Sweeping Western Sanctions Fail to Cripple Putin | M.R. Narayan Swamy

BOOK REVIEW

Punishing Putin: Inside the Global Economic War to Bring down Russia
by Stephanie Baker

Mudlark
Pages: xiv + 351; Price: Rs 699

When Russia launched a full-scale invasion of Ukraine in February 2022, it heralded the largest land war in Europe since World War II. But there was no way the West was going to go for a direct military confrontation with a country with more nuclear warheads than any other. That would have been disastrous.

So, Western governments led by the United States unleashed an equally full-scale assault on the Russian economy in a bid to degrade Vladimir Putin’s military might. Western countries blocked roughly $300 billion in Russian state funds, banned technology exports, expelled Russian banks from the international financial system, and capped the price of Russian oil – Moscow’s biggest money earner. Never before was such an arsenal of economic weapons turned against a major market economy. The attempt was to turn the 11th largest economy in the world into a global pariah. The collective message was: Punish Putin.

Over the past three decades, sanctions have become a central tool of Western foreign policy. And the sanctions against Putin did hurt Moscow – how badly is a matter of debate. Russia lost an estimated $168 billion in oil and gas export earnings in the first two years of the war because of Western restrictions and Europe finding other sources of energy. The Russian rouble tumbled almost 45 percent by the second anniversary of the invasion from a wartime high in June 2022. Also, hundreds of thousands of Russia’s brightest citizens quit the country, a brain drain that is bound to hobble the country for years to come.

But the sanctions could not cripple the Russian economy as some thought at the outset they would. Indeed, once the wide-ranging sanctions got underway, many Western leaders gloated that the Russian economy would soon collapse. The West also froze the assets of some of Russia’s richest men, a move it felt would soon turn them against Putin. Neither event happened. Russia’s economy not only did not crash but has seen a modest growth; and most Russian oligarchs remain devoted to Putin, fear being only one reason.

Why and how did this happen? How has Putin been able to hold on against the unprecedented Western gang-up? How long is the Ukraine war likely to last? Finally, who will pay for the terrible destruction that Ukraine has suffered? (According to a World Bank estimate, rebuilding Ukraine could cost nearly $500 billion.)

Although journalist-author Stephanie Baker’s idea for the book took birth on the day Putin ordered Ukraine’s invasion, she is no greenhorn when it comes to Moscow. She had started out as a reporter in Moscow in the 1990s when the West was crowing over the collapse of the Soviet Union and desperate to embrace a capitalist Russia. Western capital poured into Russia like never before, changing the economic landscape of a country which for decades was the Mecca of communism. Baker had also reported from Ukraine off and on. So, as she plunged into writing the book, she interviewed more than 100 people and trawled through thousands of pages of documents. She flew to Dubai, Brussels, France and across the US for research and interviews. The end product is a gripping book laced with facts.

Just as the Western dreams of a rapid Russian economic collapse proved illusory, so did Putin’s aim of running over Ukraine in days. The adversary not only proved dogged and determined but the West found the war a damn good reason to bleed Moscow, now led by former KGB officer Putin, a leader the US and NATO do not trust.

Russia’s losses in just two years of are staggering – an estimated 350,000 soldiers are dead, injured or missing. This toll is seven times more than what the Soviet Union lost in 10 years of fighting in Afghanistan. By the middle of 2023, an estimated one million Russians, including young and highly skilled workers, had fled the country.

Yes, the Western sanctions have been deeply damaging. In 2022 alone, a record $239 billion was pulled out of Russia – equal to 13 percent of the economy – as Russians withdrew money to escape sanctions. Another $27 billion poured out of Russia in the first six months of 2023. It is only the military industry that helped Russia’s economy to jump by 3.6 percent in 2023 and could grow by 3 percent in 2024.

Given the protracted military battle in Ukraine, many have rightly questioned what the Western economic war has achieved so far. In Moscow, restaurants are busy and the shelves are full. While those with wealth, not just the filthy rich oligarchs with one leg in Western capitals, are not experiencing any real pain, the mass of Russians on lower incomes are badly hit. With the rouble’s value dropping almost 20 percent, everything has become more expensive. But the masses are not revolting, and it doesn’t look like anyone is going to topple Putin notwithstanding fanciful reports to the contrary in the British tabloids. And despite thousands of Western businesses quitting Russia, many still remain there, indirectly contributing to the Kremlin’s war machine by paying taxes.

According to Baker, the Kremlin has managed to weather the onslaught of sanctions because of the relatively high global price of oil, the mainstay of the Russian economy. (The Indian role in transforming Russian oil into petrol and exporting it to the West is well documented.) Oil indeed is the key to the Russian economy’s health. According to Bloomberg (where Baker works), if Russia’s oil export price falls to below $50 a barrel for one or two years, the Kremlin will deplete its National Wealth Fund, set up to cushion government finances from swings in energy revenues. Is it any wonder that Putin is desperately trying to build a new world order than can rival the US-led West, and is eager to shake hands with China, North Korea, Iran, India, Brazil, South Africa, Saudi Arabia and the United Arab Emirates.

Baker complains that despite their loud talk of forcing the Russian military to roll back, the US and its allies have not given Ukraine enough military aid to protect its citizens from missile attacks, let alone defeat Moscow. The West has outlined a promising path for Ukraine’s post-war future: a route to membership in the European Union and NATO. But there is no strategy for ending the war, a prerequisite for realizing that vision. The author concludes that a thaw in the economic war, to say nothing of the military battle, is unlikely to come anytime soon.