Sanctions...pesky things that harm the sanctioner

Russia, sanctions, lessons not learned

Sanctions...If you must do them, do them the American style. They really know how to do them.

Sanction quickly on something you don’t need (like oil), sanction slowly if ever on something you need (like nuclear fuel). And then create enough carve outs to make the entire thing meaningless.

As reported by Reuters: ‘President Joe Biden signed into law a ban on Russian enriched uranium on Monday, the White House said, in the latest effort by Washington to disrupt President Vladimir Putin's invasion of Ukraine.

The ban on imports of the fuel for nuclear power plants begins in about 90 days, although it allows the Department of Energy to issue waivers in case of supply concerns.

Russia is the world's top supplier of enriched uranium, and about 24% of the enriched uranium used by U.S. nuclear power plants come from the country.’

Europe, on the other hand, really knows how to hit its own industries where it really hurts and forgets the needs of the electorate, like jobs for instance. The German industrial base starts to look a bit like decaying Swiss cheese as the Russian import bans force business owners to look for alternative supplies, explore relocating or worse, face bankruptcy.

What a disaster the Russian war has been for Europe, but they are not the only ones.

Russia’s quick win did not materialize, instead it had to bear the sacrifice of tens of thousands if not hundreds of thousands of casualties of its army personnel, ignominious recurrent attacks on its territory, an insurrection and just two days ago the firing of its Defence Minister.

Attacks on Russian cities even hundreds of miles inland are common events and almost no oil refinery is safe from the reach of Ukrainian (read American and European) drones and rockets.

The military disaster would not be palatable for the Russians were it not for an even bigger disaster in Ukraine. The country is reeling with the front on the verge of collapse. But this mess was to be expected as Russia has a bigger population, bigger economy, bigger army, bigger reserves, bigger commitment and an excess of just about any material needed for the war. The sanctions helped by causing excess in supplies that could not be sold. But Ukraine is indeed a mess, and it has become a hole in the ground in which soldiers, tanks, troops carriers, planes and billions of dollars, all coming from the West, are thrown in to never be seen ever again.

Sanctions also helped by making ordinary Russians unwelcome in the West, and critically by making money transfers illegal. Funds stayed in Russia and were put to work. The economic results are evident.

And the dollar was dented as an international means of exchange as the various members of an axis of evil, or is it BRICs, explore ways to use alternative currencies.

And for the combined West, we are facing a failure which was as unlikely as when NATO was beaten by the sandal wearing Taliban guerrillas. Our dear leaders, feeling plucky again, rose like the proverbial phoenix from the ashes of defeat. They were confident that they had ‘this war’ fully under control. After all, economically Russia is just a minnow. But is it?

The EU has a combined GDP of roughly 17.8-trillion USD compared with Russia at a mere one tenth of its size at 1.78 trillion USD. Throw in the US with a $28.2-trillion GDP and the output of a sundry half willing participants like Japan and South Korea and soon you have an economic advantage of 25-30 to one. Surely, the thought went, Russia will collapse under the power of the sanctions and the military aid bolstering the Ukrainian forces.

But between ‘The plan’ and the expectation, reality has a funny way of intruding with a mind of its own.

So, what went wrong?

First, let’s see where we are. First let’s do acknowledge the obvious. The Russians were on the ropes in the initial months of the Special Military Operation as the Ukrainians and Western mercenaries pushed back the startled over confident Russians. To paraphrase Mike Tyson, ‘everybody has a plan until they punched in the mouth.’ But in a repeat of WW2, and even the French incursions of 1812, you can push the Russians back but soon enough they are back. For those who like history, the Ukrainians and the Germans pushed back the Russians from the same territories the Russians are controlling again. Same territory, same outcome.

From early on, my position was that the best course of action would be to negotiate. There is no point in having people killed and treasure lost. ?But in the initial round, the West and the Ukraine didn’t want to negotiate confident they would win. Now the Russians have the upper hand and we would not expect them to want to negotiate. What a mess it really is when logically the best time to negotiate is when you think you are going to win and concede a little. Because you never know, things can always turn around.

