March 3, 2015
Guest blogpost by Daniele Brunetto.
After the extension of EU sanctions against Russia and the Minsk-2 deal, one might seriously ask how effective economic coercion is compared to other factors: the answer is “it depends”, and the EU should seriously evaluate all the influencing factors before imposing sanctions – scaling back when needed.
On 29 January, the EU and US imposed new and prolonged sanctions on Russia for its role in the Ukraine crisis. This has not compromised the efforts, led by France and Germany, to reach an agreement for a cease-fire – strongly supported as well by German corporations, willing to resume normalised business relations with Russia.
But is this result a consequence of the EU-US economic coercion, or rather the outcome of a combination of other factors as well?
Sanctions are a pacific, liberal alternative to the use of war in international relations. They have been adopted as early as the Peloponnesian War. However, there is no general agreement on their effectiveness: examples can be found on both sides.
In this general disagreement over the effectiveness of sanctions, EU-US actions against Russia should be analysed taking into consideration other important factors, such as oil prices.
In the past months oil prices have halved, also thanks to the increased production in Saudi Arabia – and it is not the first time for the Wahhabi state. In 1985-86 an increase in its oil production, combined with a significant drop in international prices, resulted in a “coup de grace” for the moribund economy of the Soviet Union. The loss of the revenues from its oil exports accelerated the collapse of the USSR.
Now a similar decision is producing a similar result. Some reckon that the drop in oil prices has been agreed upon with (or even encouraged by) the US, and although it undermines the benefits from fracking, it is extremely useful to force Mr Putin to negotiate: Russia’s recent economic growth has been possible thanks to high oil prices, so how long could a fragile “giant with feet of clay” resist?
This casts a different light on the Minsk-2 agreement, and on the debate about the effectiveness of economic coercion. Sanctions alone are not able to produce the expected result. Other factors, which hit a nerve in the target state, have a bigger impact than visa bans or asset freezes. It also raises a more important question about the (in)direct consequences of economic coercion on the sender actor, and on the global economic system as a whole.
Although recently the EU Commission has stated that these sanctions (and Russia’s ban on the import of European food) will have a modest impact on the European economy, an accurate breakdown by specific countries shows that while some member states might benefit from this situation, it will have a negative impact on other countries.
Moreover, Putin’s threat of cutting natural gas supplies to European countries, although not yet a reality, might seriously weaken their economies. The EU will then look for other partners, facing other difficult challenges (such as instability in North Africa and Middle East) and influencing delicate balances (such as the Saudi Arabia-Iran rivalry).
Russia also cancelled the “South Stream” plans, while signing a deal on the same issue with Turkey.It also signed agreements with China for a deeper cooperation in the energy, finance and technology sectors. Energy deals with India close the scenario of this new, 21st century great game.
This expansion of Russia’s commercial relations with other countries is a step out of its preferential relations with European countries, and it is a huge shift in international economic relations. It can also menace the recovery of European economies after the crisis: another consequence of their sanctions.
In an interconnected world, economic decisions of a powerful actor can therefore influence a whole system of economic and political balances, rivalries, and relations – even when not directly targeted at challenging them.
Sender states rarely “win” with their sanctions. Sometimes they need to find other means to reach their goal, even though they might be counter-productive. Counter-actions, loss in economic exchange (to the benefit of other actors) and the need for substitute partners also jeopardise the outcome of economic coercion, acting as a proper balance against sanctions. A thorough evaluation of all these elements should then be crucial before deciding on sanctions against a powerful state.Blogactiv Team