Economic sanctions against Russia
attempts to seize wealthy Russian’s private jets and yachts has proved largely ineffective as Putin becomes more and more isolated from those around him.
However, perhaps the key point is that western sanctions on oil and gas have resulted in dire energy shortages in Europe while pushing up the price of the gas Europe still buys. The price of energy has been raised so much that, even though Russia exports less, the price increase has offset the volume declines. Ironically, we still buy oil and gas from Saudi Arabia, even whilst it still happily processes Russian crude oil, meaning the Russian oil still ends up in Europe. The effect of this is that Russia’s current account surplus tripled in the first four months of the year to $95.8 billion (Harvey, 2022). This has led to Russia being able to continue to finance and expand its war effort. At the same time, western economies have been severely harmed themselves by the sanctions and Russia’s response. Inflatio n has been exacerbated by the sanctions on energy, with Nord Stream 1 pipeline volumes falling to 20% of pre-invasion levels (Trevelyan, 2022). The UK inflation rate is forecast to reach a high of 18.6% in early 2023 according to Citigroup (Giles, 2022), largely driven by rising energy price rises. However, the effects are widespread across Europe. Manufacturing and industry, key users of energy, are forced to pay much higher prices for energy, and reduce the supply of goods. This has led to widespread inflation in essential goods including food and clothing. Germany needs to cut gas use by 20% by the winter to avoid rationing due to the decline in gas supplies (Chazan, 2022). With cutting gas supplies to homes not a politically achievable position, European industry will be forced to take the brunt of the shortages. This will lead to European manufacturing becoming less competitive relative to the rest of the world due to energy costs. This will have severe repercussions just as Europe enters a recession, with interest rates still needing to be increased to bring inflation under control. Some scenarios painted by economic forecasters are dire, with potential threats to the integrity of the Euro itself. While the economic situation in Europe is severe, arguably the greater damage has been done to western public support for the continuing aid to Ukraine at the current level. Sanctioning Russia was the clear moral choice at the beginning of the unprovoked invasion. However, western leaders largely ignored the social and economic consequences of their decisions, focussing on the moral aspect. At the start of the conflict, public opinion was very much in favour of sanctions because, as we have seen, many experts portrayed them as bei ng cataclysmic for Russia’s economy. However, when it became apparent this was not the case and bills started to skyrocket, public opinion has begun to shift. In Germany a plurality of respondents told RTL in July 2022 that Ukraine should prepare to give up some land in its east in order to end the war. This shift is largely due to the increase in bills that have hit Europeans, mainly in energy. This is crucial as, in the west, our politicians are dependent upon their voters, and any sign that public opinion is turning will have politicians scrambling. The UK energy price cap is forecast to rise to £3,554 in October 2022, up from just £1,138 a year earlier. This is leading to calls for further substantial relief for consumers in the form of subsidies, which although damaging the public finances, does nothing to address the root cause.
As the effects of sanctions bite into the winter and gas reserves dwindle, our politicians, alongside counterparties in Europe, may come under increasing pressure to negotiate with Russia to get the gas flowing again, in exchange for forcing Ukraine to give up some eastern territories. In this way,
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