Posts Tagged ‘Economic Sanctions’

On the eve of destruction

October 3, 2022

I think the world is at the beginning of a major crisis and turning point – something like the eve of the Great Depression or of World War One.  Future generations will look back on our generation and wonder how we could have been so blind as not to have seen the trap we are jumping into.

The destruction of the Nord Stream pipelines means the destruction of European economies.

The European countries are already in crisis.  Whole industries are being devastated by the direct and indirect effects of the cutoff of cheap oil and gas from Russia.

The destruction of the pipelines means this cutoff will be permanent. Cheap energy was the foundation of the European economic miracle. This is gone indefinitely, unless the Russians can be persuaded to repair the pipelines – the pipelines they supposedly destroyed themselves.

From what I read, I understand there is a window of only a few months for this to take place. After that damage from sea water will be irreversible.

The economic crisis is not confined to Europe.  It is spreading throughout the world.  Failures of key energy-intensive businesses in Europe will cascade to businesses that depend on them as suppliers or customers.  It will be a domino effect similar to the economic crash of 1929-1933.

The destruction of The Nord Stream pipelines takes the NATO-Russia conflict to a new level.

Nuclear warfare, chemical warfare, cyber warfare have all been off limits because there is basically no defense against them, and no nation’s leaders want to be the ones to initiate it.

Attacks on pipelines and undersea cables fall into this category.  A taboo has been broken.  There is no reason to believe that Russia is the culprit.  Why would the Russians destroy an asset they spent years and billions of dollars to build and which is their main means of leverage over Europe?  And Vladimir Putin has made it clear that he blames the USA. 

What happens if there is retaliation?  What, for example, would happen to the world’s financial markets if fiber optics communications between North America and Europe were broken?  We can only hope Putin does not choose to follow that path.

Russia and the USA are committed to a fight to the finish in Ukraine.

Back in late March and early April, Russia and Ukraine were conducting secret peace talks.  British Prime Minister Boris Johnson and U.S. General Mark Milley reportedly flew to Kiev to tell Volodomor Zelensky that NATO’s goal is to fight on until Russia is defeated.

Zelensky had no choice.  Ukraine is not a sovereign nation.  It couldn’t survive without not only military support from the USA and NATO allies, but also economic support from the International Monetary Fund and other international agencies controlled by the USA.

Vladimir Putin defines the war as a clash of civilizations – a clash between Russia, representing Eastern Christianity, and the secular, imperialistic West.  In his speech of annexation of Russian-occupied Ukraine to the Russian Federation, Putin denounced the USA for its history of slavery and conquest, and also its support of the new gender ideology.

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Viktor Orban’s message to Europe

September 9, 2022

Viktor Orban

Viktor Orban, the prime minister of Hungary, refuses to join in the proxy war and economic war against Russia.  He gave his reasons why in a speech last summer, which I’ve excerpted, because it sums up the situation so well.  

He is a contentious character, for reasons explained in the linked articles.  But I don’t see anything in this speech excerpt that isn’t true.

Western strategy in this war is based on four pillars.  It is a sensible strategy on paper, and perhaps even has numbers to back it up.  

The first was that Ukraine cannot win a war against Russia on its own, but it can do so with training from the Anglo-Saxons and with NATO weapons.  That was the first claim.

The second strategic claim was that sanctions would weaken Russia and destabilise the leadership in Moscow.

The third strategic element was that – although they would also affect us – we would be able to deal with the economic consequences of the sanctions, so that they would be hurt more and we would be hurt less.

And the fourth strategic consideration was that the world would line up behind us, because we were in the right.

As a result of this excellent strategy, however, today the situation is that we are sitting in a car with four flat tires.  

It is absolutely clear that the war cannot be won like this.  The Ukrainians will never win a war against Russia with American training and weapons.  This is simply because the Russian army has asymmetric superiority.

The second fact that we must face up to is that the sanctions are not destabilising Moscow.

