On Russian Sanctions, War, and The Way Forward

As most current readers of this publication know, there is a major historical event currently underway. Unless you’ve been living under a rock, you know that The Russian Federation has declared war on Ukraine a little over a week ago after announcing a “Special Operation aimed at the De-Nazification of Ukraine” and is currently in the process of trying to take Kiev/Kyiv as well as other key strategic points. There are two key issues being debated among westerners: how harshly should our leaders sanction the Russian economy and should we get involved in military operations in Ukraine. I will attempt to analyze some of these arguments in this piece whilst also giving my own opinion.

What are the Sanctions in Question, Really?

The term ‘sanction’ in our modern culture is something that has been used in many different contexts. In sports, it can mean a fine or the loss of a draft pick to a team that broke a rule – or in some cases analysts may argue that the league in question did not do enough to punish the offending team. The first question that comes to mind is how hard the offender should be punished. There are two extremes that I will touch on: a slap-on-the-wrist punishment and what has been called “The Death Penalty”. The slap-on-the-wrist is on the weak end of the spectrum. Often, it is a punishment that does not really hurt the offending party. In Major League Baseball, this was the case with the Houston Astros cheating scandal of 2017-2019. The punishment was a fine of a few million dollars and the loss of a couple draft picks… in a 20-round draft. In the NFL, this type of punishment has happened many times in the past- such as the situation with current Washington Commanders owner Daniel Snyder’s sexual harassment and toxic workplace allegations from former female employees. The punishment was a ten million dollar fine for an owner that brings in, at a minimum, three hundred and thirty-five million dollars of revenue per year. Clearly not too much of an impact. Now onto the “Death Penalty”. This is the typical ‘overkill’ punishment. In sport, the two most famous examples of this are the 1919 Black Sox scandal and the SMU Death penalty handed down to them many years ago. For the Black Sox, the players in question were banned from the sport or attending games for life, and for SMU the team quite literally was forcefully disbanded for at least 1 year by the NCAA.

The questions being asked by political analysts, economists, and really the general population, in the current Russo-Ukrainian War, is how far should we go to punish Russia for its actions?

One answer, and the answer of the current administration, is sanctions, so what are the sanctions in question?

To begin with, most of the Group of 20 (G20) and the European Union (EU) have agreed to shut off exports of technological goods to Russia, as well as refusing to import Russian oil and natural gas. This has been projected to cause Russian trade to fall from anywhere from seventy to eighty percent, which as you can imagine is very detrimental to the Russian economy. Another major oil sanction was Germany’s cancellation of the Nord Stream 2 Natural Gas Pipeline, which will cost the Russian energy company that built it hundreds of millions of dollars in revenue. Apart from these partial embargoes, foreign leaders have announced that the assets of the Russian oligarchs that are not in their domestic banks will be frozen effectively immediately. This prevents the inner circle of Russia’s top leadership from continuing to profit so easily from their various shady dealings. However, that is not the end of the financial sanctions.

Another action is by the Industrial and Commercial Bank of China or the ICBC, the largest bank in the world. It is now limiting how many loans Russian-based oil and gas companies can make as well as limiting the amount of funding that can go towards the contracts that would accomplish international dealings. This leaves international companies such as BP in a precarious position because they have large amounts of capital locked up in Russian oil reserves and refineries. Yet another instance of financial sanctions is the freezing of assets of the two largest Russian banks, the Russian Central Bank as well as VTB, so they cannot move their assets around at all. It was also announced that the Russian Central Bank will not be able to access its foreign reserves, which is at least six hundred and thirty million dollars of currency, effectively creating a liquidity trap of sorts. Finally, perhaps the most devastating sanction yet is the decision made by the EU and the United States to pull Russia’s banks off of the SWIFT payment and exchange system. SWIFT is the main mechanism by which banks make international payments and exchange currencies i.e., Germany making a payment for Russian natural gas and vice versa. This means that Russian banks have no way to make payments or exchange currencies except through slow and painful alternative routes such as e-mail, telefax, and possibly cryptocurrencies.

