US and EU sanctions doomed to fail
It is clear in the light of just-released sanctions lists from the EU and the US that neither power has the appetite for serious confrontation with Russia. Indeed, in the short term the sanctions look like having the obverse effect of restoring confidence in the market, which had been spooked by the possibility that serious, systematic sanctions might be implemented. After the release of the lists and Putin’s subsequent speech to the Russian parliament, both the Russian Micex and the FTSE Eurofist recorded strong gains. But the sanctions also highlight the practical difficulties faced by countries hoping to use such punitive measures.
The EU list concentrates almost exclusively on mid-ranking politicians who have played a public role in Crimea’s de facto secession, focusing on the Crimean leadership under “prime minister” Sergei Aksenov and mid-ranking Duma deputies from the Russian Federation Council.
The US list, less relevant in practice because of the US’s relatively small direct role in the Russian economy, picks a similarly random subset of anonymous Duma deputies who will be prevented from spending their summer vacations at Disneyworld or shopping in Manhattan.
One interesting point of note here is that the EU list fails to apply travel bans. During previous spats with the west an inability to visit one’s Kensington mansion was one of the few restrictions which really rankled with Russian chinovniki.
Both lists look like they have been drawn up by officials working exclusively from public reporting of the Crimea crisis and fail to show any nuanced understanding of potential levers of power. Alternatively, a cynic might argue this oversight is wholly intentional and the officials were keen to appear to be acting but reluctant to ruffle too many feathers.
The lists also highlight in their construction the challenges faced by organisations often unfamiliar with the complexities of the Russian or Ukrainian languages and political environments. The EU list mistakenly refers to the Russian security service as the SBU. This may be a typo, and the drafters may have meant the FSB. In any event, it is a sloppy mistake unlikely to be made by anyone at all familiar with Russia or Ukraine.
The US list – or rather the more detailed Office of Foreign Assets Control document that will be used by compliance professionals – offers five different aliases for Sergei Aksenov, presumably because his name can be transliterated into English in several different ways, but fails to include the most direct transliteration of the Ukrainian version of his name – Serhiy Valeriyovich Aksonov – and other acceptable variants. If it’s not even possible to get the lists right, how can businesses be expected to apply them correctly?
It may be that such puny sanctions actually end up restoring faltering confidence in the Russian economy. The uncertainty that has led many western actors to pull back (mainly in anticipation of Russian retaliation) may be resolved. While in theory the nuclear option of cutting Russia and Russian entities off from the US-dominated international financial settlement system (as has been done with Iran) remains on the table, nobody expects it to be used. It doesn’t appear that wider measures, such as a generalised ban on Russian businesses with operations in Crimea, has even been contemplated.
Some analysts have speculated that this relatively weak round of sanctions is a tactical move by the US and the EU, leaving both actors with options to escalate sanctions further if Russia makes any greater incursions on Ukrainian territory. Whether the EU and US have the steel to actually go ahead and ratchet up the economic pressure on Russia remains to be seen. In the meantime, while the markets might be assuaged, the political crisis drags on.
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