We have also learned the sanctions didn’t work as expected and factually, Russia is the fastest growing economy in the West and Eastern European ambit.

This is not me saying that. It is the IMF!

We quote: ‘Russia is expected to grow 3.2% in 2024, the IMF said in its latest World Economic Outlook, exceeding the forecast growth rates for the U.S. (2.7%), the U.K. (0.5%), Germany (0.2%) and France (0.7%).’

Sacré bleu, I would say if I were Mr. Macron, but in languages I am more familiar with I would say, holy guacamole, what happened?

To start with, never as in never, impose any sanctions whatsoever. Sanctions are instruments of self destruction. Sanctions are instruments of exquisite finesse, sharp as carbon rich steel, and as deceptively self injurious as any boomerang. Boomerangs are fun to play with but you are as much of a target as whatever you think you are planning to hit.

Let’s explore why. In business or at home, unless you are lacking brain cells, the goal is to acquire anything you need at the cheapest delivered possible price. Simple common sense, do not overpay for anything and do not deprive yourself of anything you need.

That common sense applies to anyone, unless you work in government!

The EU and the UK in particular have done a stellar job in depriving themselves of things they need from Russia and paying over the odds from alternative supplies elsewhere.

I do remember my friend from a French company laughing, and not quietly, about the dumbness of sanctioning Russian oil just to see it being shipped to India to get refined and then buy the products at a higher price to ship them back home. In the process, he noted, copious amount of carbon are released due to the extra shipping and the Indian refineries keep the extra rent while the European refineries suffer.

We residents and citizens in Europe pay more for lumber, gas, oil, steel, aluminium and many other products than we would pay were there no sanctions. Meanwhile, the Russians are happily finding markets for their stuff elsewhere.

As Centre for Research on Energy and Clean air noted:

• Russian exports of seaborne crude hit a nine month high in March — and were the third highest volumes recorded since the EU/G7 sanctions and price cap.
• China’s imports of Russian Sokol crude hit an all time high (0.97 mn tonnes), as the country took on the Sokol shipments stranded after being turned away from India amidst tightened sanctions from The Office of Foreign Assets Control (OFAC).
• Russian revenues from crude exports to India rose by 48% in March, bucking a recent trend of declining imports. India’s crude oil imports from Russia had been impacted by ongoing issues with payments and OFAC sanctions for the last three months.?

?

It should be time to stop the nonsense, the deaths of Ukrainians and the death of the remaining European industrial base.

Our economies are service driven and based on value added to pesky inouts dug up from the ground elsewhere. The Russians, in a crude way, are miners and farmers. They produce the stuff we transform into nice finished goods. But if we prevent the Russians from selling us the materials we need to transform and we also prevent them from buying the nice finished products we make, our economies are harmed. It is quite simple really.

We, West, are broke. We need to borrow money from those we apparently do not respect. We do not have the money to finance a continuation of the war as every single dollar and Euro spent is borrowed. While the Russians are all in and committed in a way we will never be.

But there are still some die-hards that think that the Russian economy is growing because it is on a war footing. Poor are those souls who think that producing swords rather than ploughshares help grow an economy. If this were the case, we should hire people to make balloons, hire a few others to inflate them and a third bunch to prick them. The damage would be a lot less and would prove the futility that a war economy is a good idea.

Don’t believe me; look at the official figures for Israel’s economy which is on a real war footing.

The Financial Times has reported:

‘Israel’s economy shrank at 20% rate after outbreak of war. GDP plummeted in annualised terms in last three months of 2023 amid conflict with Hamas. Israel’s economy shrank almost 20 per cent in annualised terms in the final quarter of 2023, official data showed, as it poured resources into its conflict against Hamas in Gaza. The sharp drop in gross domestic product, which was far steeper than analysts had forecast, came as hundreds of thousands of Israeli reservists were mobilised to fight in the aftermath of Hamas’s attack on October 7.’

At the expense of sounding puerile; war kills people, sanctions kill the economy of the sanctioner.

Time to recognize the obvious, head to the negotiating table and enable industries to buy and sell what they need..