What Impact do these Sanctions have?

Now that we understand what sanctions are and which have been used, it is necessary to look at the effects. Some have said that the sanctions are about punishing Putin, but in reality, it is not just about how this will affect Putin and his inner circle – which was intended – it is about how the people of Russia, Europe, and the world are hurt. Thus, the discussion will turn to what degree foreign and western leaders are willing to allow their own people to suffer in order to get Russia to end its invasion, or to prevent Russia from being aggressive towards its neighbors in the future. That latter part particularly is an issue because the Russians have historically shown no hesitancy to inflict pain and suffering, up to and including starvation, on its own people. It has already been seen in mass media that the people in Russia have been rushing to ATMs in order to get their cash out before the Central Bank of Russia and VTB become insolvent and are unable to pay out due to their assets being frozen. Additionally, the Russian Ruble has crashed from approximately 1.2 cents on the dollar before the outbreak of this invasion to eight tenths of a cent afterwards. The Russian stock market has dropped well over 50%, causing scenes of panic that have not been seen in many years. On one Russian TV program, a host drank to the death of the stock market and then proclaimed that he would possibly be working as Santa Claus in order to make ends meet. The people of Russia are witnessing a fiscal meltdown before their very eyes and can do nothing about it.

Outside of Russia, western economies have taken quite a hit. In my hometown, gas prices typically hover at around $2.90-$3.15 per gallon. After the announcement of the Russian embargo on oil and gas exports, prices have risen to as high as $4.25 per gallon in less than two weeks’ time. Couple this with record-high inflation in the United States and you can see how ordinary people’s quality of life would begin to decrease. Across Europe, countries will begin to have energy crises. In particular the focus will be on Germany, Italy, and Hungary. These three countries have become almost entirely dependent on Russian gas for power and heating, meaning that they will be forced to either resume importation of Russian oil or start up much more expensive alternatives (at least initially) by importing oil and gas from Canada or OPEC, or even increasing use of Nuclear Power. The lack of Russian gas will also affect the rest of Europe when it comes to quality-of-life measures, although perhaps not as much as Hungary, Germany, and Italy.

Another topic that is not discussed with regards to this conflict is the massive wheat exports that come from Ukraine. Due to them being at war, they are not necessarily able to export the grain they normally would or manufacture the bread needed to feed their populace. There are already reports of grain shortages not even two weeks into this war, meaning that there are quite literally going to be hunger problems in one of the world’s breadbaskets. And what of the Western European countries that get their grain from Ukraine? They will either be forced to eat less bread and other grain products or pay significantly higher prices to import other products. Western companies will take major revenue hits because of the overall decrease in imports and exports into and from both Ukraine and Russian. Ordinary workers may be laid off, causing a short or long-term unemployment hike, which could lead to a small contraction in the economy. The Russian economy could possibly go bankrupt (‘bust’ in colloquial language) in as soon as 6 months to a year. There is no win-win situation here. No matter what happens, ordinary people on both sides get the short end of the stick.

What are Russia’s Reasons for War?

Some may be wondering why Russia is going to war in the first place. It could be argued that western media outlets caused escalation in the preceding weeks to the invasion by continually ringing the proverbial bell that a Russian invasion was imminent. However, the easiest way to understand Russian reasoning is simply to listen to what Putin said. Putin declared that the main objective of the “special operation” (invasion) is to defend Russian speakers in Ukraine, especially those in the two self-declared republics of Donetsk and Luhansk, separatists who broke away from Ukraine in 2014 and have been fighting Ukraine since. Putin also claimed that the invasion was a “de-Nazification” effort. One often repeated example is the Azov battalion, a far-right White nationalist militia group that is part of the Ukrainian military. Putin also stated that he believes the Russians and Ukrainian peoples are inseparable and that Ukraine, the State, is a figment of the imagination with no historical basis. Finally, Putin wishes to prevent Ukraine from joining NATO, which would mean US and NATO bases, weapons, and troops in Ukraine. Ukraine was under consideration to join NATO in the days leading up to the invasion, and it may have been the final straw. Putin has always been very wary of NATO and sees them as a threat. After all, NATO bases and weapons surround Russia.

