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How Russia Plans to Fight Back Against Looming Sanctions

How Russia Plans to Fight Back Against Looming Sanctions
Source: The Guardian

Russia has been preparing for this moment for years.

When Russian soldiers invaded Crimea in 2014, annexing a portion of Ukraine, it sparked the first round of international sanctions. And Moscow learned a valuable lesson as a result.

It has been putting up defenses, shifting away from the dollar, and attempting to sanction-proof the Russian economy since then.

President Putin may believe he can resist sanctions for a longer period of time than the West believes.

By January of this year, the government’s foreign exchange and gold reserves had reached new highs, totaling more than $630 billion (£464 billion).

This is the world’s fourth largest stockpile of such reserves, and it might be used to prop up Russia’s currency, the rouble, for a long time.

Notably, only roughly 16% of Russia’s foreign exchange reserves are now kept in dollars, compared to 40% five years ago. The Chinese renminbi presently accounts for around 13% of the total.

All of this is intended to shield Russia from American-led sanctions to the greatest extent feasible.

Other changes in the Russian economy’s structure have also occurred.

It has gradually decreased its dependency on foreign loans and investments, and is aggressively looking for new trade prospects outside of Western markets.

China plays a significant role in this plan.

In case it is shut off from Swift, a global financial communications service managed by the main Western central banks, Moscow’s administration has taken preliminary moves to develop its own system of international payments.

It has also reduced the amount of its budget, putting stability ahead of development.

As a result, the Russian economy has risen at a rate of less than 1% per year on average during the last ten years. However, it is possible that it has grown more self-sufficient as a result of the procedure.

“What Russia is effectively doing is developing an alternative financial system that can survive some of the shocks of sanctions imposed by the West,” explains Dr Rebecca Harding, CEO of Coriolis Technologies.

“However, there will be some short-term suffering in all of this, and the Russian system’s vulnerabilities are that they have a network that is extremely thinly scattered over the globe.”

It has the potential to be a risky game for Moscow. Sanctions against big Russian banks, especially state-owned banks, would be detrimental.

President Putin, on the other hand, may be calculating that the United States, the United Kingdom, and the European Union all have slightly different strategic interests to consider.

It is apparent that certain nations find it simpler to impose sanctions on Russia’s oil and gas industry than others. The European Union, for example, imports 40% of its natural gas from Russia. The United Kingdom receives roughly 3%.

As a result, Germany’s decision to halt construction of the Nord Stream 2 gas pipeline is not only bad for Russia, but it will also have a direct influence on energy costs in Western Europe.

So, can focusing on high-net-worth individuals have a greater impact than imposing fines across the board?

For obvious reasons, President Putin does not possess money or other assets in his own name outside of Russia. But he has a network of ultra-wealthy backers who do it for him.

“Since 2014, certain sanctions have been imposed on oligarchs, but they have not gone far enough. Only if they are considerably more focused against them will change occur “Professor Tomila Lankina of the London School of Economics believes this.

With its long-established network of front firms, property holdings, and political clout, London is a special target.

The UK government has now announced further penalties against particular people, but Transparency International, an anti-corruption organization, estimates that over £1.5 billion in Russian money is invested in London property alone, with much of it coming from assets stashed in offshore havens.

“By permitting this to happen, Western countries are failing not just the Russian people, but also their own people,” Prof Lankina adds.

The penalties issued in the previous few days are merely the first of numerous possible actions, according to Western leaders. The pressure may be increased significantly.

Will it, however, be enough to persuade Russia to reverse course?

There’s no doubt that sanctions may have an impact, but no package as comprehensive as this has ever been placed on a country with the size of Russia’s economy.

And, in order for it to work, the West would have to be committed for the long haul.