The third is that Europe is in trouble: economic trouble, but also political trouble, with governments falling like dominoes.  Just since the outbreak of the war, the British, the Italian, the Bulgarian and the Estonian governments have fallen.  And autumn is still ahead of us.  The big price rise came in June, when energy prices doubled.  The effects of this on people’s lives, which are creating discontent, are only just beginning to arrive, and we have already lost four governments.

And finally, the world is not only not with us, it is demonstrably not with us.  Historically the Americans have had the ability to pick out what they identify as an evil empire and to call on the world to stand on the right side of history – a phrase which bothers us a little, as this is what the Communists always said.  This ability that the Americans used to have of getting everyone on the right side of the world and of history, and then the world obeying them, is something which has now disappeared.

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Europe faces self-imposed economic crash

September 7, 2022

Thousands in Prague protest energy crisis and NATO alliance

I’ve written about why I think Russia is likely to win its ground war in Ukraine and its sanctions war worldwide, and what I think the results of Russian victory might be.  This post is about one aspect of that war—how the sanctions war has brought about an economic crisis in Europe.

Six months ago, Europe’s leaders boasted they’d bring Russia to its knees through economic sanctions. Today their countries fact economic disaster because of blowback from those sanctions.

Many Germans are hunting through forests for firewood for the winter, because of the looming scarcity of oil and natural gas.  One report says there is a one-year waiting list for purchasers of wood stoves. Coal also is in great demand and short supply.

In Spain, the government is imposed rules forbidding air conditioning to be set below 80 degrees Fahrenheit. In the Netherlands, a campaign called Flip the Switch asks Dutch people to limit showers to five minutes and do without air conditioning and clothes dryers.

One expert says six in 10 British factories are in danger of closing as a result of higher energy bills. The average British household is expected to see its annual average energy bill rise to $4,180, a rise of $1,765, according to CNN Business.

Forward contracts for electricity in France and Germany are 10 times what they were this time last year.

It’s hard to see how Europe can escape a energy crisis and an economic recession this winter.  The initial reaction of Europe’s leaders has been to double down.  Germany’s foreign minister said Germany will never desert Ukraine, no matter what.

The European Union is reportedly planning to seek sweeping powers over businesses in member states that would basically allow Brussels to tell these companies what to produce, how much of it, and whom to sell it to in times of a crisis.

A public opinion poll indicates a majority of Germans would like to negotiate a peace.  Unfortunately a compromise peace is no longer being offered.  The Russians now say their terms are unconditional surrender.

Tens of thousands joined to protest against the sanctions war in Prague.  I think it is the first of many such protests.  They may lead to sweeping changes across Europe; they may lead to existing governments and the. EU itself invoking emergency powers to stay in power.

I sympathize with the European peoples who’ve been caught up in the global struggle of the USA vs. the Russian-Chinese alliance.  Europeans have a lot to lose and little to gain by joining in.

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‘Why are we in Ukraine?’

August 24, 2022

The conservative writer Christopher Caldwell wrote an article in the latest Claremont Review of Books saying that even if the USA and its Ukrainian proxy win their ground war against Russia, the USA may well lose on the economic war front and the culture war front.

On March 24, a month after Russian tanks rolled across Ukraine’s borders, the Biden White House summoned America’s partners (as its allies are now called) to a civilizational crusade.  The administration proclaimed its commitment to those affected by Russia’s recent invasion—“especially vulnerable populations such as women, children, lesbian, gay, bisexual, transgender and intersex (LGBTQI+) persons, and persons with disabilities.”

At noon that same day, Secretary of State Antony Blinken tweeted about the “massive, unprecedented consequences” American sanctions were wreaking on Russia, and claimed Russia’s economic “collapse” was imminent.

Never has an official non-belligerent been more implicated in a war.  Russia and its sympathizers assert that the U.S. attempt to turn Ukraine into an armed anti-Russian camp is what the war is about in the first place.  Even those who dismiss this view will agree that the United States has made itself a central player in the conflict.  

