The Downside of Sanctions

I have long had my personal doubts about the effectiveness of sanctions as a political weapon. America has been using sanctions to punish Russia for its Ukraine war, so we are within our rights to ask how well they have been working. 

Now Andrew Cockburn takes the measure of our sanctions war against Russia. He does not find that it has been very effective at all. It has certainly not forced Russia to abandon its Ukraine aggression.

He discovers that the Russian economy is doing fine, thank you. Those who told us that sanctions would cripple Russia were simply wrong:

True to form, nothing of the kind has come to pass. The Russian currency is trading slightly higher than at the time of the invasion. Inflation is at almost the same level. Moscow shops continue to offer a full range of western consumer goods, while e-commerce trade with the outside world has actually grown by 30 percent. The IMF is projecting that the Russian economy will actually grow this year and next. Despite baroque efforts to crimp Putin’s oil export income, “Urals crude” continues to flow at levels — roughly four million barrels a day — unchanged from pre-war levels, not least through Indian, Turkish, Chinese, and Senegalese refineries, whence it moves unimpeded into European gas tanks and power plants.

Apparently, it is not very difficult to get around sanctions:

Such blatant circumvention of the sanctions regime is studiously ignored by the sanctioneers, since it is necessary to ward off catastrophic energy price inflation in western economies. Efforts to at least crimp the price at which Russia sells its oil via a “price cap” mechanism appear to have had little effect: Asian refiners are reportedly paying full price. (In a less publicized example of officially endorsed sanctions evasion, Russian exports of enriched uranium, originally mined in Kazakhstan, are duly labeled “Kasakh” and continue to power U.S. reactors.)

Sanctioning other countries is a sign of weakness. It ends up hurting the sanctioning country as much as it hurts the sanctioned country. Surely, it has not been doing much damage to the Russian economy.

Cockburn continues:

It has become clear that he or whoever planned the sanctions strategy didn’t really understand the Russian economy very well, especially its place in the global system. Instead, U.S. strategy appears to have proceeded on the assumption that Russia, in the words of the late John McCain, was merely “a gas station masquerading as a country” as opposed to an essential source for everything from oil to grain to metals such as nickel, well able to feed itself and maintain industrial output at a high level.

Furthermore, this mode of economic warfare inflicts penalties on the perpetrator of a kind escaped by the latter’s military counterparts. Apart from the moral obloquy attendant on incinerating German and Japanese cities, or obliterating Afghan families with Hellfire missiles, the air-attack strategy incurs only the cost of a bloated arms budget and, most recently, defeat in the relevant war.

The economic war against Russia is likely to have more serious consequences for U.S. power, since it accelerates the de-dollarization of the global economy – quite certainly accelerated by the ill-considered “shock and awe” initiative in seizing $300 billion of Russia’s foreign exchange reserves lodged in Western banks.  In response to this mammoth heist, China is overseeing a shift away from the dollar in energy trades, most significantly in paying for Saudi oil in renminbi, an ominous development for the U.S.

True enough, we have occasionally mentioned the risk inherent in weaponizing the dollar, in seizing foreign assets held in Western banks. The result has been a dedollarization of the world economy, an effort by China, India, Russia and Middle Eastern nations to circumvent the dollar, by doing business in yuan.

Dare we say, this is a dangerous game, especially for the United States. We owe our hegemony to the fact that the dollar is a reserve currency. Losing that status would be a massive calamity, especially for us.