Putin is not alone on the world stage either. In a recent meeting by the United Nations (UN), 145 members of the General Assembly voted to condemn Russia, with 35 more abstaining and five notably anti-Western countries (Russia, North Korea, Eritrea, Belarus and Syria) voting against the condemnation. In fact, Chechnya and Belarus have sent troops to assist Russia in its invasion.

How has the World Responded?

The global consensus is quite negative. Across the UK, United States of America, France, and other European countries people have gathered to protest Russia’s involvement in the war or to stand in solidarity with the war. Particularly large demonstrations have been seen in New York City, London, and Berlin. Additionally, cities, government buildings, and universities across the world have lit up their buildings with Ukrainian colors to show their support and solidarity for both the people in Ukraine and Ukrainians living abroad.

As for the support of the war in Russia, there have not been very many accurate polls of Russian opinion about the war. There was one from a state-run media account that that showed that 62% of all Russian peoples supported the invasion. The credibility of this poll is, obviously, questionable. On the one hand, thousands upon thousands have gathered to protest the war in Moscow and St. Petersburg among other places and hundreds have been arrested, including a survivor of the infamous Siege of Leningrad, a battle that killed well over a million soldiers and civilians. However, there have also been pro-war, pro-Russian, and anti-Western demonstrations in Russia as well. It is hard to tell exactly how popular the war is.  

What do We do Once This Conflict is Over?

A fair question to ask about this situation is what do we do if Russia wins, and what do we do if it loses? How will the West handle the possibility of a no longer sovereign Ukrainian people? There’s no real clear answer. As of now the hope appears to be that the West and Ukraine will hold out with the sanctions in place, or additional sanctions, to the point that Putin and the Russian Army pulls out of Ukraine because their economy is suffering too greatly.  If this situation does in fact occur, how will the West react? What will the post-war situation look like? Will the sanctions be reversed, or will some be lifted but not others? It is unclear, though unlikely that sanctions will simply come to a full stop. If the current plan fails and Russia does not pull out of Ukraine, what does the West do in response? Will the West take military action, or will it acquiesce? President Biden has, thus far, committed to a no-boots-on-the-ground policy, and there is little reason to believe this will change. A Russian victory and occupation of Ukraine is entirely within reason.

One way or another though, the war will end. The aftermath of it will ultimately come down to two factors. The first is economic: how many sanctions will be lifted and how well will Russia and the rest of the world’s economy recover, if at all? This could send waves throughout Europe and the Americas that carries with it a political effect. If the economy recovers, then we may see a back to normal scenario. If the economy does not rebound but, in fact, worsens, then this could cause upheaval across the world. The second factor is foreign relations and global peace and stability. Will this war lead to more conflict or will it be a one-off type of deal? Could it encourage other countries to take actions similar to Russia? Some have speculated that this could lead to the Chinese invasion of Taiwan, among other things. These two factors could decide whether we enter another period of peace or whether, instead, we see further escalation that could lead to an even larger, bloodier conflict than the one at present.

To summarize this whole snafu, Russia’s invasion and subsequent war with Ukraine could be viewed as being caused by or incited by Western leaders and media. The economic sanctions that are currently in place are likely to be devastating to the Russian economy and harmful to our own as well to some yet unknown extent, meaning ordinary people lose no matter what. Once this conflict ends, our best hope is that the people of the West and Ukraine will have the compassion to forgive Russia for its actions and that a de-escalation will take place which, hopefully, prevents a larger bloodier conflict from breaking out in the future.

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