LILIA SHEVTSOVA  April 4, 2016

Editor’s Note: How do Russia and the West see one another? What are the experts’ views on the confrontation between Russia and the West? How do the pundits explain the Russo-Ukrainian war and Russia’s Syrian gambit? What are the roots of the mythology about Russia in the West, and why has the West failed to predict and understand Russia’s trajectory? This is the 11th essay in a series that seeks to answer these questions. Click this link to read part ten.  

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The Western sanctions regime against Russia has confirmed that the post-Cold War and post-Communist stage of the world’s history, with all its hopes and illusions, is over. We are now writing a new history.

Following Russia’s annexation of Crimea and the war against Ukraine, the West has introduced restrictive measures against Russia targeting private entities and individuals, and entire sectors—financial markets, the energy sector, and the defense industry.1 The Western sanctions endorsed during 2014 in December 2015 were extended for the next half of the year through July 2016.

The Western sanctions regime is based on two premises: to build consensus among the Western countries around the goal of stopping Russia’s aggression against Ukraine and forcing Russia to negotiate a peaceful exit from war through imposing considerable costs on it for not complying with this goal; and to limit the cost of economic restrictions for the West.

The point is not to make the costs unbearable for Russia, thus threatening the unraveling of the system or regime change; nor is it to collapse the Russian economy, which would make the country’s future trajectory even more unpredictable. In order to preserve a united front behind the sanctions paradigm, the West is relying on a lowest common denominator formulation: It doesn’t want to cause too much pain either for Russia or for itself, which means that the unity of the West has more value than the sanctions’ ultimate success.

If one takes into account the facts that the Russian System has shifted into a Fortress Russia mode and that its nature will remain unchanged as long as Putin’s regime lasts, then one can conclude that such a sanctions policy cannot respond to fundamental cause of the conflict, which is related to the nature of the Russian System. This gives the Kremlin room for maneuver, allowing it to test various instruments of survival, including destabilization of other states, and to attempt to push past the West’s red lines (which are still fuzzy). However, the sanctions policy does make clear to the Kremlin that further aggression against neighboring states would be met with an even stronger Western response, and thus will bring more pain.

That the West has decided to take an unprecedented step to sanction post-communist Russia proves that the liberal democracies have changed their key policy line. They no longer consider Russia as a responsible partner or an ally (at least for now). But do the sanctions mean that the West has developed a strategic vision regarding Russia? One has doubts. As Ivan Krastev and Mark Leonard concluded, “[The EU and the U.S.] have no shared idea of what the sanctions are designed to achieve.”2 The fact that the West’s punitive steps have been linked to the controversial Minsk agreements tells us that the Western response has been muted.

The Western sanctions aimed at forcing Russia “to de-escalate” in Ukraine divided the expert community. Normativists have been complaining that the sanctions regime is too weak and has to be strengthened and expanded—and in any case it should not be lifted without Russia’s full compliance with the Minsk accord. Andrew Wood: “Easing EU or transatlantic sanctions without substantial, bankable, and publicly recognized Russian concessions might be welcome to Putin and some of his colleagues, but would harm a Russia surely deserving of something better than increasingly despotic rule.” David Kramer has been insisting that a broader list of sanctions is needed to force the Kremlin to stop its aggression against Ukraine (he also favors providing Ukraine with defensive military assistance).3

The pragmatists have opposed sanctions from the very beginning, arguing that they would be counterproductive, and that accommodation and dialogue are the best means to persuade the Kremlin to stop destabilizing Ukraine. Indeed, restrictive measures contradict the pragmatist view of the political world. Eugene Rumer: Putin “will not be deterred by sanctions.” Thomas Graham: “They have not deterred Putin from pursuing what he sees as a vital Russian interest.”

The fact that the sanctions and their intensification did not prevent two open separatist offensives with support from Russia (in August 2014 and January 2015) seem to strengthen the argument that Western pressure would not deter the Kremlin. But it also raises a question: How would the situation have developed if the West had failed to apply the sanctions? Where would the Russia-backed separatists be today—in Odessa, in Kharkiv, or in Kyiv?