It is pursuing a three-pronged strategy to defeat Russia through every means short of entering the war—which, of course, raises the risk that the United States will enter the war.  

One prong is the state-of-the-art weaponry it is supplying to Ukraine. Since June, thousands of computer-guided artillery rockets have been wreaking havoc behind Russian lines.  

A second prong is sanctions.  With western European help, Washington has used its control of the choke points of the global marketplace to impoverish Russians, in hopes of punishing Russia.

Finally, the U.S. seeks to rally the world’s peoples to a culture war against an enemy whose traditionalism, even if it does not constitute the whole of his evil, is at least a symbol of it.

It would be foolish to bet against the United States, a mighty global hegemon with a military budget 12 times Russia’s. Yet something is going badly off track.  Russia’s military tenacity was to be expected—bloodying and defeating more technologically advanced armies has been a hallmark of Russian civilization for 600 years.  

But the economic sanctions, far from bringing about the collapse Blinken gloated over, have driven up the price of the energy Russia sells, strengthened the ruble, and threatened America’s western European allies with frostbite, shortages, and recession.  

The culture war has found few proponents outside of the West’s richest latte neighborhoods. Indeed, cultural self-defense may be part of the reason India, China, and other rising countries have conspicuously declined to cut economic ties with the Russians.

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Ukraine is part of a broader three-way Cold War

April 15, 2022

The war in Ukraine is not just between Ukraine and Russia.  It is part of a larger three-way struggle between three rival imperialisms—the established imperialism of the USA and the rising imperialisms of China and Russia..

The struggle is not exclusively or even mainly a military struggle.  It is also a diplomatic and propaganda struggle.  But it is mainly an economic struggle.

The United States is the world’s most extensive military power and the world’s leading financial power.  Its aim is to keep on being the world’s only superpower—militarily, politically and financially.  Its means is threats of military intervention and financial sanctions.

Source: The Diplomat. Click to enlarge.

The People’s Republic of China is the world’s leading manufacturer and exporter.  Its aim is to dominate its immediate region politically and militarily and to become the world’s leading power economically.  The means is investing in physical infrastructure and human capital, and winning friends by offering economic benefits.  Its master plan is the Belts and Roads initiative, a system of infrastructure construction projects intended to weave together the economies of interior Eurasia.

Russia is less powerful than the USA or China, but it is an important producer of food, fuel and vital raw materials. Its aim is to be recognized as a great power and to dominate its immediate region politically and militarily

The United States has a worldwide network of military bases and alliances, which gives it the power to engage in military and covert actions on every continent.  It dominates the World Bank, the International Monetary Fund and other international institutions and its banks have a chokehold on the world financial economy.

The basis of that power is the supremacy of the U.S. dollar as the world’s medium for doing business, and the replacement of gold by U.S. Treasury bonds as a store of value.

This enables the U.S. to finance its endless wars, to shrug off trade deficits and to impose crippling sanctions on nations that defy it.  But American leaders have foolishly allowed the source of its financial power, its strength as a manufacturing and exporting country, to fade away.

Russia’s invasion of Ukraine was an attack on the U.S.-dominated NATO alliance. Its aim is to keep Ukraine out of NATO, to bar nuclear missile systems from Poland and Rumania and to roll back western NATO troops to their 1997 positions.

The U.S. aim is to get Russia bogged down in a long quagmire war, while meanwhile trying to wreck the Russian economy through economic sanctions—that is, seizing Russian financial assets held in the U.S. allied countries, cutting Russia off from the dollar-based world financial system and blocking Russian imports and exports as much as possible.

With the aid of China, Russia is finding ways to engage in world trade using the ruble and other non-dollar currencies, thus helping to undermine U.S. financial power.  

Then again, with sanctions, the U.S. is already undermining itself.  It is teaching nations they need to figure out how to survive economically without ties to the United States or the dollar-based system.

