WHEN SANCTIONS BACKFIRE

To penalize Russia for Moscow’s invasion of Ukraine, the west responded with a barrage of sanctions to restrict its capability to fund the war and straiten its political and economic elite. Since the sanctions began, gas prices have soared in Europe, Africa and other parts of the world, underscoring the strategic relevance of Russia.

The prices of food worldwide have reached an all-time high as it is affected by disruption in the energy and agricultural sector both of which Russia and Ukraine are integral. Amidst these troubling happenings across the world, the Russian rouble is appreciating against the Dollar in an unexpected twist. The rouble, though at the receiving end of a western boycott and an onslaught of sanctions, is rising like a phoenix from the ashes. And it has in fact been declared the World Best Performing Currency.

The sanctions have backfired and have proved to be counterintuitive. A case in point is the west paying increased energy prices created by its sanctions on Russia.

Some analysts posit that as long as the sanctions persist on Russia; disrupting oil supply and triggering high prices, Moscow would continue to earn more than enough to fund its war because it’s fundamentally an energy economy.

The USA sold the world an optical illusion that its sanctions were going to force Russia to withdraw troops or at least bring Putin to the negotiating table cap in hand, but the prevailing reality sharply contrasts this. Russia isn’t backing down and the effect of its recalcitrance is global. It is now audible to the deaf and visible to the blind that global sanctions against a country (Russia) that controls the energy reserves of Europe were not only indicative of tunnel vision but also a bad idea.

Nevertheless, the sanctions aren’t without effect in Russia, Putin himself describes the sanctions imposed by the US, EU and their allies as a ‘premeditated hit to the entire domestic economy, to the social humanitarian sphere, to every family, every citizen of Russia’. His sensationalism aside, Moscow is weathering the storm.

Why is the Rouble appreciating?

The Russian rouble is strengthening primarily due to oil and gas revenue. Russia demanded EU countries pay for natural gas with the rouble and countries like Germany and Italy have complied by opening rouble accounts to purchase Russian gas. Russian central bank also imposed capital controls mandating foreign firms to exchange some of their earnings for the rouble. To give the rouble firm support, Russia pegged the currency with gold as a firm backing to withstand shocks.

Now, besides raising rates and forcing companies to buy roubles, Moscow limited the number of dollars that Russians could withdraw from foreign-currency bank accounts and prohibited banks from selling foreign currencies to customers. However, Russia can’t import from the west due to its sanctions.

Is the Dollar Threatened?

The dominance of the dollar can be traced to the fact that it’s the world’s global reserve currency (meaning it’s the currency in which most international goods are priced and which most central banks hold in their foreign reserves). The dollar is also the global currency of oil trade. Hence, the term “petrodollar”, connoting the global practice of exchanging oil for US dollars, rather than any other currency.

By driving Russia into China’s camp the US is unwittingly upending the U.S. dollar-based financial system because, during the recent BRICS Summit, Russian President Vladimir Putin announced that the five-member economies — Brazil, Russia, India, China, and South Africa – plan to issue a “new global reserve currency”.

In Putin words “The matter of creating the international reserve currency based on the basket of currencies of our countries is under review,” he further adds “We are ready to openly work with all fair partners,”. Additionally, Turkey, Egypt, and Saudi Arabia are considering joining the BRICS group. Analysts believe the BRICS move to create a reserve currency is an attempt to undermine the US dollar and the IMF’s Special Drawing Rights. The primacy of the Dollar is being challenged, only time will tell the consequences of this. Can the US balance punish Russia by not encouraging the more widespread adoption of rival currencies?

What is the Endgame for the USA in this war?

President Biden entered the war portraying the veneer that he did not want to make this a contest between the United States and Russia. Rather, he was exuding benevolence by helping a small country put up a spirited defence against invasion by its powerful neighbour.

More than 100 days after, US Defence Secretary Lloyd Austin says “We want to see Russia weakened to the degree that it can’t do the kinds of things that it has done in invading Ukraine,”. This explains why Biden has allocated $10.6 billion in US military aid to Ukraine since the Feb 24 invasion. The package includes surveillance drones, MRAP [mine resistant ambush protected vehicles, anti-tank and anti-aircraft missiles, machine guns, rifles, ammunition and body armour.

Weakening Russia is officially a policy objective of the USA. Hence, heavy funding that has contributed immensely in prolonging the conflict to the detriment of the average Ukrainian.

In March, Biden said, “Confrontation between NATO and Russia is World War III, something we must strive to prevent,”. But the actions of the US during the war reveal the downplayed reality that this is a battle for Ukraine in a proxy war between Russia and USA.

Weapons shipment in billions of dollars from America to Ukraine can be traced to Washington’s military-industrial complex; an appellation that captures the collaboration between politicians, the military and industries producing platforms and weapons/defence system that allows it to maintain cutting-edge superiority over the world at the same time provide weapons and platforms to friends and allies at a cost. The military-industrial complex not just produces a weapon, it uses them to destroy societies.

Russia’s Game Plan

Russia has occupied and is in control of those areas of Ukraine’s territories that are rich in natural resources like oil, gas and minerals. Russia would consolidate on the 2014 annexation of Crimea by securing full control of the south and the eastern Donbas region, reaching as far as neighbouring Moldova. Like the Crimean Peninsula, Luhansk and Donetsk are regions where a particularly large proportion of the population speaks Russian and is ethnically Russian.

A deputy commander, quoted by Russia’s TASS News Agency, said that “Russian forces’ control over Donbas will “enable to establish a ground corridor to Crimea and to gain influence over vitally-important Ukrainian military facilities, the Black Sea ports”.

