Share

Beware sanctions fall-out

WESTERN sanctions imposed on Russia, and Russian counter-sanctions, have elicited strong opinions internationally.

Some say the sanctions are pinpricks which will not change the Russian Bear’s aggressive stance and will also hurt the West; others see it as the only real alternative to preparing for a Third World War.

It is, of course, early days yet. Much of what is presently said may turn out to be totally exaggerated – or actually understated. Things will have to develop much further before one can really draw up a balance sheet.

With that important proviso one can, however, try one’s hand in answering some questions with the figures and insights given by those regarded as experts in the field.

First question: exactly what do the sanctions entail?

The USA and the European Union (EU) have frozen assets owned by certain rich, high-ranking Russians in President Vladimir Putin’s entourage in these countries. This, most experts agree, is largely a political and symbolic act, which will inconvenience the individuals concerned but could hardly change the Putin government’s aggressive international stance.

However, the West has also targeted entire economic sectors in Russia, making it difficult for the Russian state and Russian banks to borrow capital internationally.

Of course, Russia may still borrow in countries like China or India, which do not form part of the sanctions initiative. But with competition being curtailed, these moneylenders will probably be free to impose higher interests on the amounts lent, with the result that Russia will, no doubt, pay a price.

Some farmers face ruin

In reaction, Russia has banned all food imports from EU countries. This means that the European agricultural, fishing and food processing sectors are already being hit hard.

For instance, the price of Dutch tomatoes has slumped from €0.40 to €0.10 per kilo after lorries with Dutch farm products were turned back from the Russian border. Farmers are facing hard times; some could be ruined.

The European Commission (the EU “cabinet”) this week announced that producers hit by the Russian counter-boycott would be compensated to the tune of €20-€30bn, but this will not be enough to prevent some going under.

Nevertheless, it is equally clear that Russia is being adversely affected as well. Experts have predicted numerous comsumer food shortages, but most Russians have hitherto shrugged it off – they have been much worse off in recent times, many say.

However, it seems probable that the already struggling Russian economy will be affected. The country’s Federal Statistics Service had predicted a year-on-year economic growth of 1.1% in the second quarter of this year, but the reality turned out to be no more than 0.7%, and the expectation for the entire year is now 0.5% - before the sanctions took effect.

According to the London Financial Times, state-owned banks like Gazprombank, Rosselkhozbank, Sberbank, Vneshekonombank and VTB have loans of about €25bn in foreign currency which will have to be rolled over in the next year.

This may have a similar effect on the Russian economy as Chase Manhattan's refusal to roll over South African loans in 1987 had on our country.

At the same time, economists fear the tender economic recovery in the West may be nipped in the bud.

In the end, of course, the most important question is whether the sanctions will have the desired political effect. Their purpose, after all, is to move Putin to stop supporting the Russian separatists in the eastern Ukraine and to respect this country’s sovereignty and territorial integrity.

As said above, it is early days yet, and the proof of the pudding lies in the eating. None of us have access to a spy working in Putin’s office, nor are we able to listen in to his and his advisers’ confidential policy
deliberations.

View through ideological Russian lenses

However, judging by their actions since the beginning of the year, it seems as if Putin himself sees his country’s place in the world through ideological and nationalist Russian lenses, not so much as pragmatic problem-solving ones.

Putin gives the impression of being brilliant on a tactical level, able to exploit a sudden gap at a moment’s notice. His invasions of Georgia in 2008 and the Crimea earlier this year testify to this.

At the same time, his strategic view – to restore Russia’s greatness by reuniting the greater part of the old Soviet Union – appears to be ideologically motivated. If this is the case, it seems unlikely that the present sanctions will force him to change course drastically.

They may cause him to see that the gap he was trying to create to invade the eastern Ukraine does not exist and that he, at the very least, will have to postpone his plans.

In the meantime, it is apparent that Russia and the West are dancing around the energy sector – oil and gas – where they have the most to lose. Once the energy sector is sucked into the economic war, both Europe and Russia will be severely hit.

And then the present economic recovery will surely grind to a halt. And that will also affect South Africa.

 - Fin24

* Leopold Scholtz is an independent political analyst who lives in Europe. Views expressed are his own.


We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.94
-0.9%
Rand - Pound
24.10
-0.9%
Rand - Euro
20.59
-0.7%
Rand - Aus dollar
12.42
-0.9%
Rand - Yen
0.13
-0.8%
Platinum
915.75
-0.8%
Palladium
1,028.36
-3.5%
Gold
2,159.96
+0.2%
Silver
25.03
-0.6%
Brent Crude
85.34
-0.1%
Top 40
66,252
0.0%
All Share
72,431
0.0%
Resource 10
53,317
0.0%
Industrial 25
100,473
0.0%
Financial 15
16,622
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders