Russia Pushes Back Western Sanctions

The Russian President Vladimir Putin said defiantly on Monday that the Western sanctions have proved to be “ineffective” in meeting their objective. In his words, “They (US and EU) expected these sanctions to rapidly produce a devastating effect on Russia’s finances and economy, sow panic in the markets, bring about a collapse in the banking system and create major shortages of goods in shops.”

“However, we can already say in all confidence that this policy has failed in Russia. The strategy of unleashing an economic blitzkrieg has been ineffective. Moreover, the sanctions affected those who initiated them. I am referring to higher inflation and unemployment and the worsening economic outlook for the United States and European countries, as well as the declining living standards of Europeans and the depreciation of their savings.” (Kremlin website)

All indications are that the contingency planning that Russia had worked out to pull through a severe sanctions regime is paying off. The rouble’s recovery has been absolutely astounding. The US President Biden had boastfully redacted that he’d turn rouble into “rubble” but the exact opposite happened. In the immediate aftermath of sanctions, the Russian currency plunged to 121.5 rouble per dollar and things looked dire enough. But it has since surged all the way back to where it was before Russia’s special operation in Ukraine began — around 80 rouble per US dollar in mid-April. Ironically, rouble turned out to be the best performing currency in March! 

Putin noted that consumer prices have “grown considerably in Russia over the past six weeks, by 9.4 percent,” and people have “felt the impact on their family incomes.” He announced a decision “to adjust all social benefits, pensions and wages in the public sector, in accordance with inflation.” Russia can afford it, as in the first quarter of this year, “we are witnessing a record level of budget surplus.” 

In comparison, it is a dismal scene in the US with inflation touching a 40-year high — 8.54% for March — that is going to get only worse if the conflict in Ukraine continues. Worse still, this scenario may upset Biden’s green energy plan. As for Germany, the largest EU economy, this year’s inflation is expected to touch double figures. 

Interestingly, Russia is enjoying a “robust trade surplus” and in the first quarter of the year, current account surplus exceeded $58 billion, “setting a historical high. Foreign cash is returning to the banking sector and household deposits are growing.” Indeed, the factors behind the rouble roaring back are self-evident. 

It seems the EU has sensed that Russia is putting back together amazingly well the pieces of life in an environment of extreme isolation from the West. The EU foreign policy chief Josep Borrell has admitted publicly that “With regard to financial sanctions, of course, you can always go further, but we have already reached the limits of what we can do. We did everything we could.”

Indeed, there has been a shift of emphasis from sanctions in both Brussels and Washington. While Brussels is now more into the humanitarian aspects of the Ukraine crisis to tarnish Russia’s image, Washington is concentrating on defeating Russia militarily or at least prolonging the conflict as long as it can. The rhetoric has risen to a crescendo. 

The angst and desperation in the European mind is apparent in German Chancellor Olaf Scholz’s uncharacteristic outburst that “Russia must not win this war.” But it is also quite apparent that there is no consensus within the EU to impose oil embargo on Russia. Hungary has openly warned that it will oppose any EU sanctions on Russian oil or gas. Simply put, the West is running out of options to stop Russia on its tracks. 

The real aim of much of the rhetoric and grandstanding in Washington is to divert attention from the crushing defeat in Mariupol, where patiently and diligently, the Russian forces have entrapped the neo-Nazi battalion and its western advisors (including Americans) from NATO countries. The final operation to take control of the massive Azovstal complex where the militants and foreigners are entrapped (which is spread over some 11 square kms) has begun today. (See my blog Battle for Mariupol is ending, NewsClick) 

The NATO countries stand exposed if the western military officers are nabbed and put on display. Russia has warned that they will not be treated as POWs and may have to stand trial. Conceivably, episodes like the “Bucha killings” and the sinking of the Russian flag ship Moskva in the Black Sea may be repeated to distract attention. 

Going forward, the decisive part will be the Battle for Donbass, which has just begun. The outcome will determine the contours of any peace settlement. As this stand, Russian forces have a distinct edge in their numerical strength and vastly superior firepower as well as the advantage of terrain — largely open spaces where tanks and heavy armour can be deployed and large scale manoeuvring is possible, which is a strong point for Russian armies traditionally. Again, compared to the earlier part of the Russian campaign, the logistics are in their favour both in terms of supply lines from the Russian hinterland and in their ability to interdict reinforcements from reaching the Ukrainian forces. 

While the operations in Donbass are under way, it is entirely conceivable that Russian forces may start preparations to take control of Odessa, which is necessary to cut off the NATO warships from accessing Ukraine and to secure the entire northern coastline of the Black Sea. In this regard, Mykolaiv and Kherson are the new post-Mariupol focal points in the southern axis. 

The strategic importance of Mariupol should not be overlooked — other than that it is the port-head that connects the resource-rich Donbass with the world market. Mariupol is one of the world’s biggest natural harbours. For Russia’s Black Sea Fleet, the Sea of Azov provides seamless basing facility. Crimea’s security will never be assured without Mariupol rejoining Donbass.

Most significantly, the Ukrainian oligarch Rinat Akhmetov, the richest man in Ukraine, who owns Azovstal, told Reuters yesterday that he intends to rebuild Mariupol. The oligarch (worth $10 billion in personal assets per Bloomberg) must have meant it. What lends a touch of mystery to his wishful thinking is that President Volodymyr Zelensky had once recently suspected him of being complicit in an alleged Russian-backed coup to overthrow his government.

Of course, Russia has had extensive networking with the Ukrainian elites, in fact, almost all the Ukrainian oligarchs have had business and personal connections with the Moscow elite. Most foreign observers who are new kids on the block are unaware how fast and smoothly Moscow would energise those dormant contacts once the conflict gets over and a political transition ensues as surely as the daybreak after a long dreadful night.