This economic war is a real war.  People will suffer as a result of it.  Some die.  Some European nations depend on Russian gas.  Many nations depend on Russia for food and fertilizer exports.  Food and fuel prices are already rising as a result of the war and are expected to rise further.  

The most likely result of the conflict is a worldwide economic depression.  The worst possible result is nuclear war.  I don’t see any possible outcome that is of net benefit to the people of any of the three countries.

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Oligarchs, sanctions and money laundering

March 10, 2022

As part of the undeclared war with Russia, Prime Minister Boris Johnson has frozen the assets of Roman Abramovich, owner of the famous Chelsea Football Club, and six other wealthy Russians who thought their wealth would be secure in the United Kingdom.

Britain has long been a safe haven for dirty money, and not just Russian dirty money.  That’s because, on the one hand, the origin of money can be concealed through shell companies and offshore tax havens, and, on the other, they feel their money is safe.    

Real estate prices in London, and also in New York, Miami and other cities, are being bid up by foreign oligarchs.  This is of great benefit to bankers and real estate investors, but not necessarily to the general public.  So Johnson’s action is a good thing—right?

Economic sanctions have almost never achieved their goals.

The League of Nations, created after World War One, hoped to stop military aggression by sanctioning aggressors.  This failed in its first test, the invasion of Ethiopia by Italy in 1935.  The United States, more than any other country, has used economic sanctions as a weapon.  But decades of economic sanctions did not bring about regime change in Iran or Cuba and probably will not change Venezuela.

The result of Johnson’s actions will likely drive other Russian oligarchs to take their wealth back to Russia, which would be to the benefit of Putin’s government.

Arbitrary economic sanctions against individuals are contrary to the rule of law.

Tax havens are a serious problem.  But if a chief of state, based on his own personal judgment, confiscates the wealth of a few individuals or blocks their access to their wealth, he does not solve the problem of tax havens.  He merely makes his own country a more risky place to invest.

The Bill of Rights to the U.S. Constitution says nobody should be deprived of “life, liberty or property” without due process of law.  Nobody should have their wealth seized unless it can be proven in a court of law that they have violated some pre-existing law or regulation.

Impartial laws and regulations are needed.

We need laws that prevent oligarchs, dictators and crime lords from hiding their wealth and the sources of their wealth.  We need for these laws to be enforced without fear or favor.  Nobody should be above the law and nobody should be below the law’s protection.

Fun fact: Among those who have hidden their wealth in offshore tax havens are Vladimir Putin (through cronies) and Volodymyr Zelensky.

LINKS

Revealed: the $2bn offshore trail that leads to Vladimir Putin by Luke Harding for The Guardian.  [4/3/2016]

Pandora Papers: Russia dismisses leaks implicating Putin by Al Jazeera. [10/4/2021]

Pandora Papers: Ukraine leader seeks to justify offshore accounts by Al Jazeera. [10/4/2021]

Boris Johnson claims the UK is rooting out dirty Russian money | That’s ridiculous by Oliver Bullough for The Guardian.  [2/25/2022]

The oligarch’s guide to getting around the UK’s economic crime bill by Oliver Bullough for The Guardian. [3/9/2022]

Roman Abramovich Sanctioned by U.K. Govt., Assets Frozen by Alex Ritman for The Hollywood Reporter. [3/10/2022]

UK freezes assets of Abramovich, six other Russian oligarchs by Al Jazeera. [3/10/2022]

The American sanctions on Russia’s economy, explained by Ben Walsh for Vox. [3/9/2022]  What sanctions supposedly will do.

How the West undermines its own sanctions by Casey Michel for The Atlantic.  [3/9/2022]. It’s complicated.

The ‘deep state’ plan to remake Latin America

January 31, 2019

Evidently the Trump administration’s demand for regime change in Venezuela was not a spur-of-the-moment decision.

It is part of a long-range plan to remake Latin America, along the lines of the failed plans to remake the Middle East.  Other targets are Cuba and Nicaragua.

At best, this will result in increased misery for millions of people who have never harmed or threatened us Americans, and an increased flow of refugees.

