Could sanctions be a tool to undermine Putin’s presidency?

Just after the results of the Crimean Referendum were made public, the White House ordered a new round of sanctions against a number of russian citizens and one bank believed to have played a central role in breaking the territorial integrity of Ukrain. The European Union issued similar measures, asset-freezings and VISA bans, shortly after against 21 Russian and Crimean officials. In the American list, among others, appeared the former oil general and businessman Gennadiy Timchenko, the banker Yuri Kovalchuk and his Bank Rossiya, the construction company owners Rotenberg brothers, Victor Ivanov, head of the anti-narcotics agency, Vladimir Yakunin, head of Russian Railways. These people can hardly be held responsible for the Crimean referendum. The measures look more like a tool to hit those considered very close to president Putin by the American authorities, fulfilling in some degree what the western hawks were demanding. Sanctions are seen by hard-liners not only as a way to punish Russia for annexing Crimea but also as leverage to undermine Putin’s presidency. Hitting the Kremlin’s inner circle, freezing the oligarchs’ foreign assets, isolating russian banks and corporations and even starting a gas war are all measures theorized, and partially put into practice, by the western hawks. The purpose is to create an explosive socio-economic mix that would pave the way for a regime change or at least weaken the government. Not casually, the hype of the media is now on the russian opposition. As a matter of fact, an op-ed by the opposition leader Alexey Nalvalny appeared on the New York Times just a few days before, calling for sanctions that would alienate the oligarchs from the Kremlin and the Kremlin from the people. The title was self-explaining: “ how to punish Putin”.

In his opinion, Putin’s popularity will soon hit the bottom as a consequence of the sanctions already imposed by the West that heavily damaged the russian economy and of those yet to be issued that would have disclosed the wealth and alleged corruption of the president’s aides and friends. More recently, the former president of Georgia Mikheil Saakashvili has put forward in an article the same proposal in order to stop Putin and his presumed plan to reestablish an imperial Russia from the ashes of the USSR. The base of their theory comes from the unforeseen effects of the first isolating actions voted by Brussels and Washington just after the intervention in Crimea.

The unexpected military action shocked the western countries involved in the G8, which immediately decided to boycott the next meeting in Sochi. Furthermore, the Europe-Russia talks for a free-visa area and a commercial partnership were suspended by the European Union. These measures were mainly symbolic but their results proved to be much practical and dramatic.  The investments in the country decreased quickly hitting the bottom in what is now called “the black Monday”. On Monday the 3rd of March, the russian stock market plunged of almost 10 points with some private and public companies, Gazprom first, loosing up to 15 percent. Obviously, the stock collapse was immediately suffered by the oligarchs, with some of them loosing billions of dollars of their personal assets. A meeting was soon arranged in the Kremlin between president Putin and the main tycoons. Some of them, like Prochorov, are openly anti-Putin and fund political parties of the opposition, some others, like Timchenko, support the president or simply don’t get involved in politics. But it is clear that, in a world where personal assets are made of billions of dollars, money interests are by far the main purpose behind political commitment, and another crisis could make them shift their support and open a dispute. As a matter of fact, Navalny suggested that the oligarchs should be sanctioned even though they have not played a direct role in the ukranian crisis, in what looks like an attempt to pursue the institutional crisis by damaging further their business and detaching them from the Kremlin.

Furthermore, the state-owned energy firms have suffered losses too. The perceived fragility of the companies and dependence on hydrocarbons export of the Russian Federation generated an axiom of the american foreign policy in the ukranian crisis, that is, Moscow will never prevent the gas from flowing to Europe. Some western radicals were even eager to enlist Igor Sechin and Alexei Miller, CEOs of Rosneft and Gazprom, in the sanction group, but like the “outsiders” tycoons, they were not touched.

Last but not least, the quotation of the ruble has quickly declined. On the black Monday, the russian central bank had to sell 11.3 billions of dollars of its reserves to prevent the currency to fall further. On that day the ruble was traded in the Forex at a record low value of 50.22 to the euro. The state intervention worked well, on Tuesday the bank sold just 300 millions of its reserves and stabilized the currency, but this gives an idea of how much the economy could suffer from banking sanctions.

Many analysts argue that large-scale economic sanctions would end up in harming both the parties. This is true for Europe but quite debatable for the US. In fact, it was probably the European Union to oppose to more severe actions targeting the banking and energy sectors that require the total commitment of the 28 states. Trade in goods between Russia and Europe was worth 336 billion euros in 2013 and the EU is Russia’s largest investor, accounting for 75 percent of all foreign direct investments. Furthermore, Russia, as it is well known, is the largest supplier of gas and oil to Europe. A gas crisis would dramatically affect not only Germany, to which gas is directly delivered through Nord Stream, but also countries like Italy and Greece, which are still recovering from the economic crisis. The proposal of some american senators to supply Europe with liquefied gas, beyond discrediting the image of a battle in the name of humanitarian and democratic values spread by the White House, is unsuitable for logistics and costs. In the long term, Russia would probably suffer the most, but the match would terribly affect the European economy and the global energy market too.

On the other hand, Washington has a very different perspective. In the first place, the geographical position allows the US to play hardball without getting too much involved. Second, the trade between the two countries is more than 10 times lower than that between Europe and Russia. Last, as said before, a gas war would enable the US to grow the export and win a geopolitical battle against Russia over the path and the control of the southern gas corridor.  These facts reveal why the White House and the Congress, are much more willing and freer than the EU to impose sanctions on the Russian Federation.

At this stage, however, it is not likely that stronger sanctions will be issued in the near future. President Putin’s last statements and the phone call with president Obama expressed the will to cool down the conflict after Russia retaliated by sanctioning 8 american lawmakers (none from Europe). Furthermore, a poll conducted in March by the Public Opinion Foundation showed just the opposite of what hawks expected, Putin’s popularity rose of 5 percent after the annexation of Crimea. The same poll, however, forecasted that the praise of the nation would sink in case of prolonged tense relations with the West. And this is what the regime-change supporters are pushing for.