions are not a deterrent strategy. It may be beneficial for the U.S. to maintain its power to some extent but have not given a productive result. As seen in the sanction history, it has affected both countries badly. In the recent sanctions imposed by the West on Russia, its consequences are dire for Russia and the West. The U.S. should think beyond these sanction strategies so that they can only affect the sanction of the country, not the U.S. itself.

The sanctions of the West on Russia.

The West has imposed a wide variety of sanctions on Russia on a wide range of things such that it can be a little bit difficult for Russia to figure out the mess created by these sanctions and the steps it has to take. Economic sanctions have always been a powerful deterrent for the West and, to some extent, have benefited it. 

The United States sanctioned the state-owned Sberbank and VTB Bank. Sberbank maintains around one-third of total Russian bank assets, and sanctions block U.S. dollar transactions in the future. VTB Bank holds about 16 per cent of Russia’s bank assets and has been frozen by the U.S. sanctions via “full blocking sanctions.” The three major financial institutions, Otkritie, Novikom, and Sovcom, and about 90 financial institution subsidiaries worldwide, are connected to the sanctioned banks. As per the U.S. Treasury, these financial institutions conduct daily foreign exchange transactions of 80 per cent of the total USD46 billion in dollars. Western experts agree that the move could have critical ‘systemic’ effects on Russia.

It has equally affected Europe as it depends on Russia for 35 per cent of the Gas it consumes. Its factories cannot produce goods economically compared to China and other Asian countries. Europe cannot pay for Russian Gas using the dollar as currency because the correspondent banks do not use Russian money for transactions.

Will SWIFT remove Russia from its list?

The SWIFT stands for Society for Worldwide Interbank Financial Telecommunication. SWIFT provides a secure way for financial institutions to exchange information about money transfers; SWIFT doesn’t move money. Still, it does function as a middle man to verify the information. It operates out of Belgium, which means the U.S. would need the support of the European allies to kick Russia out of the SWIFT community.

The United States president, Joe Biden, has threatened Russia to cut off from SWIFT if it invades Ukraine, but as we can see, Russia invaded Ukraine. It is still an active member of the SWIFT community. But how come Russia is still a member of the SWIFT? The answer is that no one can kick Russia out from SWIFT. The U.S. can’t kick people out from this community; the collateral damage would be very significant to SWIFT as an organization.

Russia is the second-largest number of participants in SWIFT. It would be financially a deplorable decision for participating organizations for SWIFT to make, and it can only make this decision if Brussels itself ratifies decisions. So SWIFT design organization controlled by the United States, we need to make that clear. If SWIFT would remove Russia by any means, it has its alternative transaction systems, the SPFs system and the national payment card system called MIR. So, they have a backup option.

U.S.: Cooperation for Ukrain War?

The U.S. carried Ukraine on its shoulders, pampered it and then, at the point when Ukraine needed U.S.’s help, it smashed the developing country on the ground. Although calling Ukraine “poor” is not justice done, we should call it a “fool” country. The U.S. propped the Ukrainians against Russia. First, the U.S. sent the older stock of weapons for Ukraine to fight a modern Russian military. Then the U.S. sent its massive Gas carrying ships to Europe, robbing the revenue of gas supplies from the Ukrainian gas pipelines. Then it refused the ‘heavy lifting’ after the Russian attack. And finally, it declined to exclude Russia from SWIFT. 

Ukrainian Foreign Minister Dmytro Kuleba wrote his frustration on Twitter, “I will not be diplomatic on this. Everyone who now doubts whether Russia should be banned from SWIFT has to understand that the blood of innocent Ukrainian men, women and children will be on their hands too.

The false encouragement of the West became the main reason for Ukraine to jump into the war with Russia. Supplying arms and other military aid to Ukraine was never helpful when the most powerful country was against it.

Will sanctions work on Russia?

“Sanctions only work when they force behaviour change, but in Putin’s case, they won’t,” says Peter Tchir, head of global macro strategy at New York-based financial firm Academy Securities.

The issue in Russia now is that the population is mainly poor – with an average annual per capita income around one-fifth of that in the U.S. Just a few ultra-wealthy individuals sit at the top of the economic pyramid. Ultimately, the poverty-stricken will feel the bite of sanctions far more than the elite. “Russia has always treated the poor as peasants,” Tchir says. The matter revolves around the economics of two key parties. While the U.S. and Russia are not dependent on each other for much of anything, the same is not true of Europe and Russia. The latter two are effectively joined at the hip, at the very least when it comes to energy. And that means there cannot be a shock-and-awe style imposition of sanctions on Russia. A total economic blockade would likely hurt Europe as much as Russia.

“In the short and medium-term, it is almost impossible for Europe to phase out Russia’s energy,” says Elina Ribakova, deputy chief economist at the Washington-based Institute of International Finance. The point is not lost on Europe, which gets around a third of its natural Gas from Russia. The Gas is used for home heating and electricity generation across the continent.

Do the sanctions affect Russian Trade?

The financial sanctions imposed on Russia do not affect India – Russia arms trade. CAATSA can potentially affect Russian weapon supplies to India and has not been used yet. However, the Indian arms purchases contribute hugely to Russia’s arms exports but are minuscule compared to the contribution to the Russian GDP. Even the total Indian annual Trade with Russia is under USD10 billion. The Russian military export arm has virtually abandoned the U.S. currency. India pays Russia Rupees and sometimes in other currencies like Euro to avoid U.S. sanctions.  

Foreign Ministry spokesman Wang Wenbin said China opposes sanctions to solve problems and is even more opposed to unilateral sanctions that have no basis in international law. China and Russia will continue to carry out regular trade cooperation in the spirit of mutual respect, equality and mutual benefit. “China will support Russia financially and through trade as much as any Western sanctions allow,” Capital Economics’ chief Asia economist Mark Williams said.

Conclusion.

There is a tendency to overlook or underestimate the direct cost of sanctions, perhaps because their expenses do not show up in the Western government budget tables. Sanctions do, however, affect the economy by reducing revenues of the Western companies and individuals. Moreover, even this cost is difficult to measure because it needs to reflect not simply lost sales but also forfeited opportunities. Sanctions cost U.S. companies billions of dollars a year in lost sales and returns on investment—and cost many thousands of workers their jobs.

It may be beneficial for the U.S. and its allies if the sanctions were supposed to affect Russia only, but the U.S. Besides will feel the same or almost the exact thrust of sanctions, the history of sanctions imposed by the United States on several countries gives us no success or any positive conclusion. It has failed in gaining any positive result. Therefore, the U.S. and NATO must avoid this sanctioning strategy and focus on other deterrence.