The effect of Western sanctions against Vladimir Putin is weak. Although the European Union stands out with its toughest measures so far against Russia’s war machine – including a partial ban on oil imports – there are a growing number of concessions, from removing oil from the pipeline from sanctions to removing Putin’s favourite priest from the sanctions list.
Hungarian leader Viktor Orban, a Putin fan, is clearly playing a big role in breaking up the united front. However, the risk of fatigue and declining morale goes further than Budapest. The price of hitting Putin where it hurts – energy – captures the minds of many national leaders at a time of high inflation and economic slowdown, as well as a bleak scene of Russian progress that is gaining momentum again after 100 days of struggle, writes Bloomberg.
With differences of opinion spreading inside and outside the EU about what the end of the crisis might look like, this does not bode well for the short term. Estonian Prime Minister Kaja Kallas, who now has to re-form her ruling coalition after breaking up last week, wants to keep up the pressure on Moscow. But he admits it will be increasingly difficult from now on, with little chance of a gas embargo in the next set of restrictions.
A different approach
It is time for a different approach or a break, according to the Belgian colleague of the Estonian Prime Minister Alexander De Croo.
There is no simple solution to sanctions fatigue. Financial weapons are an imperfect tool that is prone to uneven implementation and unintended consequences. The unprecedented range of sanctions against Putin’s inner circle, as well as Russia’s financial system, airlines and trade, will contribute to a 10 percent drop in Russia’s gross domestic product this year.
But that did not deter or overthrow Putin.
Worse, there were also some counterproductive effects. Rising energy prices have filled Putin’s pockets while impoverishing importers. Russia’s oil and gas revenue will be about $ 285 billion this year, according to estimates by Bloomberg Economics. When other goods are added to that, the figure exceeds $ 300 billion in Russia’s foreign exchange reserves frozen due to sanctions.
And while the seizure of yachts and the villas of wealthy oligarchs gives a good feeling, it’s embarrassing to see Western companies leaving Russia and selling properties to those billionaires who are actually too big to be sanctioned.
Long-term response
Even if the long-term response is to take stronger and faster measures against Russia, it will be vital to strengthen economic defense at home first. Barclays estimates that a full embargo on Russian natural gas could reduce eurozone GDP by 4% compared to the baseline scenario. Without additional economic support for households, Orban’s rhetoric, which tastelessly compares energy sanctions to an economic “nuclear bomb”, will expand.
Already in April, a YouG poll showed that European public opinion was somewhat contradictory: more than 30% of respondents in seven countries, including Spain and Italy, advocated investing in trade and diplomacy with Russia rather than defence and security.
Without the light at the end of the economic tunnel, the mood of the public could change completely. If this war drags on and becomes a test of morale, the West and the EU have an advantage in terms of resources and human capital, as noted by Miguel Otero Iglesias of the Elcano Royal Institute. But it comes with the need to protect the most vulnerable in society and fiscal support will be inevitable, Bloomberg writes.
The West is Tired of Sanctions Against Putin
Pandemic-style support measures should encourage the next European policy steps, either through a common borrowing structure of the EU Recovery Fund or SURE loans offered to members to protect employment. Unity will indeed be a force at a time of rising interest rates and fragile public finances, especially as Putin begins to restrict gas supplies to countries that do not play by his rules.
It is easy to assume, as some have done, that the dividing line is in this conflict between those who want to give in to Putin and those who are on Ukraine’s side. This is neither true nor helpful. The Italian example is particularly instructive. Before Putin’s invasion, Mario Draghi was thinking about deeper gas ties with Russia. Since then, he has supported a ban on the import of Russian oil and supported the sending of heavy weapons to Ukraine, despite domestic political resistance.
However, he also called for a joint response to rising energy costs and called on the US to think carefully about what a ceasefire might look like. As sanctions fatigue threatens, Draghi’s approach, not Orban’s, should determine the West’s next steps, Bloomberg concludes.
