Economic sanctions against Russia: “By dint of abusing them, they will one day be less effective”

Economic sanctions against Russia By dint of abusing them they

This is an important element of Russian propaganda: the arsenal of sanctions put in place by the West would have limited effects. If the Russian economy has not collapsed, it is suffering: the country is in recession and will lose its status as an energy giant in the coming years, argues Agathe Demarais, director of global forecasts at the Economist Intelligence Unit ( EIU), the independent research center of the British magazine The Economist. In an essay recently published by Columbia University Press, Backfire, however, it warns the West: by using this weapon too much, the plans of the coalition of the “sanctioned” are accelerated to set up alternative mechanisms in order to immunize themselves from it. Interview.

L’Express: While an eighth package of sanctions against Russia was recently put in place by the West, what is your assessment of this legal arsenal?

Agatha Demarais: Before taking stock, we must first return to the objectives of these sanctions. This is a problem because they have never really been stated by Westerners. In fact, this lack of clarity feeds the confusion and in a way allows Russia to refine its propaganda by asserting that the sanctions are ineffective. In fact, the first objective was to send a strong diplomatic message of support for Ukraine and above all of unity among Western countries. And, from this point of view, the mission was accomplished. Transatlantic unity has been almost perfect. The second objective was then to make it more difficult for the Kremlin to continue the war in Ukraine. Its technological capacity in particular has been undermined by much more complicated access to semiconductors, which heavily penalizes the defense industry. Finally, the third objective – and undoubtedly the most important – is the slow asphyxiation of the Russian energy sector. The sanctions put in place since 2014 by the United States and reinforced since March 2022 considerably hamper the access of Russian energy companies to Western financing and technologies. Russian oil and especially gas fields are reaching maturity, and they will have to be replaced. However, the reserves are in the Arctic, and their exploitation requires extremely expensive and complex technologies that the Russians do not master. The consequence is a slow erosion of the sector: the country will lose its status as an energy giant in the coming years. According to estimates by the International Energy Agency, today 30% of the oil and gas traded worldwide is of Russian origin. In 2030, it will only be 15%!

You say that sanctions work like slow poison. In fact, the Russian economy did not collapse…

It was totally unrealistic to think so. However, Russia fell into recession in 2022, its GDP contracted by around 4%, and this contraction will continue in 2023. But we must be very careful. Because Russia has made economic statistics a weapon of propaganda. We no longer have access to a certain number of statistics. Despite everything, we note that in November household consumption fell by 8% over one year, industrial production by 2%, and automobile production collapsed by nearly 80% because the country no longer has access to Western spare parts.

We talk about sanctions against Russia, but there are those that weigh on Iran, Venezuela, Cuba and especially China… The United States masters this tool to perfection through the extraterritoriality of its law. By dint of using it all the time and everywhere, can this tool become blunt?

Sanctions are a bit like antibiotics: if you use them too much, in the long term, they will lose their effectiveness. However, for Western democracies, they fill a void between diplomatic arm wrestling (ineffective) and military intervention (deadly). The United States abused it. In recent decades, America has imposed more sanctions than the European Union, the United Nations and Canada combined! Gradually, undesirable effects begin to emerge, and resistance materializes. We see the appearance of a form of coalition of the sanctioned, who try to implement mechanisms together to immunize themselves from the sanctions.

What mechanisms are you talking about concretely?

I will give you two examples in the financial field. The first is dedollarization. Clearly, no longer use the dollar for international trade and force its partners to use its own currency. China does this a lot: since 2020, the majority of trade between China and Russia is denominated in yuan or rubles. It is not a coincidence. In March 2020, the Shanghai Cooperation Organization, which brings together China, Russia, India, Pakistan and Asian countries, made the dedollarization of their economy a priority. There is also the issue of foreign exchange reserves. Half of the reserves of the Central Bank of Russia have been frozen… Why not the other half? Simply because they were held in the form of “exotic” currencies. Russia therefore has the equivalent of 300 billion dollars left, which is more than what the American Central Bank has! The second mechanism concerns Swift, a system in the hands of the Americans and which links all the banks on the planet to each other. If a country is cut off from it, it falls into financial isolation, as was the case with Iran. China has created a competing system, the CIPS, certainly 100 times smaller in terms of transactions carried out, but which technically works perfectly. All the banks are connected to it, even the American ones. China is giving itself the possibility in the long term of cutting off Western companies from the Chinese market if they do not use CIPS.

Regarding Russia, can we go further in the sanctions?

The year 2023 will be very different from 2022. Last year, Europeans were still very linked to Russia through the channel of energy. This is no longer the case today. The United States and a fortiori Europe no longer have much to lose by imposing even greater sanctions. We can imagine three measures: cut Russia off from the dollar, like what had been done with Iran, disconnect the Russian banks from Swift, and finally put in place secondary sanctions. Clearly, Washington can force all companies in the world to make a choice: either continue to work in the United States or continue to trade with countries under sanctions. The choice will be quickly made: which company will want to cut itself off from the American market? If the conflict gets bogged down, we will clearly go in that direction.

Can the control on semiconductor exports to China recently decided by Washington really slow down the Asian tech locomotive?

This is indeed the goal. The United States holds all the technology to design these famous semiconductors, even if they are then manufactured in Taiwan or South Korea. De facto, Washington is forcing all companies in the world to make a choice: continue to export to China or continue to work in the United States and benefit from its technology. In the short term, this is a problem for China. In the medium and long term, two trends are reinforced: the trend towards Chinese self-sufficiency and the indigenization of technologies with gigantic investments by China in semiconductors, nearly 30 times greater than American investments. Europe is not even in the equation. The risk with this Sino-American decoupling is to have a remake of what happened in the 2000s with American cell phone manufacturers. At the time, the Lucents and other Motorolas were the world leaders. And they had very large revenues, which they reinvested in R&D. From the moment China flooded the market with cheap phones, eating away at market share, their revenues and their R&D expenses have declined. The same thing could be observed in semiconductors. With China, history is written over the long term.