Wednesday, March 5, 2014

Geopolitics: Ukraine Conflict - Why Punishing Russia Is A Bad Idea

(Drivebycuriosity) - It looks like that the Cold War is back. Russia occupies Crimea, a part of Ukraine, and the West (U.S. and European Union) is talking about drastic sanctions to punish Putin like freezing Russian assets (accounts) and blocking imports (like oil & gas).

I don´t like Putin and I despise his aggression, but anyway, I believe that severe sanctions are a bad idea. The call for punishing Russia reminds me of the late 19th century when the colonial powers sent gunboats up the Shanghai River to punish the Chinese who refused  to buy their opium. Today punishment is even controversial on the school yard. It is strange that Americans who don´t punish their kids want to punish every nation in the world that doesn't behave well.  Punishment isn`t appropriate for the complex geopolitics of the 21 century.

I don´t believe that Putin can be tamed. Neither that he can be intimidated by punishment. Dislike him as much you want, he is the leader of one of the most important countries of the world, a giant  as commodity exporter and a nuclear power. Sanctions might even provoke him. Ex-KGB-officer Putin, who has a black belt in Judo, has been cultivating his ├╝ber-macho reputation for years. And he has to impress his backers in Russia. Thus, when punished, the Russian leader might act even more aggressive. Where would this lead?

The "punish Russia" callers want to make Putin pay for his actions. Yet, it is not sure that sanctions will put high costs on Russia as the punishment advocators claim. Last Monday prices for oil, wheat and other commodities already jumped - fueled by speculation on an escalation of the Ukraine conflict. Russia as a big exporter of oil, natural gas and other commodities would certainly benefit from an oil price rise! If Europe would buy less Russian oil and gas (how would they do that?), China, India and other countries would be happy to buy it.

And even if Russia would bear costs, how should that stop Putin? Not even Fidel Castro and his successors changed their politics because of the ridiculous US embargo (no Cuban cigars). Russia is not managed like a company which is traded on Wall Street. And who knows how Putin´s cost/benefit calculation looks like. Maybe he values the advantages of controlling Crimea/Ukraine higher than the costs of sanctions?

Otherwise the West would have to pay high costs of sanctions by themselves. The Western economy would get hurt if the conflict with the oil exporter Russia leads to much higher energy prices. In 2008 just the speculation on a war with Iran raised the oil price to $147 which severely sharpened the recession in the US and Europe (econbrowser).

Sanctions also could provoke Russia to retaliatory strikes which could lead to a full fledged trade war. Europe would have to bear the highest burden. Russia is the third largest foreign customer for the European industry and imports cars, machines, medicaments, chemical products and more. And Europe receives a lot of oil & natural gas (Germany a third) from Russia. An official British paper revealed that UK (banks and other companies) had investments in Russia of more than £46bn ($76bn) in 2011 (the latest year for which data is available), rather more than Russian investments in the UK of £27bn ($45bn) (bbc). The US deals much less with Russia but an economic setback in Europe would hit American exports and banks. And US companies like Apple, Caterpillar and others are also exporting to Russia.

I am convinced that the costs of the punishment for the West - especially for Europe - are higher than for Russia, mainly because of rising oil prices. I suppose that Putin is aware of that and will respond accordingly. Putin also knows that the governments of UK and Germany would risk their reelection if a trade war with Russia leads to severe energy supply problems while he as an autocratic leader has not this issue. I hope that the so called leader of the Western World act less autocratic and consider the costs of their actions for their countries.


  1. Very Interesting article .... Thanks for posting it

  2. Also NASA depends on Russia as well to operate and maintain the ISS. Without Russia we have no ride to the ISS or from it. At least thats declassified anyway. America has some tricks up it's sleave and is far more powerful and deadly than most presume. Iraq and Afghanistan are strategic areas that we onlt used through what basically amounted to surgical strikes. If we wanted to just crush both places we could do it easily.