Are Western sanctions working against Russia. The analysis of The Bell

The war in Ukraine has been going on for four months, and, despite the unprecedented strict sanctions, the prerequisites for its soon completion are not traced. In Western countries, there are more and more doubts that the sanctions are working - because so far they do not prevent Moscow from earned a record revenue from the sale of energy resources. But sanctions threaten the West itself, primarily in Europe, unpleasant political and economic consequences. What can be said about the effectiveness of Western sanctions four months after their introduction?

Superpliques contrary to the embargo

The main argument of the critics of sanctions in the West is now the question of the effectiveness of restrictions on the export of Russian energy carriers acceptedwith incredible labor and threatening serious problems by Western countries themselves. So far, these painful measures are far from achieving the goal.

“The situation of Russia from the point of view of income at the current stage of the war is better than at its beginning,” Rona Johnson, a republican senator from Wisconsin, quotes FT. And it’s hard to argue with him. Russia's income from oil and gas exports only grow and, according to the results of 2022, according to Bloomberg, have reached a record in the history of $ 285 billion. According to Russian official data, oil and gas revenues of the federal budget for January - old years grew by 45% in annual terms to 5.658 trillion. The head of Gazprom, Alexei Miller, at the PMEF said that “not offense to Europe” - the import of Russian natural gas of the EU was reduced “by several tens of percent”, but prices rose “several times”.

To earn record oil and gas income in the current months of the Kremlin helps a unique combination of circumstances. One of the factors lying at its base will accurately disappear, but the rest are far from a fact.

The first factor is the chronology of the European oil embargo, the main sanctions measure designed to limit Russian currency income. The embargo , covering imports into Europe 90% of Russian oil, has already been approved, but enters into force only from the beginning of 2023. As a result, the market has already laid down the future reduction in prices in prices, but Europe still continues to buy Russian oil - and there is no question of the embargo for the purchase of Russian gas in practice.

As a result, oil production in Russia is now restored after falling in March-April-Deputy Prime Minister Alexander Novak at the PMEF said that according to the results of June, it will reach a pre-war level of 10.2 million barrels per day (b/s), and in July will continue to grow. In the first 100 days of the war (from February 24 to June 3), Russia received € 93 billion income from energy export - and the EU imported 61% of this volume worth about € 57 billion. Of these, € 59 billion had to be oil and oil products, € 24 billion for pipeline gas, € 5.1 billion for LNG and € 4.8 billion by coal.

By the beginning of 2023, the “stretched effect” of the European oil embargo should come to naught. Now the International Energy Agency predicts that by this moment Russian production will fall by 3 million b/s (immediately after the outbreak of the war, the IEA was waiting for such a result by April). But other factors that allow Russia to preserve oil overpromitations may be more stable.

U -turn to the east

In the early spring, at the peak of uncertainty, it seemed that the obvious and non -non -alternative path for Russia - the redirecting of energy exports to Asia - may not work. But now it is possible to state: the largest Asian consumers, China and India, subject to discounts of 25-30%, were ready to purchase significantly more Russian oil.

According to the industry Norwegian consulting Rystad Energy, sales of Russian raw oil to Europe fell by 554,000 b/s. But Asian buyers during the same time increased the volume of purchases by 503,000 b/s (from the average 1.14 million b/s in January -February to 1.517 million b/s in March -May), almost completely compensating for European losses. Indian refinery did not even go to annual planned repairs to process more cheap Russian oil. And after processing, distinguish a barrel with the Russian Urals from others, when they go to the international market again, it will become almost impossible, they notice in Rystad Energy.

Since the beginning of the war, based on the average from March to May 2022, Indian oil import Urals increased by 658% compared to the level of 2021. For China, growth was 205%, and for Asia as a whole - 347%, it follows from Rystad Energy. “Asia saved Russian oil production,” Viktor Katon quotes NYT, quoted Nyt.

Discounts for raw oil of Russian origin will remain high to provide Asian customers with a significant margin of processing and compensate for the costs of insurance and freight increased due to sanctions, says Vei Jong Ho Vice President of Rystad Energy. But even taking into account the discount, the price of Russian Urals has increased significantly. The average price of Urals oil, according to the Ministry of Finance, in January -May 2022, formed in the amount of $ 83.48 per barrel (for comparison: in January -May 2021 - $ 61.62 per barrel). The average price of Brent for January -May amounted to about $ 104 per barrel, according to the results of 2022, the IEA is waiting for the average price of $ 107.4.

