Sanctions: will they drive the Russian economy into "oblivion"? Dowsing for answers

Trying to interpret the various information on the Russia-Ukraine war and Russian politics even from good-quality sources often feels like divining for water with a dowsing stick.

And as always when governments like those of the US and other NATO countries (Russia, too, of course), are committed to a military conflict, they have an initial advantage in explaining the conflict to their publics and even non-censored media will tend to give a privileged position to their respective governments' positions. Want examples? Two words should suffice: Judith Miller.

This is the phenomenon John Kenneth Galbraith described in his book, The Culture of Contentment (1992):

Almost any military venture receives strong popular approval in the short run; the citizenry rallies to the flag and to the forces engaged in combat. The strategy and technology of the new war evoke admiration and applause. This reaction is related not to economics or politics but more deeply to anthropology. As in ancient times, when the drums sound in the distant forest, there is an assured tribal response. It is the rallying beat of the drums, not the virtue of the cause, that is the vital mobilizing force. [my emphasis]

When he talks about "anthropology," he is imitating the style of Thorsstein Veblen, who in his most famous book, The Theory of the Leisure Class (1899), took an ironic tone of making an anthropological analysis in his biting criticism of the American ruling class of the time.

Galbraith continues directly, "But this does not last. It did not as regards the minor adventures in Grenada and Panama, nor as regards the [1991 Gulf War] with Iraq and Saddam Hussein. The effect of more widespread wars has been almost uniformly adverse."

This applies to NATO, to Russia, even to Ukraine. The war is now in its sixth month. And the adjustments in world politics related to it are huge. Not the least of them is the new, very tight alignment of Russia and China, a close arrangement which could easily endure for decades. Any short term prospect of a return to something remotely like the 1992 relationship between Russia and the West is unlikely in the extreme.

Jeffrey Sonnenfeld and Steven Tian argue that the current sanctions against Russia are very effective

So here are a few reference points for the current situation, a murky one for most of us. Jeffrey Sonnenfeld and Steven Tian argue that the sanctions on Russia are having a huge impact in Actually, the Russian Economy Is Imploding Foreign Policy 07/22/2022. There is also a slide-deck presentation summarizing the material and a longer report, Business Retreats and Sanctions Are Crippling the Russian Economy (July 2022).

Sonnenfeld and Tian organize their article around nine observations, framed as refuting "myths" questioning the sanctions' effectiveness:

• Myth 1: Russia can redirect its gas exports and sell to Asia in lieu of Europe.

• Myth 2: Since oil is more fungible than gas, Putin can just sell more to Asia. 

• Myth 3: Russia is making up for lost Western businesses and imports by replacing them with imports from Asia. 

• Myth 4: Russian domestic consumption and consumer health remain strong. 

• Myth 5: Global businesses have not really pulled out of Russia, and business, capital, and talent flight from Russia are overstated. 

• Myth 6: Putin is running a budget surplus thanks to high energy prices. 

• Myth 7: Putin has hundreds of billions of dollars in rainy day funds, so the Kremlin’s finances are unlikely to be strained any time soon. 

• Myth 8: The ruble is the world’s strongest-performing currency this year. 

• Myth 9: The implementation of sanctions and business retreats are now largely done, and no more economic pressure is needed.

In explaining "myth" #9, Sonnenfeld and Tian write the following, which suggests an ideological or professional commitment to maintaining the sanctions and even extending them:

Russia’s economy has been severely damaged, but the business retreats and sanctions applied against Russia are incomplete. Even with the deterioration in Russia’s exports positioning, it continues to draw too much oil and gas revenue from the sanctions carveout, which sustains Putin’s extravagant domestic spending and obfuscates structural economic weaknesses.

The Kyiv School of Economics and Yermak-McFaul International Working Group have led the way in proposing additional sanctions measures across individual sanctions, energy sanctions, and financial sanctions, led by former U.S. Ambassador to Russia Michael McFaul and the experts Tymofiy Mylovanov, Nataliia Shapoval, and Andriy Boytsun. Looking ahead, there is no path out of economic oblivion for Russia as long as the allied countries remain unified in maintaining and increasing sanctions pressure against Russia.

Defeatist headlines arguing that Russia’s economy has bounced back are simply not factual — the facts are that, by any metric and on any level, the Russian economy is reeling, and now is not the time to step on the brakes. [my emphasis]

Taking an advocacy position does not mean that we should assume their arguments and the data they present are unreliable or that they should automatically discounted. It just means we should take note of the advocacy stance. To argue as they do here that "the business retreats and sanctions applied against Russia are incomplete" only makes sense in relation to a defined goal. And their defined goal seems to be maximum ruination of the Russian economy, nominally in pursuit of supporting Ukraine in the war.

One wonders whether they see the new grain deal the Ukrainian and Russian governments concluded with the UN as being damaging to the goal they have in mind. Ukraine may not see its goals in exactly the same way. Is an attempt to drive the economy of one of the two biggest nuclear powers into "economic oblivion" really the right goal for the US and the EU?

And apart from the considerable threat of nuclear escalation - the only references to "nuclear" I find in the 127 pages of the linked Sonnenfeld-Tian documents are to something other than nuclear-weapons risk in the war - what effect would the looming prospect of "economic oblivion" have on the peace of eastern Europe and in Asia if it sets off secessionist movements among current regions in Russia like Chechnya? The New Cold Warriors might be too busy mongering more war to even care. They may even find such an outcome desirable. But the rest of the world including the public in all NATO countries have reason to worry.

It's also worth noting that Michael McFaul, formerly US Ambassador to Russia under Obama, has been pretty rigidly hawkish, complete with New Cold War type polemics, on the Ukrainian side of the current conflict. The sanctions proposal of the Yermak-McFaul International Group is currently posted on the official website of Ukrainian President Volodymyr Zelenskyy for June 6, 2022.

Finally, it's important for NATO countries to be evaluating what effect these draconian sanctions are having on Russia's conduct of the Ukraine war. Last I heard, that was still their nominal official purpose. Was this week's grain deal a product of the sanctions in some identifiable way? And, if so, doesn't that argue for restraint on imposing further sanctions on Russia?

There are also polemics about whether Ukraine alone should decide on whatever peace deal is eventually reached. This is a talking point the hawks seem to like a lot. But seriously? Ukraine is going to make a stable peace agreement without US buy-in? The sanctions are US/NATO/EU sanctions. Ukraine can't call them off without US agreement. And any peace agreement worth the name will require the US and the EU to deal with Russia on sanctions. They aren't going to let Ukraine make the deal all on their own. And of course Russia won't, either.