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RUSSIAN ANALY TICAL DIGEST No.

157, 17 December 2014 2

ANALYSIS

The Impact of Sanctions on Russia


By Peter Rutland, Middletown, CT

Abstract
This article provides aconcise overview of the sanctions that the Western countries imposed on Russia as
aresult of its aggression in Ukraine. The sanctions are having amore serious impact than President Vladi-
mir Putin anticipated, but have yet to induce Russia to engage in more cooperative behavior.

An Unexpected Invasion that impose travel bans and asset freezes on individual
Vladimir Putins decision to annex the Crimea in March members of the elite.2In 2012 the US Congress passed
2014 caught the international community by surprise. the Magnitsky Act, under which in April 2013 18 named
Recognition of national sovereignty and the inviolabil- Russian officials were sanctioned for participation in the
ity of borders are central to the international state sys- 2009 death of corporate lawyer Sergei Magnitsky.. Rus-
tem, and since 1991 the Russian Federation (like the sia retaliated against the Magnitsky Act with the Dima
Soviet Union before) had been an ardent defender of Yakovlev law banning U.S. adoptions, and alist of 18
these principles. Americans sanctioned for involvement in the Guanta-
Russia was incensed by the Western recognition of namo Bay detention center and the arrest of Russian
the independence of Kosovo in February 2008, and arms dealer Viktor Bout. The Magnitsky Act was aprec-
responded by granting recognition to South Ossetia and edent for the sanctions that were introduced on Russia
Abkhazia in August 2008. Still, Crimea was assumed to in the wake of the annexation of Crimea.3
be immune to irredentist claims from Russia, not least
because Russia had signed the 1994 Budapest Memo- The West Responds to Russian Aggression
randum guaranteeing the territorial integrity of Ukraine, Less than aweek after President Viktor Yanukovich fled
in return for the latter giving up its nuclear weapons. Ukraine on February 22, unidentified pro-Russian gun-
Putins action demanded a response. Since mili- men were seizing public buildings in Crimea. Separatist
tary action by the West was off the table, given Rus- rallies took place in many cities of eastern Ukraine; Rus-
sias nuclear arsenal, economic sanctions were the tool sian troops were deployed to the Ukrainian border; and
of choice. Sanctions have become an increasingly pop- on March 1 the State Duma passed aresolution autho-
ular instrument over the past two decades: they apply rizing the use of Russian troops in Ukraine.
pressure on intransigent governments without risking On March 16 Crimeans voted in ahastily organized
the destruction that military action entails. referendum to join the Russian Federation. The next day
Their record has been mixed. They are most effective the US and EU imposed asset freezes and travel bans
when they are multi-lateral, and they succeed about one on 21 individuals deemed to be directly involved in the
third of the timethough skeptics question whether the occupation of Crimea. Nevertheless on March 18 Putin
desired changes in government behavior can be attrib- signed into law a bill adding Crimea to Russia, and
uted to sanctions alone.1 Sanctions helped bring about delivered aremarkable speech in which he embraced the
the end of apartheid in South Africa, but have failed to rhetoric of Russian ethno-nationalism, including omi-
halt the nuclear ambitions of North Korea or Iran. They nous language condemning national traitors.4 Two
are ablunt instrument, harming the economies of the days later President Barack Obama added several more
countries applying the sanctions along with the target names to the sanctions list, including what one admin-
nation. Sometimes they trigger an aggressive response istration official described as Putins cronies, his money
by the offending country, deepening the crisis. Critics people, such as Gennady Timchenko, Yuri Kovalchuk,
argue that sanctions are ademonstrative act that allows and Arkady and Boris Rotenberg.5 The theory was, in
leaders to make a moral statement, without actually
influencing developments on the ground. 2 Uri Friedman, Smart sanctions: ashort history, Foreign Pol-
Typically the costs of sanctions are borne by the icy, April 23, 2012. The first individually targeted sanctions were
common people and not the leaders making the deci- against Haiti in 1993.
sions. Hence there arose the idea of smart sanctions 3 Emma Gilligan, Sanctioning Russia: Magnitsky, human rights
and the Ukrainian crisis (forthcoming).
4 Address by President of the Russian Federation, March 18,
1 Gary Clyde Hufbauer et al (eds.) Economic Sanctions Reconsid- 2014. <http://eng.kremlin.ru/transcripts/6889>
ered (3rd edition) (Washington DC: Peterson institute, 2009), 5 Mark Landler, Obama steps up Russia sanctions, New York
127. Times, March 20, 2014. Kovalchuks Bank Rossiya was also
RUSSIAN ANALY TICAL DIGEST No. 157, 17 December 2014 3

