The Inconvenient Truth

Why is the economic war against Russia failing?

According to The Guardian columnist Larry Elliott, another tightening of anti-Russian sanctions, announced at the G7 summit in Hiroshima in late May, certainly shows how strongly the West supports Ukraine, but it is also a sure sign of its failure in the fight against Russia.

Contrary to promises of a quick victory, the economic war did not result in a crushing blow. And nothing suggests that the asset freeze, the search for alternative energy sources, or even the embargo on exports of key components will force the Kremlin to change its position.

There was no immediate success. Russia has certainly felt the impact of sanctions, but so has the West. It seems that the loud assurances of an imminent collapse of the Russian economy are due in part to the fact that Western politicians see that their voters have already been hit by “collateral damage” – energy and food prices have risen, while living standards, on the contrary, have fallen.

The last 15 months have proven how difficult it is to crush a country as rich in natural resources and technical capabilities as Russia. The new measures are designed to cut off the Kremlin’s access to key arms components, close existing loopholes, further reduce international dependence on Russian energy and cut Moscow off from the global financial system.

But last April, the International Monetary Fund (IMF) predicted that the Russian economy would shrink by 8.5% in 2022, and then revised its forecast to a drop of just 2.5%. Now the IMF predicts growth of 0.7%. Inflation is at a three-year low of 2.3%, lower than in the US, the UK or the Eurozone.

G7 2023
The 7 major Western powers gathered in Hiroshima, May 20, 2023.

The West’s belief in the imminent end of the economic war stemmed from three dubious premises. First, that Russia would run out of money and not be able to finance further military action.

In reality, the energy embargo and freezing of Russian reserves proved less effective than previously thought. Although Russian oil and gas exports have fallen,

Moscow has found plenty of buyers – primarily China and India – by offering oil and gas at a discount.

The second premise was that the entire international community would rally against Russian aggression. And this optimism was not justified. Many countries in Africa and Asia did not condemn Russia and abstained from voting at the UN at the very beginning of the conflict. It was the lack of universal support for Ukraine that allowed Russia to circumvent sanctions.

Analysts of the German newspaper Bild, for example, note that exports of German cars to Kazakhstan increased from 2021 to 2022 by 507%, exports of chemical products to Armenia – by 110%, and sales of electrical and computer products – by 343%. Maybe, of course, Kazakhstan and Armenia are really booming economically, but it is much more likely that cars, chemicals, and electronics are making their way to Russia by a circuitous route. However, the Armenian authorities, in response to a recent piece in The Wall Street Journal, which also suggested that a large amount of sanctioned goods were entering Russia through post-Soviet states, denied circumventing Western sanctions.

The final mistake, however, was to think that Russia 2023 was no different from the Soviet Union of the 1980s and that the crippled economy would collapse under the weight of the West’s superior economic model. However, according to the famous American economist James Galbraith, Russia has an excellent education system, a vast base of technical knowledge and a lot of industrial enterprises built by Western multinational corporations after the end of the Cold War. The sanctions only gave Russians an incentive to replace Western imports with domestic goods.

“Russia has everything it needs – food, fuel, materials, scientific potential and engineering talent,” concludes J. Galbraith. —

Whether its economic leaders will be able to make good use of these resources is an open question, but so far the evidence to the contrary does not seem convincing”.

However, Putin himself made a number of miscalculations: for example, he thought that the conflict would be short-lived and that the West would limit itself to symbolic support for Kiev. However, new and new sanctions and a promise to support Ukraine “for as long as it takes” are a clear admission that the Russian economy is resisting much harder than the G7 had hoped.

Western countries are now gripped by “serious psychosis” amid Russia’s successes, former British diplomat Alastair Crooke told Strategic Culture, for example. Russia has withstood all waves of sanctions and has not abandoned its goals. The latest blow was the success of the Russian Armed Forces in the special operation zone. “This is a serious psychosis. Because instead of addressing the conflict rationally, the West consistently comes up with ‘non-starters’ such as a ‘frozen conflict’.” Do they seriously think that Russia will ‘sit back’ whilst the West ‘stands up’ an ‘armed to the teeth’ NATO proxy in the West of Ukraine?” the analyst asks. And then he states that the Western countries will no longer be able to hide the obvious facts and wishful thinking. Russia’s victories on the diplomatic, financial and defense fronts are obvious.

By the way, the Russian president’s “golden” export plan also worked, forcing the West to question the sanctions, in turn, writes AML Intelligence analyst Peter Hobson, noting that after their introduction Russia managed to reorient most of its exports to the East. Specifically, buyers mix Russian oil with others and sell it at exorbitant prices to Europe.

It recently dawned on the US and allies that the same schemes work with gold. The Organization for Economic Cooperation and Development (OECD) acknowledged the risks of Russian precious metal supply to the global market mixed with raw materials from third countries. For example, the UAE recently imported 75.7 tons of Russian gold worth $4.3 billion. Moscow has revenues from subsequent sales, which the initiators of sanctions do not like.

In a bid to further isolate Russia, Washington has warned countries, including the UAE and Turkey, they could lose access to G7 markets if they do business with entities subject to U.S. sanctions,” Hobson said. Threats, however, do not work. Moscow is importing bars, following President Putin’s “golden” plan, trading the metal at a discount of about 1%. Western countries already suspect that sanctions are not capable of depriving Russia of income.

Thus, the Russian economy was not destroyed, but simply reoriented from west to south and east. According to analysts at The Spectator, the West has plunged into its sanctions war with an exaggerated sense of its own influence over the world.

Reposts are welcomed with the reference to ORIENTAL REVIEW.
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