Here are a couple more pragmatist arguments on the issue of sanctions: that they have “marginalized pro-Western members of the Russian elite”; and that the West “is destroying the friends of Russia.” But isn’t the former argument demeaning to “Russian friends of the West,” because it assumes that it is in their interests to allow Putin to do whatever he pleases?

If we are talking about real pro-Western forces in Russia rather than those who just fake their pro-Western sentiments, then the Kremlin had marginalized them well before the sanctions began, and they will remain in the political ghetto regardless of what happens to the sanctions. Besides, one must admit a sad truth: Russia’s pro-Western forces lost their faith in the West a long time ago, having been frustrated by the West’s acquiescence to the Russian personalized power regime.

Sanctions could “encourage Russia to compete with the West in military rather than economic terms,” some experts believe. What an amazing lack of understanding! Actually, the sanctions have merely exacerbated Russia’s economic crisis, which has deeper roots in declining oil prices, endemic corruption, and the lack of property rights and investment. And since some of these root causes of the crisis remain unchanged, Russia could hardly expect to compete with the West economically—with sanctions or without them.

Here is another argument put forward by Western pragmatists: that sanctions “could end up precipitating the decline of the very international system [they are] trying to uphold,” and that they will prompt the BRICS to create an alternative to the existing global economic system. Another myth-making attempt! If those promoting this view take a look at the BRICS documents and the activities of this “club,” they will see how nebulous it is.

There is no unity among BRICS members; they lack a common agenda and merely seek to exploit the BRICS format to advance their private interests in relations with the West, and primarily with the United States. So it is not the BRICS countries that could weaken the foundation of the international system but rather the West’s inability to respond to the Kremlin’s adventurism.

Some pragmatists, on the contrary, assert that Western sanctions may bring a positive result, by finally forcing the Kremlin “to begin its long delayed re-industrialization.”(!) This expectation is hardly persuasive. Russia doesn’t need Peter the Great-like or Stalin-like modernization from the top; industrial modernization was already accomplished under Stalin. Today Russia needs to create a high-tech economy, which is impossible without liberalization and cooperation with the developed democracies. The Western sanctions could only bring about Russia’s further de-industrialization.

Finally, some experts argue that the Western sanctions have been designed to be ineffective. This is the view of George Friedman (of the Stratfor group) on the U.S. sanctions:

A look at Russia seems to confirm the conventional wisdom that sanctions regimes are ineffective in most cases. Both Russian and European companies have proved adept at dancing around sanctions, aided by armies of Western lawyers and business people. For example, Gazprom, E.ON, Shell, and Austria’s OMV group signed a memorandum for a joint venture deal (bigger than the existing Nord Stream pipeline) at the St. Petersburg Forum in 2015.

Some Western companies, like the German firm Siemens, have found ways to take part in supplying Crimea. Third, countries openly or secretly have been replacing European products on the Russian market. Finally, Germany, the architect of the EU sanctions, has demonstrated its inconsistency: Berlin’s support of the idea of Nord Stream-2 hardly fits the restrictive policy and allows other states to look for loopholes.

Does this mean that Western economic pressure is a complete failure? Analyzing the sanctions’ effects, the majority of analysts are cautious. The Norwegian experts Susanne Oxenstierna and Per Olsson conclude: “The targeted economic sanctions of the EU and the US have contributed to imposing a cost on the Russian economy in combination with other factors, but have so far not persuaded Russia to change its behavior towards Ukraine.” The European Union Institute for Security Studies Task Force argues that the West has been rather successful: “The EU restrictive measure have played a role in limiting Russia’s territorial ambitions.” Stanislav Secrieru (with the Polish Institute of International Affairs), is even more optimistic: “Sanctions represent a fairly efficient and low cost tool to shelter Ukraine and dissuade Russia.”