President Obamas words, that we can calibrate our (including organizations active in the separatist regions,
response based on whether Russia chooses to escalate and corporations illegally seized by Russian authorities),
or to de-escalate the situation.6 Russia responded by followed by an additional eight individuals and three
banning nine U.S. officials from visiting Russia, includ- entities on July 30.
ing Senator John McCain, who joked that I guess this Putin responded by doubling down: on August 6 he
means my spring break in Siberia is off. On March 24, announced counter-sanctions in the form of aone-year
meeting on the sidelines of anuclear security summit in ban on importsof fruits andvegetables, dairy products
The Hague, leaders of the G7 group of advanced econo- andmeat from countries that had imposed sanctions on
mies announced that it was suspending Russias mem- Russia.10 Russia is theEUs second biggest food market
bership (Russia had joined in 1998, making it the G8) after theU.S., and EU imports accounted for 2530
and cancelling the summit that was scheduled to meet percent of the food consumed in Russia. In 2013 Rus-
in Sochi in June 2014. sia imported $16 billion of food from the EU and $1.6
Fighting broke out in eastern Ukraine in April, cul- billion from the U.S.11
minating in aMay 11 referendum in which Donetsk Meanwhile, many Western companies with long-
and Lugansk allegedly voted for independence. Unlike term commitments in Russia assumed the sanctions
in Crimea, Russia did not act on the results of these ref- would soon blow over. Exxon continued its work with
erenda. Fighting intensified as the summer progressed, Rosneft in the exploration of the Arctic shelf, under
though Russia seemed to be signaling that it was inter- a2011 partnership agreement. In defiance of pressure
ested in acompromise solution. from the U.S. government, they started drilling with
On April 28 the U.S. added seven more individuals their West Alpha rig on August 9.12
and 17 related companies to the sanctions list.7 But with During August intensified attacks by Ukrainian
the EU economy stagnating, the powerful Ostauschuss forces were closing in on the rebel-held cities of Donetsk
group of German industrialists doing business with Rus- and Lugansk, but increased action by Russian mili-
sia urged Chancellor Angela Merkel not to bow to U.S. tary units (whose presence Moscow either denied or
pressure to introduce broader sanctions.8 On July 16 described as volunteers) forced the Ukrainian govern-
the U.S. moved beyond smart sanctions on individu- ment to sign acease-fire on September 5. The cease-fire
als to introduce sectoral sanctions on strategic corpo- brought an end to major military operations but spo-
rations.9 Two energy firms (Rosneft and Novatek) and radic fighting continued, with the death toll climbing
two banks (Gazprombank and Vneshekonombank) were to some 4,700 by the end of the year.
barred from all but short-term borrowing (more than On September 12, 2014, the U.S. and EU imposed
30 days) on U.S. markets, and eight Russian arms firms additional penalties. The U.S. Treasury barred the banks
were embargoed. Sberbank, Bank Moskvy, Gapzrombank, Rosselkhoz-
Then on July 17 separatists shot down Malaysian Air- bank and VTB, and defense industry conglomerate Ros-
lines Flight 17 en route from Amsterdam to Kuala Lum- tec, from raising funds of more than 30 days maturity;
pur, killing all 298 on board. This atrocity, and Russias for Transneft, Gazpromneft, Novatek and Rosneft the
seeming unwillingness to help bring those responsible limit was 90 days.13 Russian companies will have to
to justice, caused agroundswell of support for tougher refinance about $130 billion of debt by the end of 2015,
action, particularly in the Netherlands and Germany. and the sanctions will make this amore costly proposi-
On July 25, the EU expanded its sanctions to an addi- tion. The EU sanctions also targeted bank credits and
tional 15 top Russian government officials and 18 entities weapons manufacturers, and issued an updated list of
24 sanctioned individuals.14 The more radical option of
embargoed. The day before, March 17, Timchenko had sold
his 43% in oil trader Gunvor to his Swedish partner Torbjorn 10 <http://eng.kremlin.ru/news/22780>
Tornqvist. 11 <http://rt.com/business/178708-russia-europe-food-ban/>
6 Obamas statement on new sanctions against Russia, New York 12 Alan Katz, Exxon riles US, EU by using sanctions loophole,
Times, March 17, 2014. Bloomberg, September 12, 2014. <http://www.bloomberg.com/
7 US Treasury, Announcement of additional Russian sanctions, news/2014-09-12/exxon-said-to-rile-u-s-eu-in-using-sanctions-
April 28, 2014. <http://www.treasury.gov/press-center/press- loophole.html>
releases/Pages/jl2369.aspx> 13 U.S. Treasury, Sectoral sanctions identification list, Septem-
8 Matthew Karnitschnig, German businesses urge halt on sanc- ber 12, 2014. <http://www.treasury.gov/ofac/downloads/ssi/ssi.
tions against Russia, Wall Street Journal, May 1, 2014. pdf> Exxon was later given adeadline of October 10 for finish-
9 US Treasury, Announcement of Treasury sanctions on entities ing sealing the well at the West Alpha rig in the Kara Sea.
within the financial Services and energy sectors of Russia, July 14 Official Journal of the European Union, L 271, September
18, 2014. <http://www.treasury.gov/press-center/press-releases/ 12, 2014. <http://eur-lex.europa.eu/legal-content/EN/ALL/?u
Pages/jl2572.aspx> ri=OJ:L:2014:271:TOC>
RUSSIAN ANALY TICAL DIGEST No. 157, 17 December 2014 4