In early June, the Ukrainian leader, Zelensky, said “Today, about 20 per cent of our territory is under the control of the occupiers,” during an address to lawmakers in Luxembourg.

Russia controls about one-fifth of Ukraine, including ground gained over Moscow’s invasion, the annexed Crimean Peninsula and territory held by Moscow-backed separatists. Russia aspires to destroy the morale of the Ukrainian resistance and puncture European support, while the US wants to prop up Ukrainian and European enthusiasm. Through a war of attrition, Russia hopes time will force a weakened Ukraine and a staggering Europe to throw in the towel in some guise.

As winter approaches, Russia’s energy giant Gazprom announced an indefinite shut down of gas pipes for what it calls “routine maintenance”, affecting gas supplies to Western Europe via the Nord Stream 1 pipeline. This move would increase economic pressure on European countries that depend on the gas to power industry, generate electricity and heat homes. The energy war forms part of Putin’s plan to weaken European support for Ukraine by making life uncomfortable for its citizens.

Ukraine’s Dilemma

Ukraine has been crippled and will take years to rebuild after the war. In addition to its devastation Ukraine leader, Volodymyr Zelensky, is out of his depth and caught in the frame of mind meant for his profession (acting), by posing for a vogue photoshoot amidst the carnage and publicly requesting materiel that can take the war down the path of World War 3, he’s puppeteering on the blood of his people. The fate of Ukrainians is in the hands of a leader who prioritizes short-term performative appearances over long-term consequences. Misplaced courage is jeopardizing the lives of millions to prove a point.

It is not exactly clear what could be considered a victory for Zelensky, regaining the territories lost since the beginning of the invasion. Or regaining Crimea and the self-proclaimed republics of Luhansk and Donetsk? Even Ukraine’s recapture of only the territories occupied by Russia since February 24 would be too much for Putin to swallow. Putin is likely to go to any length to save face, raising fears of nuclear escalation.

It is therefore difficult to see what compromise could be found between Ukraine and Russia. The war could go on for a while with less tempo. And the US is keen on Ukrainians fighting regardless of the cost and possibility of “victory”, as long as the war exhausts the Russian military and weakens its economy, the latter of which is not happening.

For now, Ukrainians are battling for the Western democratic dream in what is effectively a proxy war between Russia and the West. Putin will like to sustain the war of attrition he thinks necessary to degrade Ukraine’s economy and military sufficiently to make its leaders want to capitulate.

There is little detail about what a strategic defeat for Russia would look like or what sort of territorial settlement the US might end up encouraging the Ukrainians to accept.

Can Western support for Ukraine persevere?

The West’s commitment to Ukraine will likely be affected by upcoming election cycles, which Putin is betting on. What happens to America’s commitment to Ukraine after the November 2022 midterm elections, should Republicans take control of Congress? Or after the 2024 presidential election, should the openly pro-Putin Donald Trump return to the office? Would a change of government lead to a change in commitment?

While Zelensky favours a battlefield victory or a concession that involves Russia giving up occupied territory, his allies in USA and Europe might differ because of the consequence of this war on their electorates. Hence, a willingness to capitulate in the eventuality of a settlement that ameliorates the sufferings of higher inflation, energy costs and shortages of other basic products for their citizen.

On the other hand is NATO whose ultimate objective is to defeat Russia and discourage China from emulating it, having now branded Beijing as a security challenge”.

What is the status of the war?

The status of the war in Ukraine is conflicting, Russia is claiming victory but the US says Ukraine has an upper hand. The accurate picture of things has been muddled by propaganda from the warring parties. Psychological warfare has taken centre stage as the world is serenaded with a miasma of selective facts and myths, as all sides try to galvanize their populace behind their objectives.

Western media is parroting outrageous casualties on the Russian side, but the west isn’t new to making self-serving pronouncements they know to be false and hiding clear-cut evidence about an unwinnable war for self-serving reasons. Based on antecedents, we can’t take their claims at face value because of their perpetual proclivity for false information and fabricated evidence.

Afghanistan, Iraq and Vietnam, were all wars persecuted with propaganda but ended with an ugly truth. Therefore, it would elicit no iota of shock, should US officials privately doubt Ukraine could recover all its occupied territories, yet encourage Ukraine against a diplomatic solution because prolonging the war is in their interest.

The Kremlin’s propaganda machinery is also mind-boggling, not only the outside world but even the Russian populace are unaware of the true state of the war. Due to the absence of private media outfits, state-run media outfits have hoodwinked the populace with a steady diet of disinformation, historical revisionism, and multiple conflicting narratives.

However, Ukraine launched a major counteroffensive in Kherson, the only regional capital Russia has been able to secure since the war began. There’s no certainty the offensive would be successful, but that Ukraine is the battleground and Russia is in control of 20% of the territory is enough to tell who has the upper hand.

A Spirited Appeal

The US and leading European states should seek a working arrangement with Russia that would secure Ukraine’s neutrality and give way for a stable if imperfect regional peace. Enthusiastic Washington foreign policy hawks viewing Moscow’s aggression as the perfect opportunity to destroy Russia as a major factor in international politics need to accept the reality that western aid can only ameliorate the enormous harm but is likely to fall as the US and European countries face public pressure to focus on domestic problems. Despite their willingness to help in economic recovery, the difficulty remains that Moscow could launch missile or air attacks at any time. Although Russia has been hurt by sanctions, so far, the impact has been manageable.

The human cost of this geopolitical merry-go-round is enormous. These leaders exacerbating the conflict because they’ve entwined national interest with their “ego-fest” and need to come to terms with stomaching the idea of a loss, whatever that would mean. Like I said in my previous article on the crisis, the global consequences have brought us to a juncture where something has got to give.

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