Since April, the Russian authorities have classified statistics on foreign trade. But from the assessments of the director of Loko-Invest investment, Dmitry Polevoy, based on the data of Russian key partners, Russian exports in money for January-May grew by 40% in annual terms. Deliveries to Turkey, China, India and Brazil have grown most strongly, adds field.

Restrictions on export of energy resources to Europe will still lead to a decrease in the total physical volumes of production and exports even taking into account the reorientation of part of the sales to Asia, says the director of the group of sovereign and regional ratings, the chief economist ARKO Dmitry Kulikov. But the demand for Russian oil, and prices will depend primarily not on the sanctions, but on the state in which the world economy will be in: if a recession comes in the largest countries, then oil prices can fall significantly. This can undermine the successes of Russian exports.

The new measure, which is now being discussed by the US Countries at the initiative of the United States, is the establishment at the international level of maximum prices for Russian oil for the remaining buyers. This can help the initiators of sanctions get out of an enchanted circle, in which a decrease in the physical volume of Russian exports causes an increase in world prices, as a result of which Russian. Export income does not fall, and all other countries suffer from rising fuel prices. But it will not be easier to agree on the embargo for the export of Russian oil to Europe.

Damage to Europe

The beloved antisancation argument of the Russian authorities and personally Vladimir Putin is that the sanctions are hit by Western countries themselves. “Sanction weapons are caused by comparable, or even more damage to its ideologists and designers,” said Vladimir Putin and called the EU losses due to sanctions-$ 400 billion a year.

As for the comparability of the damage, Putin most likely exaggerated: even $ 400 billion mentioned by him is only 2.6% of the EU GDP, and the Russian economy in 2022, according to official estimates, will fall by 8-10% (not to mention $ 300 billion frozen reserves of the Central Bank). Nevertheless, sanctions are still caused by Western countries, and above all to Europe, significant damage.

The war in Ukraine exacerbated the already growing acceleration of inflation in the West after generous pandemic injections of money to the economy. An annual inflation in the eurozone in May accelerated to 8.1%(the situation in the Baltic states is worst: in Estonia prices rose by 20.1%, Lithuania - by 18.5%, Latvia by 16.8%). And the greatest contribution to the acceleration of the annual level of inflation in the eurozone in May made precisely the energy carriers, which are expensive due to confrontation with Russia (+3.9 pp).

Great Britain is experiencing maximum inflation indicators in 40 years - 9.1% in May. The government even wants to change the methodology for calculating the price index, which threatens the losses of the British pension income. In London, thousands of people went to a protest against price growth. In the same month, annual inflation in the United States reached 8.6% (this is a record since December 1981), it was dispersed by an increase in housing prices, gasoline and food.

In April, the deficit of foreign trade (excess of import expenses over export income) reached a record for the entire existence of the currency union € 32.4 billion, which also reflects the consequences of sanctions and war. The shortage of trade with China in January - April grew from € 66 billion in 2021 to € 122 billion in 2022, with Russia - from € 14.7 billion to € 62.6 billion, with € 0.5 billion to € 23.9 billion.

Technological threat

A much less controversial issue is the effectiveness of imported sanctions. The ban on the import of Western technologies, raw materials, materials and components and a voluntary outcome of Western companies from the Russian market led to the dramatic failure of imports into Russia. At the lower point, it fell by almost 50% in annual terms, stabilizing a little near 43–45% in May, follows from the assessments of Dmitry Polevoi. Import from Germany in March 2022 fell by 58.7% in annual terms, and from France and the USA - 60.4 and 78.8%, respectively.

In 2021, in 2021, about 45% of the turnover recognized in countries, in its last report on the sanctions of the Acre Rating Agency, recognized as the Russian government. 49.2% of the total import of imports in 2021 accounted for vehicles, equipment and vehicles (in May the sales of new cars in Russia collapsed by 83.5%). According to ACRA, according to the results of 2020, the decline in total imports can be from 20 to 30% in value terms. Russia urgently needs to look for new suppliers of components, services and licensed software, build logistics chains again, and also quickly understand how to make payments without a threat of secondary sanctions for partners, the ACRA report said.

So far, there are no signs of significant import restoration - the dynamics of the ruble exchange rate, striving for 50 per dollar, is best said best of all. In the absence of economic reasons for strengthening, the Russian currency is kept at a height, which, on the one hand, was able to slow down the increase in prices in the country (as of June 10, annual inflation slowed down to 16.7% after 17.1% in May), but already led to three weeks of deflation. In the future, the ruble exchange rate will also depend strongly on the rigidity of external barriers to trade and internal restrictions on capital flows, the director of the group of sovereign ratings and macroeconomic analysis Acre Dmitry Kulikov expects.

