Eric Draitser
March 19, 2014
With the referendum on Crimean
independence and possible reunification with Russia now taking place,
the US and its European allies have threatened punitive actions to
punish Moscow. These measures include the denial of visas, freezing of
assets, even possibly commencing economic sanctions against Russia and
Russian interests. Such escalation of tensions would undoubtedly have
negative, potentially disastrous, effects on the European and global
economy, not to mention the all-important political and diplomatic ties
between West and East.
On Saturday March 15th, the
day before this historic referendum in Crimea, the Washington Post,
famously regarded as a principal mouthpiece of the US political
establishment, published a strongly worded Op-Ed piece collectively
written by the Editorial Board entitled US, EU must stay the course on Russian sanctions over Ukraine.
The article laid out a number of punitive actions that the West should,
according to the authors, use to punish Russia, including targeted
sanctions against prominent Russians in Putin’s inner circle.
Specifically, the authors suggest the
denial of visas and freezing of assets of such key Russian figures as
Igor Sechin (Chairman of Rosneft), Vladimir Yakunin (President of
Russian Railways), and Alexei Miller (Chairman of Gazprom). Such
measures must, according to the authors, be combined with “punishment”
of Russia diplomatically including exclusion from the G8 and
Organization for Economic Cooperation and Development (OECD). Were the
US and EU to follow through with these and other sanctions, they would
undoubtedly open the door for an effective Russian response – a response
that would have dire consequences for the already fragile economic
situation in Europe and the US.
Sanctions and Russia’s Counter-Moves
There are many both in the West and
Russia who believe that the suggestion of punitive actions from the US
and EU are merely empty threats. However, it is critical to examine just
how Moscow might respond to such provocative measures, as sanctions
would undoubtedly be seen as a very serious escalation. Moreover, it is
essential to consider how the Russian response would impact the entire
world.
First and foremost is the fact that
Russia holds the key to Europe’s energy future. With Russia providing
more than one third of Europe’s gas imports, any sanctions could
immediately lead Russia to scale back, or even more drastically, cut off
the gas to Europe. This would create innumerable problems for Europe,
particularly for the export-dependent economy of Germany, which is
unquestionably the economic powerhouse on the continent. With German
technology, luxury cars, and the like no longer being produced in the
required numbers, the economy would, almost overnight, come to a
screeching halt. Moreover, future German energy security would be
threatened, as the primary lifeline for the country is the Russian Nord
Stream pipeline, which brings Russian gas across the Baltic and into
northern Germany.
Additionally, such a scenario would
create a tremendous amount of political discord within the EU as
countries traditionally friendly with Russia, such as Italy, also
heavily reliant on Russian energy, become ever more disenchanted with
the belligerent policies of Brussels vis-à-vis Russia and Ukraine. With
turmoil already in high gear in Italy, Spain, Portugal, Greece and many
other economically devastated countries in Southern Europe, it is
unlikely that the political will to go along with a suicidal sanctions
regime will remain.
Russia also has a tremendous financial
weapon that could be unleashed against the US and EU: their dollar
holdings. With the Russian government, not to mention private Russian
holdings, retaining a tremendous amount of US dollars, they could easily
choose to transfer or dump their dollars and create a veritable panic
on Wall St and in Washington. In fact, this scenario may have already
taken place on a small scale.