It always takes time for sanctions to bring results. Restrictive measures are usually designed to have gradual effect over a mid- to long-term horizon. I guess the architects of the sanction regime against Russia should be surprised at how soon it has brought damage. First, sanctions have taken toll on elements of the Russian ruling class that are integrated into the West. One example: The losses due to frozen assets in the U.S. alone of an oligarch close to Putin, Yuri Kovalchuk, totaled $572 million, and the oligarch Rottenberg brothers sustained losses in Italy worth nearly $40 million. Second, sanctions have exacerbated the economic recession in Russia: by accelerating capital flight and shrinking internal financial resources; by restricting Russia’s access to international financial markets and triggering a financial crunch; and by creating crisis of confidence in international business circles regarding Russia.

Russia’s counter-sanctions (an embargo on imports of meat, cheese, fish, vegetables, fruit, and dairy products from the European Union, United States, Australia, Canada, Norway, and later Turkey) have made the situation much worse for Russia, provoking a serious decline in consumption and high inflation. These Russian measures are really sanctions against the population: in 2015, the price hike for meat products totaled 10-15 percent (20 percent for pork); for vegetables and fruits the increase was 25 percent.

Russia’s retaliatory counter-sanctions against the EU, Ukraine, and Moldova caused pain first of all for Russian middle-class consumers, where domestic substitute products couldn’t be found for the much-preferred European foods and services. At the same time, Europe appeared to bear the counter-sanctions quite easily. (In 2015 the EU’s exports to other states grew 4.8 percent.)

Little by little, Western economic pressure, in combination with other factors (such as plunging oil prices, depreciation of the ruble, lack of investments, and capital flight), produced a growing, crippling impact on the Russian economy and consumption. (Moscow and big cities with developed middle classes suffer more than small towns, which are less integrated into international trade flows and have less access to the products covered by sanctions.) “Despite the limited direct impact of the sanctions, their indirect influence could become more serious and durable,” admitted Russian economist Sergei Aleksashenko.4

Former Russian Finance Minister Alexei Kudrin predicted that sanctions together with other negative components will bring a 3-4 percent economic decline. According to IMF, in 2015 Western sanctions brought a 1.5 percent drop in the Russian GDP, but if sanctions are still there in a couple of years, Russia will experience 9 percent decline in GDP. A recent study by the Economic Expert Group (Yevsei Gurvich and Ilia Prilepsky) concluded that in 2014-2017, due to the financial sanctions and the oil price plunge, Russia will lose about $600 billion (loss from the financial sanctions will amount to $170 billion). The capital flight during this period will amount to $280 billion and three fourth of that will be the result of the sanctions.

The sanctions have been a hard blow to Russia’s global role, which is one of the pillars of the Russian System. Being marginalized on the international scene, Russia has lost a lot of its superpower impact and leverage.

Some observers have doubts about the sanctions’ internal political effects: “The regime has shown strong capacity in controlling public opinion … and creating inimical feelings towards the US and the EU.” There has been, in other words, a “rally around the flag.” These conclusions coincide with the pragmatist view on the sanctions’ effect. The pragmatists have been claiming that Western sanctions make Russia an even more anti-Western state. “Sanctions simply strengthen the forces most hostile to the West,” says Ambassador Brenton.

The European Union Institute for Security Studies Task Force mentions the “counterproductive effect of strengthening elite cohesion in Russia.” This means that the regime has succeeded in channeling its resources to politically “connected patrons and to state-depended economic sectors,” which “has bolstered popular support for the regime in constituencies.”

The political impact of the Western sanctions is more complicated. It is true that at the beginning the sanctions may have helped the Kremlin with its anti-Western mobilization: in December 2014, 72 percent of Russians believed that the sanctions were aimed at “weakening and humiliating Russia.” At the same time, 24 percent of respondents thought that Russia “had to reach compromise with the West and make concessions to get the sanctions lifted.”

By the end of 2015, 74 percent of respondents admitted that they had problems because of sanctions (31 percent did not have problems). About 58 percent of respondents were worried about Russia’s isolation (39 percent were not worried), and 75 percent argued that Russia should “normalize” its relationship with the West (16 percent said it should not).

It is even more interesting that 62 percent of Russians said that they were not ready for the “substantial deterioration of their lifestyle” precipitated by the exchange of sanctions between Russia and the West (only 30 percent of respondents reported a readiness to sacrifice). Finally, the number of Russians who supported the normalization of relations with the West increased from 66 percent in September 2015 to 75 percent in November 2015. (If in August 2015 one of every five Russian said that Russia had to make concessions to have sanctions lifted, by the end of 2015 one of every four thought so.)