cutting Russia off from the SWIFT inter-bank clear- than the official sanctions. Russian share prices plum-
ing system (something that was done to Iran in 2012), meted, the ruble fell, interest rates rose and capital flight
was not adopted. accelerated, reaching $130 billion by December (more
Other countries joined the sanctions regime at var- than double the typical annual outflow).
ious points over the spring and summerincluding Germany is Russias largest trading partner after
Australia, Canada, Japan, Norway, Switzerland and China. German exports to Russia in August 2014 were
Ukraine. However, Turkey, Greece and Cyprus refused 26 percent down on August 2013 (a yearly decline of over
to embargo Russiaand as aresult they experienced $6 billion).17 Although Russia only accounts for 3.3 per-
asurge in exports and Russian tourists. cent of total German exports, the impact was felt in the
The E.U. sanctions will stay in place for acalendar engineering and auto industries, where Russia is the 4th
year, until July 2015. It is an open question whether they and 9th largest customer. Russia only accounts for about
will be renewed at that stage. On December 13, 2014 1 percent of U.S. exports, so the impact was confined to
the U.S. Congress passed abill authorizing $350 million asmall number of companies active in Russia includ-
of military aid for Ukraine and adding more Russian ing Boeing, GE (which sold $1.7 billion of turbines and
companies to the sanctions list. It also opened the door other equipment in Russia in 2012),18 and Morgan Stan-
to third-party sanctions on foreign companies doing ley, which had to cancel the planned sale of its oil trad-
business with Russian companies under the embargo. ing division to Rosneft.
The sanctions tit-for-tat was astrange kind of lim- The impact of sanctions on Russias banking sec-
ited economic warfare. Each side imposed real costs on tor was buffered in the short term by the states large
each otherand on themselves. But they both stayed cash reserves. Even after spending $50 billion to slow
away from the elephant in the roomthe flow of oil the pace of ruble depreciation, which slid 25 percent
and gas from Russia to Europe. With Russia providing between January and October, Russia still had $445
39 percent of Europes natural gas in 2013, and with billion in reserves.19 However, the second half of the
oil and gas covering 50 percent of the Russian bud- year saw the global oil price plummet from $115 abar-
get, it would have been severely disruptive to interrupt rel in June to $60 in December, due to weak demand
that trade. In June Russia did suspend gas deliveries from China and the refusal of Saudi Arabia to cut sup-
to Ukraine pending resolution of $3 billion in unpaid ply to keep up the price. The Saudis may have had polit-
bills. This was not an urgent problem since it was sum- ical goals in mindwanting to increase the pressure on
mer and demand was low, and Ukraine had ample gas the Iranian and Russian governments and force them
reserves in storage. (Also Poland, Hungary and Slova- to negotiate over Ukraine and nuclear weapons respec-
kia were willing to pump gas to Ukraine.) But winter tively. But their motives were primarily economicto
was coming. After protracted negotiations over the next retain market share, and to deter further expansion of
three months, adeal was struck in Brussels on October tight oil and tar sands in North America (which become
29, under which the EU and IMF will lend Ukraine the uneconomic when the oil price falls below $75 abarrel).
money to cover its $3 billion debt to Gazprom and pre- The falling oil price combined with the Western sanc-
pay $1.5 billion for supplies during the coming winter.15 tions to put further downward pressure on the ruble.
The depreciation accelerated in December, especially
The Economic Impact of the Sanctions after aDecember 12 report that the Central Bank had
On November 24, Finance Minister Anatolii Siluanov accepted $11 billion in loans to Rosneft as collateral.
estimated that the sanctions would cost the Russian By December 16 the ruble had lost afurther 20 percent
economy $40 billion over the course of ayearand the of its value, despite the Central Bank hiking the base
falling oil price another $100 billion.16 Perhaps more interest rate to 17 percent.20 In the course of the year
damaging than the sanctions themselves was the general the ruble had lost 58 percent of its value, falling from
atmosphere of uncertainty created by Putins seemingly 33 to 70 rubles to the dollar.
reckless actions in Ukraine, and his reaction to West-
ern sanctions. The market response to the annexation 17 Jeevan Vasagar, German exports to Russia tumble, Financial
of Crimea was swift, and more immediately damaging Times, October 30, 2014.
18 Ted Mann, GEs Russia plans stall amid Ukraine turmoil, Wall
15 Charles Oliver, Russia and Ukraine reach gas deal, Finan- Street Journal, March 28, 2014.
cial Times, October 30, 2014. Ukraine agreed to aprice of $378 19 Olga Kuzminova, Valyutnye rezervy TsB (The Central Banks
through December 2014 and $365 from January to March 2015. currency reserves), Vedomosti, October 24, 2014. The ruble fell
16 Aleksei Kisilev, Otsenit ushcherb or sanktsii i snizhenie tsen from 33/$ to 41/$.
na neft dostachno slozhno (It is hard to estimate the impact of 20 Anders Aslund, The only cure for what plagues Russia, Finan-
sanctions and the oil price fall, Kommersant, November 24, 2014. cial Times, December 17, 2014.
RUSSIAN ANALY TICAL DIGEST No. 157, 17 December 2014 5