At worst, it will result in all these things, plus an increased Russian and Chinese presence in Latin America.

By ‘deep state,’ I mean all the U.S. military, intelligence and covert action agencies that set their own policies and operate out of sight of the U.S. public.

LINKS

Venezuelan Coup Attempt Part of US Plan to Remake Latin America by Yves Smith for Naked Capitalism.

The Making of Juan Guaidó: US Regime-Change Laboratory Created Venezuela’s Coup Leader by Dan Cohen and Max Blumenthal for Consortium News.

Sanctions Are Wars Against Peoples by Moon of Alabama.

‘You’re either for us or against us’

January 30, 2019

Every time a U.S. President targets some nation as an enemy, and tries to drag other countries into the conflict, he creates the possibility of a backlash.

“You’re either for us or against us.”  Say that too many times, and the answer is likely to be, “we’re against you.”

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Why the push for ‘regime change’ in Venezuela?

January 29, 2019

National Security Adviser John Bolton explains U.S. Venezuela policy.

I think I’ve seen this script before.  The unpopular ruler of an oil-rich country cracks down on the opposition.  The U.S. government sees an opportunity and tries to bring about a change in regime.

What can go wrong?  In Iraq, this led to an inconclusive quagmire war in which thousands of Americans and hundreds of thousands of Iraqis lost their lives.  In Libya, it led to the collapse of civil order, leaving Libyans worse off than before.  In Syria, it led to another inconclusive war, benefitting no one.   The chief result of these wars was the European refugee crisis.

Now the U.S. seems to be playing out the same script in Venezuela—doing the same as before and expecting a different result.

The Trump administration has recognized Juan Guaido, the leader of the National Assembly, as the legitimate president of Venezuela, and called for the overthrow of President Nicolas Maduro.  Guaido is indeed the leader, but that’s because the leadership is rotated among the parties, and the Trump administration’s decision happened on his watch.

To support Guaido, the administration has blocked Venezuela’s oil company from collecting revenue from its oil exports.  Instead the money goes into a blocked account until Guaido takes power.

And if he doesn’t?  “All options are on the table.”

As far as I’m concerned, this is a pass-fail test of political leadership.  Only those who oppose intervention are lovers of peace.  So far Bernie Sanders passes this test, as do Democratic Reps. Tulsi Gabbard, Ro Khanna, Ilhan Omar and Alexandra Ocasio-Cortez.

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Can the US bring about ‘regime change’ in Iran?

May 11, 2018

President Trump’s administration appears set to wage economic war against Iran in order to bring about “regime change.”

The pattern would be the economic war the U.S. government has waged against Venezuela, which has crashed that country’s economy and created desperate poverty.

Top members of the Trump administration have long been committed to overthrowing the Iranian government.  But they’re not going to get the American public and Congress to support war with Iran.

What’s left is covert warfare, subsidizing dissidents and rebels in Iran, and economic warfare, using U.S. financial power to punish businesses that do business with Iran.

Because most international trade is done in U.S. dollars, and because most transactions in dollars go through U.S. banks, the U.S. government is in a position to do great damage to businesses and business owners that displease it.

This comes at a price, though.  Each time the U.S. government forces foreign governments and businesses to sacrifice their own interest to do its bidding, it brings the day closer when foreigners unite to set up an alternative international financial system that doesn’t use the U.S. dollar or U.S. banks.   That is the ultimate goal of China, aided by Russia. (more…)

The meaning of North Korea’s “ghost ships”

January 22, 2018

Last year the wreckage of at least 104 North Korean fishing boats washed up on the shores of northern Japan.  The crews were either missing, or dead from starvation and exposure, or, in a few cases, only half-dead.

What happened was that they got so far from home that they did not have enough fuel to make it back home, and so died at sea.

Never before have so many derelict North Korea fishing boats been found.  No doubt this is but a fraction of the actual number of lost boats.

What this means is that North Koreans are so desperate for food that they will risk going out to sea in dangerous waters with inadequate fuel.

