Can Russia Survive As A Pariah State?

Nearly a week since Russian President Vladimir Putin invaded Ukraine, a global outrage accompanied by a series of sanctions designed to deter Russia from further escalating the conflict, have poured in.

Alas, as the United States and its allies announce the sanctions, Putin appears emboldened to advance his attack on Ukraine. A convoy of the Russian military that stretched over 40 miles is currently moving close to the capital Kyiv, in a defiant move to topple the government of Ukrainian president Volodymyr Zelensky.

As Russian ground forces, air force and Navy aim and fire at Ukraine, the Kremlin appears to be standing alone except for the unreserved support of its ally Belarus that has announced plans to deploy its army to Ukraine to support Russia. China, another country that is considered a friend of Moscow, has called for de-escalation of the conflict through negotiation.

“The situation in eastern Ukraine has undergone rapid changes … [and] China supports Russia and Ukraine to resolve the issue through negotiation,” Chinese President Xi Jinping said on Friday.

The escalation of the conflict is being buoyed by NATO-based national interests that neither Russia nor Ukraine is ready to compromise. And Putin’s Slavic ego is believed to be on the way, frustrating every effort at peace that no matter how many more sanctions are imposed on Russia, he would only double down not to appear weak.

Reeling at the mercy of the standoff are lives and means of livelihood. The ongoing destruction in Ukraine has triggered refugee crises across Europe, and there is on the other side, Russia’s economy spiraling downwards as the effects of the sanctions hit home. Russia is increasingly becoming isolated but definitely exposing its economy to avoidable turbulence.

The sanctions pile on

Russia’s Nord Stream, a system of offshore natural gas pipelines in Europe, running under the Baltic Sea from Russia to Germany, was among the first to get hit with sanctions. The certification of Nord Stream 2 was halted on February 22 following Putin’s recognition of the independence of Ukraine’s breakaway regions, Donetsk and Luhansk.

Thereafter came a flood of other sanctions as Russia invaded Ukraine. Each of the sanctions bears a weight of devastating impact on Russia’s economy. On February 25, the White House and the European Union announced the expulsion of Russian banks from the Society for Worldwide Interbank Financial Telecommunication (SWIFT), in an effort to collectively ensure that the war is a strategic failure for Putin.

“This will ensure that these banks are disconnected from the international financial system and harm their ability to operate globally,” they wrote in a joint statement.

This was accompanied by restrictive measures designed to prevent the Russian Central Bank from “deploying its international reserves in ways that undermine the impact of [the] sanctions.”

The US and its allies have embarked on a sanctions frenzy that touches many aspects of Russia’s economic well being.  The EU, the UK, Japan, France, Australia, New Zealand, Taiwan and even historically neutral Switzerland, have all announced different sanctions – from cutting ties with Russian businesses to banning its oligarchs, each sanction is aimed at scuttling Russia’s ability to lead a normal life while razing Ukraine.

To cap it, sports organizations are joining hands to ban athletes and clubs of Russian origin from sporting events. FIFA has announced the expulsion of Russia from the 2022 World Cup, while UEFA and the IOC have kicked the Russian football club side and the Russian national team respectively out of their sports tournament.

The consequences of the sanctions are trickling in.

Among other things, the Russian Ruble has dropped as much as 30% against the dollar, forcing the Russian Central Bank to hike interest rate 20%. Russia has built a fortress around its economy since 2014 when Putin annexed Crimea. Russia boasts of more than $630 billion in its external reserve and about $174 billion in the National Wealth Fund that appreciates as oil prices rise. These among other foreign-tied investments have kept Russia’s total external debt around $478 billion, a third of its GDP. Russia runs a budget surplus. But all these have come crumbling over the weekend.

But against this backdrop, Putin has remained adamant. New York Times columnist Peter Coy made reference to past sanctions to illustrate while they may not move Putin.

“There are two clashing arguments about whether the threat of economic sanctions can be effective now in deterring Russian aggression in Ukraine. One is that sanctions against Russia following the 2014 invasion of Ukraine didn’t prompt any movement in behavior, nor did sanctions promote good behavior when imposed against Cuba, Iran, Iraq, North Korea, and Venezuela. So it’s unrealistic to expect sterner sanctions to work against Russia this time. The contrary is that sanctions would be effective now because they could cause real economic pain,” writes Coy.

Can Russia survive as a pariah state?

China, Russia’s biggest ally that is among a few countries in the world yet to condemn its invasion of Ukraine, has proved to be Putin’s major lifeline. On Monday, Russia’s Gazprom said it has signed a contract to design a natural-gas pipeline from Russia to China that will deliver up to 1.8 trillion cubic feet of natural gas a year via Mongolia. The state-owned company said the contract is part of the construction of the Soyuz Vostok gas pipeline.

The move is geared toward mitigating the impact of EU’s decision to halt Nord Stream 2 certification and future energy-focused sanctions, although US President Joe Biden is not eager to impose sanctions on Russian energy. Germany’s E.ON, Europe’s largest operator of energy networks also rejected demands to shut down Nord Stream 1 gas pipeline, leaving a huge lifeline for Russia.

Russia wields a heavy influence in the global energy market and economies still emerging from downturns of covid-19 can’t afford the high cost of energy products a total sanction on Russian energy will bring.

Biden defended his decision to preserve access to Russian energy, saying it’s in order to “limit the pain the American people are feeling at the gas pump.”

Coal prices have hit $300 as demand surge in Europe, jeopardizing the fight against climate change. Oil price is up 9%, highest since 2014. Wheat, another commodity Russia leads, is up $990, highest since 2008. Last week, China relaxed its restrictions on import of Russian wheat, another move that is believed will ease the impact of the sanctions.

Russia is believed to be emboldened by all these even though they are the effects of its crippling economy. Analysts say that China alone can’t save Russia from the devastation the growing sanctions will bring upon its economy, the Asian country can only give Russia a lifeline. But it won’t be enough because the world needs Russia but Russia needs the world more.