Immediately after the start of a full-scale war against Ukraine, Western countries began to impose sanctions against Russia. But do they work, has Russia become weaker, and what else can our Western partners do to increase economic pressure on the aggressor? I.I. Mechnikova, Doctor of Economic Sciences, Professor Serhiy Yakubovskyi.
DO US AND EU SANCTIONS AGAINST RUSSIA WORK
One of the main problems of modern civilization is the asymmetric distribution of information. This is due to the fact that the depth of mass media influence on people has changed: in the last decade, information reaches a person mostly from social networks, and each social network adapts to a specific user, based on his searches and interests. As a result, two people even in the same country can receive information that is almost opposite in content. The result is a situation where the majority of the population in different countries lives in different realities.
On the one hand, there is Russia, which lives in its own information field, with its own propaganda and views. It has partners (mainly authoritarian and totalitarian states) who share Russia's views, and in total, about 10% of the world's population is in this information space.
There is another side - the USA, Europe, Japan and Ukraine. The majority of the population of these countries believe that democratic values (freedom of speech, pluralism of political opinions, rule of law) are above all else. Democracy, freedom and the norms of international law are what, according to the population of these countries, will ultimately defeat authoritarian regimes (in Russia, Iran, North Korea, Venezuela, etc.). This point of view is held by about 30% of the Earth's population.
But there is also China, India, Brazil, Argentina, most of the countries of Africa and Latin America - countries in which a large part of the population is poor, they make up about 60% of the world's population. And the citizens of these countries do not care what happens in Ukraine or elsewhere, they are primarily concerned with the question of how to feed themselves and their families.
The sanctions imposed by the Western countries against the Russian Federation today were calculated so that other countries of the world would join them. But this did not happen. China, India and other countries continue to purchase Russian energy resources and food, so sanctions due to the increase in the cost of sanctioned goods have resulted in an improvement in Russia's trade balance.
LIMITATION OF PRICES FOR OIL AND GAS OF THE RUSSIA
The reason for the ineffectiveness of the sanctions against the Russian Federation introduced in the first half of 2022 is due to the fact that the initial concept of US and EU sanctions was wrong due to the confidence of the leaders of these countries that the whole world would join them unconditionally, which did not happen.
Initially, the sanctions limited the export of Russian products, primarily oil and gas, to EU countries. But due to the limited supply in this market, there was a sharp increase in prices, especially for gas. As a result, Russia, selling less gas, gets even more profit than before the war.
And only six months later, the USA and Europe realized the fallacy of such sanctions and began to discuss solutions related to the price of goods. When the supply on the market is limited, it cannot be reduced, because the price of the product will increase, therefore the issue of introducing limit prices for Russian oil and gas, without limiting their total supply, is being discussed. However, this should have been done as early as February 2022, in which case today Russia could already face serious financial difficulties during hostilities.
HOW WILL IT WORK?
China, India and other countries that take a neutral position regarding the war in Ukraine are very dependent on the US. Their gold and foreign exchange reserves are kept mainly in dollars, and therefore the US Treasury, in the event of the introduction of an upper price limit for Russian energy resources, will be able to block the dollar correspondent accounts of banks and companies that will buy Russian oil and gas at a higher price than the set price.
Such a situation was observed after the blocking of the Visa and Mastercard payment systems in Russia. In preparation for the war, Russia developed its "Mir" payment system, which after the start of the full-scale war against Ukraine worked successfully in some post-Soviet countries, as well as in Turkey. But in the summer of 2022, the US financial control authorities informed the banks of other countries about the blocking of their dollar accounts when working with the Mir payment system, and almost all banks outside Russia refused to work with this payment system, and now Mir cards are practically not used outside the Russian Federation.
Of course, Russia will look for schemes to circumvent the new sanctions, but this will in any case reduce Russia's income from foreign economic activity. Therefore, with the introduction of the upper limit price for energy resources of the Russian Federation, one can already count on a serious blow to the budget revenues of the aggressor country. The explosions at the Nord Stream 1 and 2 gas pipelines show that Russia understands the seriousness of the sanctioned restriction of energy prices and is trying to limit their supply on the European market.
WHY IS THE WORLD'S FINANCIAL SYSTEM SO DEPENDENT ON THE USA
The United States of America is the largest market in the world. Therefore, the vast majority of countries are interested in trade with the USA. In addition, today the dollar remains the leading world currency, and the US takes advantage of this, it can freeze the assets of any company, country or bank in dollars, which was the case with Iran, Venezuela and now with Russia.
In addition, the European Union is just as dependent on the US due to internal divisions and military weakness. Therefore, sanctions against the dollar accounts of non-compliant companies also apply to the euro, as the second most reliable currency in the world. And even China in this regard is more interested in trade with the USA and Europe than with Russia.
EXPLOSIONS ON GAS PIPES
The opinion that the Russians themselves are interested in this diversion is well-argued, since gas on Nord Stream 1 has not been pumped by Russia since August 2022, and Nord Stream 2 has never been launched. In this case, the price of gas in Europe increases, and by selling it through South Stream, the Russian Federation has the same income for a smaller volume of sales.
Perhaps we should expect explosions already on European gas pipelines, since Europe began to buy significantly more Norwegian gas, and the damage to the Russian "Nord Streams" did not particularly affect it. But damage to gas pipelines inside Europe can hit Europe hard. Due to the imbalance within the countries of the European Union itself, some countries may suffer greatly from gas shortages or high gas prices.
USA AND CHINA
Last week, the Communist Party of China extended the mandate of Xi Jinping as the leader of the People's Republic of China for another five years. And for the stable development of the world economy, as well as increasing financial and economic pressure on Russia, it would be useful for the US to improve its relations with China, partially removing at least part of the technological sanctions from it, in order to draw the PRC to its side in the confrontation with Russia.
Perhaps, after the elections to the US Congress, which will be held on November 8, the vector of interaction with China will change, which will significantly increase the effect of anti-Russian sanctions, causing irreparable losses to its economy.
