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Sanctions aren’t working – and the West is shooting itself in the foot

Sanctions aren’t working – and the West is shooting itself in the foot
The global community is now left grappling with the consequences of its failed economic strategies aimed at curbing Russia’s influence. (Source: Wikimedia commons)

In the aftermath of World War II, the global community united with the promise of ‘never again,’ seeking a lasting solution to prevent future conflicts. The chosen path was economic interdependence, premised on the belief that it is more profitable to trade than to wage war. Nearly 80 years later, this has held true among like-minded democracies – however, it has proven a deeply flawed assumption when dealing with regimes such as Putin’s Russia.

Sanctions, crafted by the West’s major economies – the US, EU, and the G7 – were implemented as a foreign policy tool to curtail Russia’s power in 2014 following Putin’s annexation of Crimea, and were significantly intensified in response to the full-scale invasion of Ukraine in 2022, aiming to isolate the nation politically and cripple its economy. US President Biden optimistically declared that as a result of the sanctions, ‘the ruble was almost immediately reduced to rubble.’ But the Russian economy has bounced back – despite these initial claims, the IMF is forecasting a 2.2% growth in the Russian economy this year.

Putin, speaking at his end-of-year press conference, exuded confidence that Russia can ‘move forward’ from the West’s sanctions and isolation efforts. As he seeks his fifth term in the Kremlin, Putin highlighted the strengths of the nation, emphasising the ‘consolidation of Russian society,’ as well as the resilience of the financial system and the increasing capabilities of the Russian army.

The majority of Russians remain unperturbed by the sanctions too, with 70% expressing little concern, according to a study by the Chicago Council on Global Affairs. It seems that policymakers, perhaps blinded by their perceived success, have grossly overestimated the efficacy of sanctions.

Money that would have been invested in European supply lines has instead been diverted back into its own economy. Domestic tourism is flourishing, real estate prices are rising, and the construction sector is booming. Russia’s production capacity reaching an all-time high of 81% in Q2, and oil and gas sales to foreign buyers are enduring – to non-Western economies including China and India, but also to European countries through intermediaries like Azerbaijan and Turkey.

With a Russian public more confident than ever that the economy has stabilised in defiance of the sanctions, the nation’s business leaders are returning home and repatriating massive amounts of wealth. The Kremlin actively encourages this return, establishing frameworks such as local law domestic ‘offshore’ zones, tax benefits for re-registered international assets, and restoration of control over Russian companies lost due to international sanctions.

With the Kremlin nurturing a friendly business environment, Western countries are actively driving Russian investment away – a move which often backfires. Online betting firm Parimatch was added to a list of sanctioned businesses with no explanation as to why, with its operating license suspended and assets frozen. The action has, in fact, benefitted rival Russian operators – pushing gambling underground and leading consumers straight to the firm’s Russian competitors. Ukrainian Bank Sense Bank was placed on the national sanctions list and nationalised under martial law, and its assets were seized with no explanation – causing significant damage to the Ukrainian economy and harming its employees and their families.

As such, Russian investors are turning their backs on the West, and pouring in money at home. Bloomberg recently reported that Russian business elites have returned at least $50 billion to Russia since the invasion began.

Some of Russian elite have spoken out against the war. Arkady Voloszh publicly condemned the war, calling it ‘barbaric.’ Having not conducted any business in Russia since 2013, Igar Makarov renounced his Russian citizenship entirely.

Even so, the businessmen found themselves stuck on the sanctions list – handing a huge victory to Moscow. With a Western world that vilifies them, refusing to offer any meaningful judicial review of the sanctions, and betraying its own proclaimed ideals of the rule of law and property rights protections, the Russian elite are simultaneously becoming disgusted by the West’s policies and welcomed home with open arms by the Kremlin – who has never, unlike the West, punished any business leaders, even those who have spoken in opposition of the war.

The global community is now left grappling with the consequences of its failed economic strategies aimed at curbing Russia’s influence. The initial optimism surrounding sanctions has given way to a stark reality: not only have they failed to achieve their intended political goals, but they have inadvertently bolstered Russia’s resilience. The Kremlin’s strategic measures, aided by the frosty environment in the West, has successfully driven wealthy Russians who once distanced themselves from the regime back home.

The exodus of Russian wealth from the West has dealt a significant blow to the credibility of Western ideals. In a twist of fate, the West has shot itself in the foot, while Russia is increasingly gaining resilience. If policymakers actually want to cripple the Russian economy, a reassessment of their approach is urgently needed.

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