It
is now abundantly clear that Russia has defeated the Western sanctions
regime that was intended to cripple its economy and force its withdrawal
from Ukraine. Instead of collapsing, the Russian economy is growing
rapidly. Russia's GDP grew by an
impressive 5.5 percent
in the third quarter of 2023. Final figures for the year are not yet
in, but Russian GDP growth for all of 2023 should exceed 3 percent.
Ironically, the Russians are doing rather better than those who imposed
sanctions on them. In 2023, the U.S. economy grew by 2.4 percent while
the German economy shrank, and the
EU
as a whole grew by less than 1 percent. Instead of withdrawing from
Ukraine, Russia has increased the size of its invasion force from
190,000 troops in February 2022 to
more than 600,000 today.
Between
February 2022 and February 2023, Western countries imposed on Russia
the most extensive sanctions regime seen since World War II. In all,
several thousand sanctions on Russian individuals, businesses, and
government institutions caused only a mild recession in 2022 which the
Russians quickly turned around. How did they do it? Very simply. The
Russians have a lot of gold, grain, oil, and friends, all of which they
used effectively to defeat the sanctions. Any realistic war game could
have easily predicted all of this.
In March of 2022, G7 member states froze $300 billion in Russian Central Bank reserves,
about half of Russia's foreign currency reserves at the time. This was
supposed to "turn the ruble into rubble." It did not. Instead, the
Russian Central bank moved very quickly to peg the ruble to gold and
backed this up with its massive gold reserves and production capacity.
The peg was in force for barely three months, but this bought Moscow
time to re-orient its energy trade away from Europe and adjust its
overall economy to the sanctions.
Almost immediately, Russia began to shift its
energy trade toward China and India by offering discounts. Today, 90
percent of its crude oil exports go to these two nations. Europe, which
used to receive 40 percent of Russian crude oil exports, now receives
only 4 percent to 5 percent. To evade Western shipping and insurance
sanctions, the Russians have assembled an enormous "shadow fleet" of oil
tankers, buying and leasing hundreds of vessels that did not comply
with sanctions. According to the International Energy Agency, Russia
currently exports 7.5 million barrels of oil per day, only slightly less than Saudi Arabia.
Then
the Russians got creative in their sanctions-busting by recruiting
friends like Iran, Turkey, China, North Korea, and Kyrgyzstan to help
transship high tech goods like microchips, as well as drones and
automobiles. For example, imports of Western cars and parts to
Kyrgyzstan rose by an amazing 5,500 percent in the first nine months of 2023.
Russia
remains the world's largest producer of natural diamonds and a
significant diamond exporter. Waves of sanctions have had only a limited
effect on its diamond production and revenues. Finally, since the
collapse of the Soviet Union's collective farm system, Russia has become
the world's largest wheat exporter. Despite Western sanctions, Russia's
share of global wheat exports actually increased over the past two
years. Thanks to global warming, Russia has just had another bumper
grain harvest and hopes for even more grain as Siberia warms. Putin does
not care about polar bears. He has plenty.
NATO's wonder-weapons like HIMARS and Leopard tanks failed
to fuel an effective Ukrainian counter-offensive. Diplomacy failed to
isolate Russia, which is busy reviewing numerous applications to join it
in the BRICS organization. Economic warfare has been a bust. This has
led some to now consider the mother of all sanctions.
At
present, Russian Central Bank assets have been frozen, which means they
cannot be used, but still belong to Russia. Some foreign policy
advisors are now proposing that these assets should be confiscated and
handed over to Ukraine. Regardless of its legality, that is a very dumb
idea. Taking the assets of Russia's central bank would encourage just
about everyone to find an alternative to the dollar as their reserve
currency. That won't be easy, but if the alternative is losing all your
money if you annoy Washington, people will find a way. Nothing would do
more to unite the Russian people in their hatred of the West, support
for President Vladimir Putin
and determination to continue the war than stealing what they consider
to be their money; which, in fact, it is. And how do you think Putin
would react? Well, for one, he will confiscate all Western assets in
Russia. Is the U.S. Treasury prepared to compensate the mostly German
owners of those assets for their losses?
Sanctions are cheap and
easy to impose, but they seldom work. While they make it look like you
are doing something meaningful, they are, in fact, often little more
than economic virtue signaling. Economic sanctions have certainly not
changed the outcome in Ukraine. Kyiv is out of men, out of money, out of
artillery shells and out of time. The West should stop giving money to a
man with a hole in his pocket.
David H. Rundell is a former chief of mission at the American Embassy in Saudi Arabia and the author of Vision or Mirage, Saudi Arabia at the Crossroads.
Ambassador Michael Gfoeller is a former political advisor to the U.S.
Central Command who spent 15 years working in the former
Soviet Union.