Meanwhile, due to the sectoral sanctions Western The sanctions pushed the Putin administration deci-
oil and gas companies started winding down their new sively down the path of an autarchic development strat-
exploration projects in Russia, which remain crucially egy. Conservatives argued that the depreciation of the
dependent on certain foreign technologies for deep off- ruble would help to cut imports and made Russian goods
shore and fracking operations. In abid to find new part- more competitive.25 The currency crisis of December was
ners not subject to the sanctions regime, Rosneft bought blamed on mismanagement by Central Bank head Elvira
the Swiss-based oil services company Weatherford for Nabiullinaone of the few remaining liberals in the
$400 million in June, and the next month signed a$4.2 Putin administration.26 As Aleksei Kudrin noted There
billion contract for six rigs with Norways North Atlan- are forces in the country who have long wantedisolation,
tic Drilling. In September Putin announced plans to cre- maybe acertain self-sufficiency. Today this has all fallen
ate anational oil services company. Nevertheless, the on fertile ground.27 Conservative economists such as
consultancy IHS CERA estimates that the sanctions, Sergei Glaziev have long been pushing for state-led rein-
if maintained, could cause a 25 percent drop in Rus- dustrialization, with protection against foreign imports
sian oil output by 2025.21 Similarly, Lukoils Vagit Alek- and spending oil revenues on infrastructure and new
perov estimated that 20 percent of output was at risk.22 technology.28 Their hour has now come.
The airline sector has also been affected. Aeroflots For example, Russia is making some serious steps
low-cost subsidiary Dobrolyot was hit byEU sanctions to try to build institutions independent of global finan-
because it flies to Crimea; it suspended operations after cial markets. In March when Visa and MasterCard sus-
losing leases for its Boeing and Airbus aircraft. The fear pended processing payments at Russias SMP and Ros-
that Russia could close its airspace to European and U.S. siya banks, it was decided to move ahead with creating
carriers flying to Asia dented airline stock prices. aNational Card Payment System under Russian control.
The most immediate impact on the Russian public Russia is looking to increase the proportion of tis trade
was, ironically, Putins ban on food imports from the EU. with China denominated in rubles and yuan: currently
Favorite brands disappeared from the shelves, and Rus- about 8 percent of Russian imports are settled in yuan.29
sian customers found themselves buying fruit and veg- However, it is not clear whether the Russian state
etables from Macedonia and Iran. Food prices were up has the institutional capacity, or the deep pockets, to
