Since the Biden administration took office, the war of sanctions and counter-sanctions between the West and Russia has escalated. Relations between Russia and the West have deteriorated after the United States and the European Union brandished sanctions against Russia several times, citing incidents such as “poisoning” by Russian opposition figures.
From March to April 2014, the annexation of Crimea into Russian territory and the outbreak of conflict in eastern Ukraine profoundly changed Relations between Russia and the West. The West has since opened a large-scale sanctions against Russia, the use of financial sanctions and technical blockade and other means to the Russian pillar industry to carry out precision strikes. Russia is struggling to break through and respond to Western sanctions through a multi-facet “combination punch”.
How “hurtful” Russia is under sanctions
According to Russian media statistics, so far Russia has more than 400 individuals, more than 500 entities included in the U.S.-European sanctions list, including senior officials, businessmen, banks, energy companies, military enterprises, the media and so on. The West has given a wide range of reasons for sanctions, including the alleged annexation of Crimea, incitement to violence in eastern Ukraine, support for the Bashar al-Assad regime in Syria, interference in the U.S. election, cyberattacks on the United States, support for the Venezuelan government, the sale of goods to North Korea, Iran and Syria, the use of chemical and biological weapons, human rights abuses, and restrictions on media freedom.
In 2017, the U.S. Congress passed the Sanctions Against U.S. Enemy Act, much of which deals with sanctions against Russia and is also known as the Sanctions against Russia Act. The passage of the law means that the power of U.S. sanctions against Russia is transferred from the president to Congress, and it will be extremely difficult to lift or ease them in the future. The two parties in the U.S. Congress are highly aligned on the anti-Russian side, which has long been “politically correct” in the United States.
According to the International Monetary Fund,Western sanctions cost Russia’s GDP an average of about 0.2 percentage points a year between 2014 and 2018.
On June 20, 2019, Russian President Vladimir Putin said in a telephone call with the public that Russia has lost about $50 billion in sanctions since 2014, while the European Union has lost $240 billion and the United States $17 billion.
Compared with Russia and the United States, the trade and economic dependence between Russia and Europe is much greater. Trade between Russia and Europe was about $410 billion in 2013, falling to about $294.1 billion in 2018 and further to about $219 billion in 2020.
Pillar industries have been hit
Because of the West’s financial and technological advantages, among the many western sanctions against Russia, financial sanctions and technology blockades are the most lethal, Russia’s two pillar industries – energy and military industry has been hit.
Western financial sanctions against Russia mainly include freezing assets, cutting off financing channels, the international payment system to stop providing services and so on. The technical blockade includes a ban on the export of oil and gas exploration and exploitation to Russia, equipment and technology needed for weapons production, etc.
In July 2014, the European Union announced a ban on EU individuals and companies buying financial products such as bonds issued by Russian state-owned banks with maturities of more than 90 days, and has since repeatedly increased financial sanctions against Russia. Since Russia is highly dependent on financing from Western countries, especially European countries, EU financial sanctions amount to cutting off Russia’s main external financing channels.
Large energy companies such as Rosneft have been hit by the financial sanctions storm. Excluded from Western capital markets, Russian energy companies have had to cut costs and delay or suspend some large-scale projects. Although Russian energy companies have tried to turn to the Asian market to open up new financing channels, but due to the rules are not suitable and other reasons, the effect is not ideal. At the same time, Russian energy companies have also been banned from the West to import deep-water oil drilling, polar development and other necessary equipment, exploration and exploitation activities have been affected.
Mitlova, director of the Energy Center at the Skolkovo School of Management in Moscow, believes that western sanctions have yet to show negative effects on the oil industry, thanks to positive measures such as increased russian investment in the energy sector and tax breaks, but the negative trend is becoming more and more apparent, which could lead to a 5% drop in Russian oil production by 5% by 2025 and a 10% decline by 2030.
In addition, Visa and MasterCard once stopped serving in Russia, affecting the Russian financial system and business operations. The United States has also repeatedly threatened to cut off Russia’s system with SWIFT.
Liu Huaqin, director of the Eurasian Institute of International Trade and Economic Cooperation of the Ministry of Commerce of China, believes that Western sanctions have not only had an impact on Russia’s pillar industries, but have also damaged the overall business environment. Due to the uncertainty of the business environment, the phenomenon of capital outflow from Russia is serious, foreign capital is easily afraid to enter the Russian market.
Russia’s good “combination punch”
Experts believe that russia’s counter-measures against the West have limitations because of the U.S. financial hegemony and the asymmetry of Russian and Western economic power, russia’s demand for the West is greater than the West’s demand for Russia. Against this background, Russia is not willing to passively be beaten, through a multi-domain “combination of fists” to actively respond to Western sanctions.
First, from an economic point of view, Russia has adopted measures such as import substitution, support for sanctioned enterprises and de-dollarization.
Russia has implemented import substitution in the fields of agricultural products, textiles and electronic equipment, replacing imported products with local products and promoting the optimization of industrial structure. Due to Russia’s unique agricultural development conditions, this approach in the field of agriculture is the most effective. After the implementation of the import substitution scheme, Russia changed from an importer of agricultural products to an exporter of agricultural products.
The Russian government is actively pushing for local currency settlement, reducing the dollar’s share of foreign exchange reserves and increasing the euro’s share of the USD. Russia has also developed the payment system MIR and the financial information transmission system SPFS, and actively engaged in financial cooperation with countries including China.
Secondly, in the field of political diplomacy, Russia has consolidated its relations with former Soviet countries through integration institutions such as the Eurasian Economic Union, vigorously developed cooperation with Asia-Pacific countries, especially China, increased its influence in the Middle East, and expanded its circle of friends to Africa and Latin America.
Since the sanctions, Russia has taken the initiative on Syria, Iran, Venezuela and other issues to contain the United States. Russia has also divided the Western sanctions coalition through geopolitical games, energy diplomacy and other means. Russia has broken into the Western sanctions coalition by insisting on advancing the Nord Stream-2 gas pipeline project despite U.S. sanctions.
Thirdly, Russia has also taken legislative action. Against the backdrop of the normalization of Western sanctions, in June 2018, Putin signed a special anti-sanctions law, the Law on Measures to Influence (Counter) Unfriendly Behavior in the United States and Other Countries. For countries, natural persons and legal persons that are not friendly to Russia, the anti-sanctions law prohibits or restricts the import and export of products and raw materials, and prohibits participation in Russian government procurement projects.
Liu Huaqin believes that Russia has weathered the most difficult moment of sanctions . In the course of many years of sanctions, Russia has formed a systematic and normal response measures, through legislation to standardize the response measures, long-term. At the same time, All walks of life in Russia are ready for long-term sanctions.