Secretary of State Rex Tillerson said in an interview that this represents a triumph of American policy.  North Korea is really feeling the bite of American economic sanctions, he said.

Economic war can be as deadly as a shooting war, although it hardly ever brings about a change in regime.   If there comes a time when there is only one bowl of rice left in North Korea, it will be eaten by Kim Jong Un.  If there are only two bowls left, they will be shared by Kim and his bodyguard.

The U.S. has been waging war by means of economic sanctions long before Tillerson or President Donald Trump took office.  Economic sanctions against Saddam Hussein back in the 1990s resulted in the deaths of thousands of young Iraqi children want of medicine and proper nutrition.

Secretary of State Madeleine Albright said that the price was worth it.  To what end?  I can’t see anything good that the Iraq blockade accomplished for us Americans.  It did not remove Saddam Hussein from power.

The appeal of economic sanctions as a substitute for war is that it seems to be a safe way of waging war.  That is true only in the short run.   Generations later people in North Korea, Iraq, Venezuela and other countries will remember how their people suffered under the U.S. economic blockage.

During the First World War, Britain blockaded food imports into Germany.  The food blockade continued even after the German army surrendered, in order to make force the German government to agree to the Allies’ peace terms.  Many Germans grew up with stunted growth because they were born during the blockade.

I don’t say the food blockade was, in and of itself, the main reason for the rise of Hitler, but it surely contributed to the German hatred of the Allies and desire for revenge, which the Nazis exploited

I think in generations to come, there will be millions of people through the world with similar reasons for a desire for revenge against Americans.

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Russia is losing an economic war

September 26, 2016

The Russian Federation is in economic crisis.

The economy is shrinking.  Although unemployment is low, poverty is increasing,  Inflation is at double-digit rates.   The exchange rate for the ruble is falling.  Russia’s trade deficit is widening.  The Russian government is cutting spending on public services.

While Russia has serious internal economic problems, the immediate cause of the crisis is the economic war being waged by its foes.

  • The United States and European Union boycott many Russian individuals and institutions, including cutting off credit to Russian banks and cutting off sales of equipment to Russian oil companies.
  • Saudi Arabia has stepped up production of oil, driving down oil prices worldwide and hurting Russia’s oil exports.
  • The United States has begun a new arms race with Russia, forcing the Russian government to either divert resources from the civilian economy or admit inferiority.

03-bust-boom-bustIn waging economic war against Russia, the United States and its allies hurt themselves as a price of hurting Russia more.

  • Europe and Russia are natural trading partners, with Europeans buying Russian gas and oil and Russia buying Europe’s, especially Germany’s industrial products.   Cutting off this trade hurts both.
  • Saudi Arabia is using up a large but limited resource at a fast rate without getting the best price for it.
  • The United States, too, is diverting resources from our civilian economy and domestic needs.

In many ways, this is a replay of the economic war waged against the Soviet Union in the 1980s.

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The Russian response to Western sanctions

February 17, 2015

2000px-Russia_USA_Locator.svg

The Vineyard of the Saker is a pro-Russian, pro-Putin web log written and edited by a descendent of a Russian emigre family living in the United States.  This is the Saker’s perception of Russian public opinion, based on watching Russian broadcasts and reading Russian publications on the Internet.