13 percent by the end of the year.23 Smuggling of Euro- steer the nations economic development while disengag-
pean food through Belarus led the Russian government ing from ties with Europe and the U.S. The sanctions
to ban meat imports from Belarus in December, impos- came at atime when the Russian economy was already
ing strains on the Eurasian Economic Union (since nei- facing severe structural weaknesses.30 Even before the
ther Belarus nor Kazakhstan are subject to the sanctions). Ukraine crisis, economists were predicting very modest
Putin responded by circling the wagons: the state growth this yearless than 2 percent. Russia urgently
would bail out companies hard-hit by the sanctions. The needs to increase investment to overcome decades of
arrest of billionaire Vladimir Yevtushenkov in Septem- under-spending on infrastructure and new technology.
ber and the reversal of his purchase of the Bashneft oil For example, they need a50 percent, $6 billion increase
company (long coveted by Igor Sechins Rosneft) was in exploratory drilling to maintain current oil output
another reminder of the vulnerability of Russian busi- levels.31
nesses to the whims of the Kremlin. The most politi-
cally risky step was the State Dumas passage in Octo-
25 Mikhail Leontev, Istoriya s sanktsiiam dolgo zhit ne budet
ber of abill promising compensation to Russian citizens
(The sanctions story will not last long), Kommersant.FM, July
whose assets were frozen by foreign governments, possi- 25, 2014. <http://www.kommersant.ru/doc/2531867>
bly through seizing foreign assets in Russia. It was jok- 26 Mikhail Delyagin, Gruppovoe iznasilovanie rublya [Gang rape
ingly called the Rotenberg law after long-time Putin of the ruble], Moskovskii komsomolets, December 6, 2014.
associate Arkady Rotenberg, who had $40 million of 27 Aleskei Kudrin, Itar-tass, July 22, 2014. <http://itar-tass.com/
opinions/interviews/2223>
assets in Italy frozen.24
28 Sergei Glazev, Nuzhno opiratsya na sobstvennye sily (We
must rely on our own strength) Profil, May 12, 2014. <http://
21 Jack Farchy, Russian oil: between a rock and a hard place, www.glazev.ru/econom_polit/359/>
Financial Times, October 29, 2014. 29 <http://www.bloomberg.com/news/2014-09-23/moscow-s-mr-
22 Alexander Panin, Western sanctions could damage one fifth of yuan-builds-china-link-as-putin-tilts-east.html>
Russias oil production, Moscow Times, September 21, 2014. 30 Vladimir Mau, V ozhidanii novoi modeli rosta, (Waiting for
23 Karina Romanova, Tseny rastut (Prices are rising) gazeta.ru, anew growth model) Voprosy ekonomiki, 2, February 2014, 342.
December 13, 2014. 31 Petr Tretyakov, Rossiiskim neftyanikam nado v 1.5 raza uve
24 Andrew Kramer, Russia seeks sanctions tit for tat, New York lichit burenie (Russian oil must increase drilling by 50%), Vedo-
Times, October 8, 2014. mosti, October 23, 2014.
RUSSIAN ANALY TICAL DIGEST No. 157, 17 December 2014 6