What do these numbers mean? They mean that already by the end of 2014, Russians no longer unconditionally supported the Kremlin’s anti-Western crusade and were no longer willing to pay for it. These polls prove that Russians’ readiness to accept sacrifices might not last indefinitely and that support for Kremlin policy has started to wane. The Russian experience may soon test a thesis: The initial rallying around the leader in response to external pressure sooner or later turns into anger toward the authorities whose actions caused the continuing economic hardship.

As for “elite cohesion,” at the early stages of the restrictive measures the Russian elite’s ample rhetoric defending the Kremlin policy could have supported this idea. This support was substantiated by the Kremlin’s redistributive policy that gave loyal groups additional state resources to compensate for sanctions-induced losses.

But I doubt that the elite and even the members of Putin’s circle were happy with their limited access to their assets in the West. “I can’t use my jets,” complained one of them. “I can’t get the usual medical treatment in the West”, complained another. Thus, the elite “cohesion” has been fragile from the very beginning. A lack of critical voices does not mean support for a leader under authoritarian rule. By the end of 2015 the state had no extra resources, either to keep the elite happy or to satisfy the constituency.

The Russian authorities, by increasing their reliance on state actors and a narrow group of Putin loyalists (whose loyalty is bought and paid for) and by leaving the middle class in the cold, have contributed to deficiency of both the Russian economy and the Russian System.

The survival mechanism chosen by the Kremlin has only increased the divide within the elite and within society—between those who have been sheltered from the newly unfavorable economic and external environment and those who have felt the pain. But even the sheltered are feeling growing uncertainty and even frustration, losing their belief that Putin will continue to be a good guarantor of their well being.

As the economic situation in Russia deteriorated, signs began to emerge that the Russian elite was becoming increasingly dissatisfied with Putin’s crusade (though they have not said so publicly yet). And the society does not readily accept anti-Western rhetoric as an explanation of their falling living standards. Russians have begun to look for the domestic roots of their problems, while the Kremlin is searching for ways to escape the increasingly suffocating economic pressure.

The Kremlin had to acknowledge that the sanctions had bite. “Yes, sanctions indeed did a certain damage, we have never denied that. I mean economic damage. As the most painful I would single out the decline in real incomes of the population and, as a consequence, the fall in consumer demand,” admitted Sergei Ivanov, head of the Kremlin administration (July 2015).

The economic impact has not been the sanction’s key effect, however. There has been another, more important effect, at least from the Kremlin’s perspective: the unity on punitive measures that the West achieved and has preserved despite various pressures from within and without. One has to take into account the fact that the European Union’s unity (despite all the complains from various European actors that the EU is “shooting itself in the foot”) has been preserved in a situation in which Europe is economically intertwined with Russia and is vulnerable to Russian retaliation, especially during winter.

The Kremlin understands that this unity of purpose could become the basis for a more determined policy toward Russia, as well as a new round of punitive measures. All of the Kremlin’s previous efforts to cajole, massage, and bribe its potential allies within Europe, its flirtations with Hungarian, Slovakian, Austrian, Italian, and Czech leaders and business people, have been in vain.

(The alleged rapprochement between Russia and Greece in 2015 that set off such alarms in Berlin and Washington didn’t in the end convince Greece to block the sanctions.) This has been a real fiasco for the Kremlin’s foreign policy strategy—more painful even than Russia’s inability to refinance the loans.

Furthermore, adding to the Kremlin’s headache (and that of other illiberal regimes as well), the leading liberal democracies have begun to take normative issues seriously again—a sign, perhaps, that they are slowly emerging from their post-Cold War lethargy and disdain for the values approach to foreign policy. At least some forces in the West have discovered that they have powerful instruments at their disposal for influencing Russian policy: the interests of Russia’s rent-seeking elite and its dependence on personal integration with the West.

