There are some conspicuous loopholes in the Western sanctions regime against Russia, allowing Moscow to continue to make a fortune.
After Russian troops crossed the Ukrainian border in February last year, the West unleashed an unprecedented series of sanctions against Russia, on a scale not seen since the dark days of the Cold War.
A Yale University study from July 2022 claimed that the sanctions, which affected a wide range of industries and businesses, were “catastrophically paralyzing” the Russian economy, citing the collapse of the ruble and the mass exodus of Western companies.
However, since then the Russian economy has shown its resilience.
According to a Reuters survey, its GDP – an indicator of economic health that measures the total value of goods and services a country produces – will rise 0.7% this year as other European economies falter and stagnate.
There are many reasons for Russia’s economic strength. But some suggest that one explanation is that the sanctions have too many blind spots, loopholes and cracks, limiting their ability to hit Russia where it hurts most: in the pocket.
“There are many loopholes in the current sanctions regime,” he told Euronews. Tom Keatingedirector of Center for the Study of Financial Crime and Security del Royal United Services Insitute.
First of all, the “financial system” stands out, in which “banking channels with Russia” are still open in the West.
Although they are ostensibly to pay for energy imports which in some cases are still allowed, Keatinge says the transactions are “very difficult to police”, suggesting that payments for oil and gas could mask purchases of other items, such as high-tech military hardware. .
“If you’re a bank, it can be hard to really know which underlying merchant a payment is connected to,” he explained. “Frankly, these remaining channels should have been shut down long ago.”
The same is true of companies in other, more humanitarian sectors, such as food and pharmaceuticals, Keatinge continues.
“There is always the risk that a batch of drugs or the like that is exported could serve as a cover for something less benign.”
“I am not against leaving humanitarian loopholes if they are properly recognized and monitored,” he adds.
Financing the Russian war machine
Another loophole, according to the analyst, is that many specific industries remain free of sanctions.
Diamonds are an example. Although the United States and the United Kingdom have applied restrictions, the European Union (EU) continually leaves gemstones off its list of sanctions against Russia.
This allows the world’s largest diamond producer to continue accessing one of its key markets.
“Governments are scrambling to find ways to fill these gaps in a way that doesn’t hit their pockets too hard,” Keatinge told Euronews, suggesting that Belgium’s desire to protect its diamond industry helps explain slow enforcement. sanctions against the diamond industry.
However, he cautions that sanctions are a complex matter.
Although there is a lot of “nasty” trade out there, Keatinge notes that some “are very hard to cut, like the ongoing trade in nuclear fuel.”
The AP news agency reported in August that Moscow was raking in hundreds of millions of euros from the sale of nuclear fuel to the United States and Europe, which are totally dependent on Russian products.
Not imposing sanctions on other products, such as medicines for the Russian civilian population, also “makes a lot of sense” as it could be a “huge propaganda own goal” for the West, Keatinge adds.
In this matter, the arguments about the operation of sanctions and their ultimate purpose are fundamental, regardless of who they are directed at or not.
“It is a mistake to suggest that sanctions are all or nothing,” Keatinge stresses.
“It is not true that you have to sanction everything everywhere for them to have any effect,” he explains, because “many restrictions have been established.” “But the system nonetheless has cracks, where money and commerce, like water, will find their way,” he remarks.
“We have to limit the number of cracks to the greatest extent possible – and recognize that if they exist they leave material gaps in our defenses – but that does not completely undermine that the sanctions regime is having an impact,” he said.
It’s an economic war
Mark HarrisonEmeritus Professor of Economics at the University of Warwick, says it is hard work to completely turn off the spigot on Russia, but he can be pressured to end the war.
“The real purpose of economic warfare is to increase costs for an adversary by forcing him to make adaptations,” he told Euronews. “It is not possible to seal the Russian economy,” he continues.
“But what we can do is continually make it more expensive for Russia to maintain its ties with the rest of the world,” he adds.
“Modern economies are very difficult targets. That does not mean that they are not worth attacking. It means that countries need realism and patience,” he stresses.
Russia’s precious revenue from fossil fuels – on which its economy depends – fell by more than a quarter in January 2023 compared to the previous year, according to the International Energy Agency.
A final problem with the Western sanctions regime raised by experts is that third countries are not covered.
This means that other states with a more ambivalent position on the Ukraine war, such as Turkey, Kazakhstan and India, can act as intermediaries for sanctioned goods to pass through their territory to or from Russia, thereby circumventing sanctions.
“Many in Europe have overlooked the fact that the target of sanctions, Russia, doesn’t sit there and say okay,” Keatinge says. “They restructure and reorganize,” she adds.
India has increased its purchases of Russian crude, which some say is being sold as a refined product to help Moscow circumvent sanctions, according to a Euronews report in May.
New Delhi has fought back, claiming it cannot afford more expensive energy imports from countries, apart from Russia, with millions of people living in poverty.
“If you block trade on one route, it just finds another,” Harrison says, citing a historical example from World War I, in which exports “just got diverted” through neutral European countries after Britain imposed a trade ban. naval blockade of Germany.
Bad reputation when it comes to sanctions
Even among Ukraine’s Western allies, Keatinge suggests the sanctions lack “consistency” as some countries more actively buy oil products than others, and a few Russian banks are still allowed to use the SWIFT payment system.
“This is not a mockery of the sanctions, but it certainly makes it much more difficult to be sure that the restrictions are being imposed correctly,” he told Euronews.
Led by the ultra-nationalist Viktor Orban, Hungary has gained notoriety for continuing to buy Russian energy, while some fear sanctions fatigue will set in for Austria, with one political party saying last October that the restrictions should be put to a referendum.
“Sanctions are a political tool,” says Keatinge. “If your country’s leaders aren’t sending strong messages about sanctions, why would the industry feel the need to comply?” she stresses.
The EU signaled in July that its sanctions against Russia will develop over time, with the bloc trying to plug holes and close new loopholes as they emerge.
This could be extended to penalizing countries that help Russia, although it is not certain.
“This is a war of attrition,” Harrison says, “by subjecting Russia to costly solutions and straining its resources, we weaken the country both at home and on the battlefield.”
“That is the goal. That is the purpose,” he settles.
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