The slump in the global oil price puts severe pressure Lugansk, although other factors weighed in his deci-
on the Russian federal budget. The latter had planned to sionnotably, fear of getting bogged down in apro-
break-even in 2014 and 2015 with oil at $97 and $100 tracted guerrilla war, which would have been deeply
a barrel respectively; but as of December it was trad- unpopular with the Russian public.
ing at $60.32 Every $1 fall inthe oil price cuts federal Some Russians believe that the real purpose of the
tax revenue by about $1.4 billion. Maksim Oreshkin, sanctions is to bring about regime change in Russia
adepartment head at the finance ministry, estimated arguing that the U.S. has given up on trying to find
that the fall in the price of oil will cost Russia 2 percent amodus vivendi with Putin, and is bent on orchestrat-
of GDP over the next year, and the sanctions another 2 ing a color revolution in Moscow. While that is far-
percent.33 On December 15, the Central Bank forecast fetched, it is true that many U.S. policy makers are
aGDP decline of 4.5 percent in 2015 if oil prices remain looking forward to dealing with aRussia without Putin.
at $60 per barrel. Prime Minister Medvedev admitted While some analysts believe that the contradictions of
that the economy was in crisis.34 the Putin regime will bring about its downfall in two to
On August 5 the government announced that $8 five years,37 realistically, Putin seems politically impreg-
billion would be taken from the pension fund to cover nable for the foreseeable future.38
budget spending (for the second year running). Dep- The Western sanctions inadvertently played into the
uty economic development minister Sergei Belyakov was anti-Western, conservative nationalist narrative which
fired after criticizing thedecision onFacebook. the Russian president embraced in the wake of the anti-
Putin protests in the winter of 201112.39 Putin can
The Political Impact of the Sanctions point to the sanctions as evidence of the Western desire
As Clifford Gaddy and Barry Ickes note,35 even though to punish and weaken Russia. He told the Valdai Club
the sanctions may inflict pain on the Russian economy, in October, referring to Our American friends, that
they are unlikely to bring about a change in Putins They are trying to hurt us through these sanctions, block
political course. Putins grip on power is not so frag- our development and push us into political, economic
ile for us to expect the Russian president to buckle any and cultural isolation, force us into backwardness in
time soon. His strategy in response to the 201112 pro- other words. But let me stress that Russia is not going
test movement of shifting from tightening the screws to get all worked up, get offended or come begging at
on the opposition to tightening the belts of the Rus- anyones door.40
sian people seems to have struck apopular chord. After The sanctions were also taken as proof of the wis-
the Western reprisals, Putins approval rating soared to dom of Putins policy of nationalizing the elite by bar-
new heights, reaching 88 percent in Octoberup from ring senior officials from holding foreign bank accounts.
69 percent in February 2014, before the crisis began.36 Russian politicians took pride in being included on the
It is hard to image any circumstances under which sanctions list. For example, Putins Chief of Staff Sergei
Putin would revoke the annexation of Crimea. In that Ivanov told the head of Gazprombank Andrei Akimov
sense, the initial Western sanctions were primarily aimed that until your name is on the sanctions list you can-
at deterring future aggression. Unfortunately they also not consider yourself part of our countrys elite.41 The
failed in that regard, since Russia moved ahead with sanctions make it less likely that any powerful figure
covert and then increasingly overt support for separat- would challenge Putin, since they remove the option of
ists in Donbas and Lugansk. It is possible that the sanc- emigrating to Europe, and makes them more dependent
tions did help deter Putin from annexing Donestk and
37 Peter Rutland, How much longer can Putins system last?, Mos-
32 Carol Matlack, Will cheap oil choke the Russian economy?, cow Times, October 27, 2014.
Bloomberg, October 13, 2014. <http://www.businessweek.com/ 38 Mikhail Rostovskii, Teflonovyi Putin (Teflon Putin), Mos-
articles/2014-10-13/oil-prices-are-hurting-russias-economy> kovskii komsomolets, December 16, 2014.
33 Georgii Peremitin, V Minfine otsenili ushcherb Rossii ot 39 Ilya Yablokov, Pussy Riot as agent provocateur: conspiracy the-
sanktsii (The Finance Ministry estimates the cost of sanctions ories and the media construction of nation in Putins Russia,
for Russia), RBK, September 24, 2014. <http://top.rbc.ru/poli Nationalities Papers, 42: 4, September 2014, 622636; Vasilii
tics /25/09/2014/951207.shtml> Kashin, Kak zapad spas Putin (How the West saved Putin),
34 Anastasya Bashkatova, Dmitrii Medvedev ne stesnaetsya Vedomosti, 24 November 2014
ispolzovat slovo krizis (Dmitrii Medvedev is not afraid to 40 Vladimir Putin, speech at meeting of Valdai International
use the word crisis), Nezavisimaya gazeta, December 11, 2014. Discussion Club, October 24, 2014. <http://eng.kremlin.ru/
35 Cliff Gaddy and Barry Ickes, Can sanctions stop Putin? Brook- transcripts/23137>
ings Institution, June 2, 2014. 41 Evgeniya Milova, S pozdravetelnoi notoi (With awelcoming
36 <http://w w w.levada.ru/29-10-2014/oktyabrskie-reitingi note) Kommersant, September 15, 2014. <http://kommersant.ru/
-odobreniya-i-doveriya> doc/2567304>
RUSSIAN ANALY TICAL DIGEST No. 157, 17 December 2014 7

