MAKING SANCTIONS WORSE FOR RUSSIA

Trump administration plans some say, are to end the war with two big sticks – but there has to be a carrot or they won’t look look like they have a benefit for Russia, and like it or not Russia has to walk away with something or what was it all for? And how does Putin survive? He has to have an off ramp, but he notoriously refuses to avail himself of such opportunities.

Stick 1 is the military aid plan. Russia comes to the table and talks seriously or the US will swamp Ukraine with so much aid the Russians will find themselves in an impossible position. They’ve know about this a while, it’s been a big talking point. It’s part of why they keep throwing in so much resource to keep advancing. And why they keep pretending they’re not interested in any deal.

Stick 2 is by all accounts a threat to introduce a massive tightening of the sanctions screws. There’s plenty of leeway to make that happen.

The oil tanker industry for one could face serious investigations and financial problems if it’s found to be shipping or transshipping Russian oil to hide its origins. Stricter controls, burdensome financial penalties, being placed on payment black lists and so on, could drive many of the non-Russian owned tanker fleets away from Russian oil. Especially the Greek owned fleets which have been some of the biggest sinners.

Another aspect of the oil industry that still hasn’t been sanctioned is the oil services area. These are companies that still operate in Russia maintaining their oil extraction and transport capacity. The Financial Times reported only on March 24th that SLB based in Houston Texas, ‘has no plans to leave Russia’. Being left off the sanctions list suggests heavy lobbying has gone on, what they’re doing is still completely legal, if immoral. By April SLB was said to be increasing its level of operations in Russia even as others departed. To them the money clearly matters more than the politics or the optics.

According to the BBC in May, 2,200 western conglomerates and companies had decided to stay while only 1,600 had really left. The reason many stay is that they’re forced to sell to a company in Russia on exit for ludicrously small amounts of money, so they don’t bother and stay. Western companies made $13 billion in profits in Russia in 2023.

So, making it impossible for these companies to stay, forcing them to sell actually provides Russia with a problem. If all these business sell up because they have to its a high demand on Russian owned companies who will have to borrow even more expensive money to buy them out. Even if the deal looks a bargain, there’s no guarantee a Russian company can finance it or make it work economically in the current environment. We all know the western corporates will survive one way or another. Let them take the loss and get out.

Another series of fiscal measures can’t go amiss either. Crack down on the whole payment system even harder, include tertiary banking and import/export funding.

Back in the 1980’s Ronald Reagan and the Saudis agreed a deal where the Saudis (who hated the Soviets because of their communism) flooded the oil market with so much oil it was down to $9pb – the Soviet oil industry couldn’t cope and had to be shuttered, it was severe blow to the Soviet economy and a contributing factor to the fall of the Soviet Union. It’s a bit more complex now, but there are ways and means of ensuring Russian oil is priced out of the market – if they’re prepared to push that hard. I’m not sure the will is there.

Another major area that needs cracking down on is the dual-use electronics market, and the secondary micro chips supply.

This isn’t easy because most of it comes from China, but fully assembled components that are dual purpose are manufactured all over Europe and the US. These need to be isolated and licensed more strictly. And countries like the UAE and Kazakhstan where much of these parts are smuggled though after entering legally, need to be far more tightly restricted. We cannot continue having British and American components inside KH-101 cruise missiles devastating the Ukrainian power grid.

There is clearly more we can do. Much of it has been far too long coming.

So whatever the next US administration has planned, let’s hope it comes to pass, because Russia cannot be allowed to get away with this, and the companies aiding and abetting the war to enable Russia need to face tighter scrutiny and penalties, until its not worth them staying.

As Katja Kallas, former Estonian Prime Minister (and now EU foreign affairs)explained back in May; the Russians always ask for 500% of what they want and then wait for us to negotiate them down to 250% of what they want – so they end up with more than they really wanted anyway. The only way to counter that is to pile on so many sanctions that even half of them will still be burdensome if half were lifted as pat of a phased peace deal. We cannot let them off the hook without them giving Ukraine what we need to see: genuine military removal, and end to fighting, and some return of land in the initial phase.

The Analyst

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