Restrictions on technology imports will reduce labor productivity in Russia: some activities can become simply impossible (for example, the production of microprocessors. - The Bell), and the noticeable part of the investment will not be aimed at improving efficiency, but at changing the applied technologies to the analogues that are not subject to sanctions, Kulikov says. The technological isolation of Russia will lead to the fact that import substitution will take place on the basis of outdated technologies, that is, reverse industrialization will occur, analysts of the Central Bank warned. This means that the goods produced as a result will be worse and more expensive than imported analogues.

All this will reduce the potential rates of economic growth from the previous 1.5–2% per year to 0–1% on the medium -term horizon, follows from Akra. At the same time, the restriction of imports can be long -term and pronounced in nature, concludes kulikov based on a comparison of the sanctions regimes of Iran, Venezuela and South Africa. Technological isolation in general and reverse industrialization in particular will lead to a fall in the standard of living of Russians: equipment, cars, building materials, milk in the packaging of tetrapak will be either in short supply or will become inaccessible to most Russians due to a high price.

What do they think about the effectiveness of sanctions in the USA

Discussions about the effectiveness of sanctions as an instrument of international policy in the United States have been underway for more than one decade. The generally accepted opinion about the effectiveness of this tool is not as high as it might seem. The study of the economists of the University of Drexel who analyzed 1,100 sanctions packages of various US administrations from 1949 to 2019 showed that the sanctions achieve the result - changes in the policy of the target country - only in 35% of cases. There are more skeptical estimates - for example, Professor Dartmut Robert Pape in 1997 argued that this occurs only in 5% of cases.

Political scientist Daniel Dresner in 1999 formulated a paradox: moderate sanctions against friendly countries work much better than strict sanctions against ideological opponents. The first example of the first threats of the United States and France are usually given during the Suez crisis in the 1950s, and the latter are sanctions against Iran, DPRK or Venezuela, which, despite powerful economic damage, could not fundamentally change the policy of the leadership of these countries in several decades.

Disputes about whether to influence the actions of Moscow with the help of sanctions also began long before the start of the war. On February 24, Bloomberg told how American officials “spent hundreds of hours” on the discussion and preparation of sanctions in case of Russia's invasion of Ukraine from November 2021 - and from the very beginning they were sure that these measures would not help stop the war. More than a dozen of the White House who worked on sanctions, on that day, told the publication that they "deeply doubt that the sanctions would change Putin's behavior." But after President Joe Biden made it clear that he would not send troops or heavy weapons to Ukraine, there was simply no other choice, they explained.

The authors of the sanctions measures themselves soberly assess the limits of their capabilities in the official interview. “If we are dealing with such an autocrat as Putin - with a high pain threshold and confident control over the information space in his country, we need to clearly understand that the sanctions will never be solved by the problem in themselves,” said the chief architect of current sanctions, deputy assistant Bayden for national security, Dalip Singh in April interview. - We understand that even such a powerful blow that we have already inflicted will take time to change Putin's strategic calculations. But we put on the fact that over time he will understand that [the continuation of the war] will become a strategic defeat that will not be in his interests. ” In addition, the termination of the war in Ukraine is not the only strategic goal of sanctions: long -term damage to the Russian economy should not allow Moscow to continue expansionist policy, and at the same time prevent other countries about the serious consequences of similar steps.

As the war is delayed, Russia does not demonstrate signs of changes in behavior, and the consequences of sanctions are becoming more tangible, there are more and more disputes. At the end of April, Dalip Singh unexpectedly took a long -term vacation for family reasons, and this week he went to a new corporate work. In early June, Bloomberg wrote about disputes between the White House, the State Department and the Ministry of Finance about whether to bring sanctioned pressure to real secondary sanctions against third countries that continue trade with Russia. And in mid -June - about the problems that the unexpectedly massive outcome of companies from the Russian market for the American administration: Finance Minister Janet Yellen considers it one of the factors for accelerating inflation, and now officials persuade companies from industries under sanctions, continue to work with Russian partners.

What am I to me?

Disputes and doubts about the effectiveness of sanctions, which existed long before the current crisis, did not prevent the United States from introducing against Russia unprecedented for the country of this size and significance of the sanction, and the EU to support them. If the war in Ukraine in the foreseeable future will not be completed, the sanctions will continue to continue. Whether they will help to stop the war is a big question, but there is no doubt in their ability to deprive the Russian economy for a long time.