Your move, Vlad.......

The commentariat has been very long on opinion about sanctions on Russia, but very short on information. Perhaps this is because there is not much to say. So just what is the West doing to bring Vlad to heel?

 

The short answer is ‘not a lot’.

 

A small clique of ‘oligarchs’ close to Putin  – 87 in all -will suffer the minor inconvenience of travel restrictions. Their stash in Western banks will be frozen, but since Brussels signalled this long enough ago to enable them to take counter-measures it is fairly certain that the money has flown, to Singapore, Panama, BVI and other havens where money talks and they like what it says, beyond the reach  of the US and the EU.

 

Some – only some – Russian banks will be denied access to the West’s money-lenders. The list does not include Russia’s biggest bank. The move will increase capital flight and freeze much investment. Much has been made of the pain that the City will suffer but only 1% of its profits are from Russian sources.

 

Although there is little doubt that sanctions will make it harder for banks to raise money to repay short-term debt i.e. less than 3 years from maturity, the impact will not be immediate, although dollar loans have already dropped by nearly50%.

 

How about energy?

 

Much has been made of the impact on Western oil companies that have invested hugely in Russia, such as BP. Exon, and Shell. In particular, BP  is supposedly at serious risk because of its 20% stake in Rosneft (which has also had a $50 billion fine imposed for its larceny of the assets of Yukos). But BP is not likely to declare bankruptcy anytime soon. It has already paid out more in dividends  than it paid for its Rosneft shares. Besides, the oil and gas industry plays it long. By its nature, it requires multi-year planning and investment, and large time-lags between exploration and exploitation. A few months of feeble sanctions against Russia is not going to faze them very much.

 

There will be some short-term pain because Russia needs Western capital and technology to upgrade its aging refineries and to press ahead with exploration, especially in the  Arctic, but imports will be untouched out of deference to Germany’s reliance on Russian gas particularly. Germany already has exceptionally high energy costs due to its dotty ‘green power’ policies, and it cannot afford an energy shock which will have a serious consequence for the German economy. Sanctions will apply only to the oil sector. Gas is untouched.

 

Then there is the matter of arms contracts. The French in particular have resisted sanctions because of the two expensive Russian warships under construction in French naval yards. The solution is that existing contracts will be honoured which gets the French off the hook; by the time the ships are delivered sanctions will be history. Dual-use goods, those that have both civil and military uses will be banned, but despite all the noise about the serious impact on the German economy if exports are banned it turns out that only 1% of industrial output will be affected.

 

Sanctions are designed to exert an economic and financial squeeze over a long period. Ukraine needs a quicker solution. Putin is between a rock and a hard place. If he continues to support the rebels he will be increasingly sucked into an endless guerrilla campaign. If he pulls out, he will be accused of treachery, and this could be fatal for his own political ambitions, even survival. He has followed the age-old strategy of ‘when in trouble at home, cause trouble abroad’. The economy is dangerously energy-reliant and demographic problems are not about to go away.

 

The strategy is clearly aimed at destabilising Putin by weakening support at home. This is a very long shot indeed. His next move may well be to support a low-level insurgency designed to bring Ukraine to the conference table.

 

The likelihood then is that Putin will negotiate some weasely escape strategy which his lie-machine will then present to the Russian people as a triumph of Vlad’s statesmanship.

 

And the cold truth is that ordinary people don’t much care. This is power politics between the West and Russia. The rest of the world is largely indifferent.