  • First, nobody in Russia believes that the sanctions will be lifted.  Nobody.  Of course, all the Russian politicians say that sanctions are wrong and not conducive to progress, but these are statements for external consumption.  In interviews for the Russian media or on talk shows, there is a consensus that sanctions will never be lifted no matter what Russia does.
  • Second, nobody in Russia believes that sanctions are a reaction to Crimea or to the Russian involvement in the Donbass.  Nobody.  There is a consensus that the Russian policy towards Crimea and the Donbass are not a cause, but a pretext for the sanctions.  The real cause of the sanctions is unanimously identified as what the Russians called the “process of sovereignization”, i.e. the fact that Russia is back, powerful and rich, and that she dares openly defy and disobey the “Axis of Kindness”.
  • Third, there is a consensus in Russia that the correct response to the sanctions is double: (a) an external realignment of the Russian economy away from the West and (b) internal reforms which will make Russia less dependent on oil exports and on the imports of various goods and technologies.
  • Fourth, nobody blames Putin for the sanctions or for the resulting hardships. Everybody fully understands that Putin is hated by the West not for doing something wrong, but for doing something right.  In fact, Putin’s popularity is still at an all-time high.
  • Fifth, there is a wide agreement that the current Russian vulnerability is the result of past structural mistakes which now must be corrected, but nobody suggests that the return of Crimea to Russia or the Russian support for Novorussia were wrong or wrongly executed.
  • Finally, I would note that while Russia is ready for war, there is no bellicose mood at all.  Most Russians believe that the US/NATO/EU don’t have what it takes to directly attack Russia, they believe that the junta in Kiev is doomed and they believe that sending the Russian tanks to Kiev (or even Novorussia) would have been a mistake.

The Saker’s conclusion:

Western sanctions have exactly zero chance of achieving any change at all in Russian foreign policy and exactly zero chance of weakening the current regime.  In fact, if anything, these sanctions strengthen the Eurasian Sovereignists by allowing them to blame all the pain of economic reforms on the sanctions and they weaken the Atlantic Integrationists by making any overt support for, or association with, the West a huge political liability.

via The Vineyard of the Saker.

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‘Drill, tovarich, drill’: Putin’s economic dilemma

September 4, 2014

russia.exports

Vladimir Putin’s Russia is a great military power with a backward economy.

Without a strong manufacturing base, Russia’s economy depends sale of oil and natural gas, which are non-renewable.   This means that, unless Russia changes direction, it is fated to become a resource colony of China or the European Union.

Economic sanctions promoted by the USA could be an opportunity for Russia to develop its domestic industries and its internal market, much as the infant USA did when it was cut off from trade with Europe prior to and during the War of 1812.  But according to this article by Mikhail Matveev for Inter-Press Service, Russia is going in the opposite direction.

The recent call from Russian Prime Minister Dmitry Medvedev for “tightening belts” has convinced even optimists that something is deeply wrong with the Russian economy.

No doubt the planned tax increases introduction of a sales tax and increases in VAT [1] and income tax will inflict severe damage on most businesses and their employees, if last year’s example of what happened when taxes were raised for individual entrepreneurs is anything to go by – 650,000 of them were forced to close their businesses.

Nevertheless, it looks like some lucky people are not only going to escape the “belt-tightening” but are also about to receive some dream tax vacations and the lucky few are not farmers, nor are they in technological, educational, scientific or professional fields – it is the Russian and international oil giants involved in oil and gas projects in the Arctic and in Eastern Siberia that stand to gain.

“In October [2013], Vladimir Putin signed a bill under which oil extraction at sea deposits will be exempt from severance tax.  Moreover, VAT will not need to be paid for the sales, transportation and utilization of the oil extracted from the sea shelf,” noted Russian newspaper Rossiiskie Nedra.

[snip]

In fact, the line of thinking adopted by Russian officials responsible for tax policy is very simple. Faced with the predicament of an economy dependent on oil and gas half of the state budget comes from oil and gas revenue, while two-thirds of exports come from the fossil fuel industry, they decided to act as usual – by stimulating more drilling and charging the rest of the economy with the additional tax burden.

Matveev wrote that Russia, like other countries, suffers the bad effects of global climate change caused by fossil fuel emissions.  The Russian economy is at risk, he wrote, if the USA or European Union ever achieve their announced goals for shifting to renewable energy sources.   I don’t think the latter is as likely as Matveev seems to think.

The fact that economic sanctions cause serious problems to Russia does not mean that they are a good idea.  Weaker nations than Russia have survived U.S.-led economic sanctions, and the economic war with Russia hurts European Union countries as much or more than Russia.

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