on state support for their businesses to survive. Alek- An Interim Conclusion


sandr Morozov writes that personalized sanctions cre- If Putin was assuming that the sanctions were apass-
ate ahard form of loyalty: people have no alternative but ing fad, and that the Western powers did not have the
to support any future actions of the leader.42 stomach to stand up to his aggression, he was mistaken.
Perhaps the main beneficiary of the sanctions regime But if the Western leaders assumed that Putin would
is China. The downturn in relations with the West may respond to carefully calibrated incentives for coopera-
mean Russias turn to the east is no longer an opportu- tion, they were also mistaken.
nity but anecessity.43 Although China abstained in the The economic crisis which hit Russia in December
UN vote condemning the Crimean annexation, rather 2014 massively increased the pressure on Putin to strike
than support Russia, the Chinese leaders are happy to adeal over eastern Ukraine. However, the U.S. and EU
step up trade with Russia. After more than adecade of are likely to insist on afull restoration of the sovereignty
negotiations, on May 21 China signed a$400 billion, of the Ukrainian government over Donestk and Lugansk
30-year deal to buy natural gas from Russia. The price as a minimum condition for the lifting of sanctions,
is not yet known, but was widely assumed to be unfa- and it is not clear that Putin is willing to accept such
vorable to Russia. Russias eastern pivot has added ahumiliating step-down. The U.S. may even hold out
fuel to Russian strategists who warn against increas- for renunciation of the annexation of Crimeasome-
ing dependency on China.44 The Russian public seems thing which Putin would not contemplate.
accepting of the turn to Asia: in September 2014, 44 If that is the case, then the current sanctions may be
percent rated relations with China as good or friendly, in place for some time, and the Russian economy faces
and 35 percent as normal.45 In the same survey, how- avery difficult year.
ever, 66 percent said they thought it was time for Rus-
sia to repair its relations with the West.

About the Author


Peter Rutland is Professor of Government at Wesleyan University.

Poll: Has Your Family Had Any Problems Due To the Western Sanctions Against Russia?

Nov. 2014 50 31 14 24 Practically none


Not very serious problems
Fairly serious problems

Sept. 2014 35 44 14 2 5 Very serious problems


DK/NA

0% 20% 40% 60% 80% 100%

Source: representative opinion poll by Levada Center, 1417 November 2014, N = 1,600, <http://www.levada.ru/28-11-2014/vliya
nie-sanktsii-na-potreblenie>

42 Aleksandr Morozov, Novoe obshchestvo Putina kak evropeiskii proekt (Putins new society as aEuropean project), russ.ru, November 2,
2014. <http://russ.ru/Mirovaya-povestka/Novoe-obschestvo-Putina-kak-evropejskij-proekt>
43 Mikhail Losev. Nefritovym kursom (Jade exchange), RBC Daily, September 21, 2014. <http://www.rbcdaily.ru/magazine/
trends/562949992295539>
44 Andrei Lipskii interview with Vyacheslav Inozemtsev, Rossiya ischet, pod kogo zalezhat (Russia is looking for someone to crawl behind),
Novaya gazeta, October 18, 2014.
45 Levada Center, Russia and the world, October 10, 2014. <http://www.levada.ru/eng/russia-and-world>