The question is whether the West will decide to use these instruments more broadly and systematically, by suggesting to the Russian rentier elite a bargain: You can pursue your interests in the West if you behave at home, respect human rights, and stop making mischief in neighboring countries. (This would also, of course, exact a steep toll on the many representatives of the Western “service” class, who help operate the Russian elite’s money-laundering machine.) In any case, the idea is there, and it will keep the Russian ruling class up at night.

The West has all the resources it needs to undermine the key supports for the Russian System in the West (a power it never had in Soviet times). And it can do all this without using hard power pressure or restarting the arms race. Will the West decide to move in this direction? The answer to that question isn’t clear yet. But the West’s experiments with “targeted” sanctions aimed at the officials responsible for violence in Ukraine (sanctions include visa bans and asset freezes on people and entities in Russia and Crimea) could yield an effective tool in dealing with illiberal elites.

Of course, the Western sanctions have not and will not change Putin’s model of rule (in fact, sanctions have rarely if ever changed the regime they were directed against). The Kremlin is unlikely to abandon his efforts to undermine the Ukrainian state for the simple reason that an independent, pro-European Ukraine would become a destabilizing factor for the Russian System; nor will Russia pull out of Crimea during Putin’s reign. Sanctions can’t force the Kremlin to abandon the Fortress Russia model of legitimizing itself or halt its efforts to keep Ukraine in the Russian orbit (at least during Putin’s rule).

But by the end of 2015 it became clear that the Western sanctions work—and do so more effectively than anyone could really have predicted. The Kremlin was forced to desperately look for ways to persuade the West to lift the sanctions, even as it tried to save face.

Western observers saw the Kremlin’s brinkmanship and defiance as confirmation of Russia’s readiness for confrontation. Meanwhile, it has become a means to persuade the West to end the punitive measures—on the Moscow terms. All this means that pragmatists were wrong in their assessment of the sanctions and their impact. True, we normativists also underestimated the impact of sanctions.

The evidence we have seen through 2015 and early 2016 allows us to conclude that the Russian leadership understands the gravity of the situation. This doesn’t mean that the Kremlin won’t re-escalate tensions (and not necessarily in Ukraine). The emotional state of Russia’s leaders, their understanding of the situation, or their inability to control the consequences of past steps may lead to rash action on their part.

One can’t be sure that the Kremlin will seek out less disastrous policies for implementing its imperatives—at least during Putin’s presidency. One thing is certain: Russia is feeling the pain of sanctions, and the Kremlin understands that the pain could be worse. Sanctions have not forced the Kremlin to change its mode of existence, but they have forced Putin to start looking for new, more flexible tactics and escape routes.

The story is not over. The West will have to return to the sanctions issue in the context of the Minsk agreements, which are hard to implement but easy to imitate. In March 2016, President Obama extended the sanctions on Russia for another year. (Apparently, this shocked the Kremlin, which expected that the U.S.-Russian agreement on Syria would mean softening of the sanctions regime.)

Existing measures will stay in place as “Russia’s actions continue to pose an unusual and extraordinary threat to the national security and foreign policy of the United States,” the U.S. President’s decree says. After Russia started to withdraw its “main troops” from Syria, Assistant Secretary of State for European and Eurasian Affaires Victoria Nuland confirmed that the United States will maintain economic pressure on the Kremlin until it fully withdraws weapons and troops close to the Ukrainian border.

“We continue to look at the Syria theater and the Ukraine theater as two separate places,” she said. “We will judge the Ukraine action based on what is done in Ukraine…. So from our perspective, what is done in Syria should not impact choices about Ukraine.”

Europeans followed suit in March 2016, reaffirming that the EU relationship with Moscow rests on implementation of the Minsk accord (only Greece, Hungary, and Italy pressed for softening of the bloc’s response to Russia but without success). Brussels also warned EU banks against Russia bond deal, which confirms that there has been little shift in sanctions policy.

The West will have problems defining success in implementation of the Minsk peace accord. It would be difficult to expect full compliance by all sides in the accord, which is intentionally vague and based on irreconcilable interests. What will the criteria for lifting the sanctions regime be? This could be an even bigger challenge for the West than levying them in the first place.