Tatia Dolidze on EU Sanctions Against Russia

February 17, 2015 7:00 AM

This blog has an enduring interest in the technology of sanctions: how and when they “work”—and if they do at all (our posts on sanctions can be found here). The Peterson Institute has also done extensive work on the issue. Recently, we were alerted to a useful summary of EU sanctions policy toward Russia done by Tatia Dolidze at the Brussels-based Center for European Policy Studies. Although Russia differs in obvious ways from North Korea, many of the same policy dilemmas are visible in Dolidze’s account.

Following the Russian seizure of the Crimea, the EU instituted sanctions in three rounds; had there been no agreement last week on the Ukraine, it was likely that Germany and France would have pushed for a fourth round. The sanctions have four targets:

  • private entities and individuals via visa bans and freezes on assets;
  • financial markets by banning long-term EU loans for the five main state-owned banks 
(Sberbank, VTB, Gazprombank, Vnesheconombank (VEB) and Rosselkhozbank);
  • the energy sector through restrictions on Rosneft, Transneft and Gazprom Neft activities;
  • the defense industry by means of blacklisting dual-list Russian technology manufacturers.

North Korea can only respond to sanctions through other lines of attack; Russia by contrast imposed a wide-ranging ban on food imports from the EU, the US and a handful of other states; these exports accounted for about 10 percent of the EU total and have dropped to nearly zero. Dolidze details how this case has now been brought before the WTO.

Dolidze does not do her own modeling of the sanctions’ effects which are in any case difficult to sort out from the effects of falling oil prices and the more general collapse in confidence. But she does offer the projections from the World Bank on Russia’s  likely economic performance in 2015 and 2016, as well as from Russian officials, and the picture is obviously not good; Putin is scrambling to take counter-cyclical action with declining degrees of freedom. The problem the Russian economy faces—and critics of the sanctions do not see this—is they are likely to work through the investment channel and thus continue to bite for years into the future.

In an interesting parallel to the current North Korean debate, Dolidze talks about what additional steps could be taken—such as the nuclear option of severing Russia’s connection with SWIFT (Society of Worldwide Interbank Financial Telecommunications)—but also notes the importance of maintaining EU connections in other domains:

“For the political goals of the economic sanctions to be achieved, they ought to be complemented with democracy support instruments: facilitating the movement of the ordinary Russian people while still restraining the individuals targeted by the sanctions; funding undergraduate exchange programmes for Russian youth to study in the EU and experience the European way of life; holding information campaigns that counter the Russian information filter; and supporting independent research. These instruments might not yield immediate results, but they surely represent the long-term investments that will pay off once Russian civil society is developed into a strong and well-informed authority.”

That sounds right to us.

Some of the weaknesses in the EU sanctions efforts also show the standard coordination problems long-identified in the sanctions literature. Dolidze walks through objections raised in different forms—from the ideological to the purely economic—in Hungary, Finland and candidate countries such as Serbia. The effort also faces the challenge of third countries happily stepping into the breach, including with respect to the food trade.

The biggest difference however is that Russia and Europe also have a delicate co-dependence in the oil and, particularly, the gas trade; Dolidze also provides a useful map on the level of dependence across the EU, which ranges from zero in Spain and Britain to 100% not only in Bulgaria and the Baltics, but to our surprise in Finland and Sweden as well. This card has been held off the table, but Dolidze shows how it is implicated in the EU’s complex Iran diplomacy, another potential weak link in any sanctions chain.

Dolidze shows how despite the sanctions—or even because of them—Putin’s public support has only increased since the seizure of the Crimea (although the data only goes through the immediate post-seizure rallying-around-the-flag). In a headline finding, the Russian Public Opinion Research Center found virtually no concern with the sanctions (92 % said they didn’t care about them). More recently—as of February 15 in fact—Unified Russia still received support from over 60 % of those polled; among the remainder of a highly-fragmented field, the next closest contender (LDPR) received less than 6%. Whether such support will hold is another issue. But as in North Korea, it is increasingly at issue whether it matters given the grip that Putin now has on the Russian political system.

Comments

Roland

The sanctions against Russia are leading to enormous internal stress within the EU.
Greece is opposing publicly and actually today Hungary sidestepped with it.
Brussels has to handle growing and dangerous centrifugal forces.
Putin goes into offensive.

William Westbrook

Russia, Greece, North Korea -- the Axis of Dysfunction.

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