Ukraine crisis: Western sanctions and Russian resilience

Recession, skyrocketing prices, and a huge devaluation of Russian ruble against US dollar are tormenting Russia. How long will Moscow be able to sustain before changing its policy on Ukraine? The pro-establishment mainstream Western media groups - both print and electronic - are awash with speculative stories about the Western sanctions against Russia, how it is biting it, and pin-pointing details quoting different studies and economic analysis. Russian President Vladimir Putin in particular is being portrayed as the villain for his temerity to show courage and assert independence.
Though these are all, up to a point, correct but what they do not mention is how the consequences of the same sanctions are also adversely affecting the European countries themselves - some big and small ones. This bravado has not been fully matched.
For a change, however, a Western news agency reported on Monday (December 22) that most Russians ended the week with a sigh of relief as ruble rebounded against US dollar and euro after a deep plunge during the previous week. Ruble recovered from $80 and euro 100 to $60 and euro 73 respectively. Moscow's central bank decided to revise interest rate upwards as one of its measures to tackle ruble's uncertainty.
Russia's problem was that together with their currency devaluation, plunging of oil prices, whose exports used to bring half of the country' revenue, hit it hard. The oil price plunge resulted from the economic downtrend in Europe and elsewhere. As a result, oil's demand slowed down while some major OPEC countries refused to cut their oil production to reduce supply. Oil's oversupply depressed the market and the price dropped sharply.
Published reports quoting petroleum experts say three major OPEC members' refusal to cut petroleum production was prompted by the US to make Iran and Russia feel the pinch most.
Meanwhile, the Russian lawmakers passed last week a bill to capitalise the Russian banking system with one trillion rubles ($16 billion). The finance ministry is also trying to increase capital in the banking sector by 13 per cent and has also issued loan volume by 15 per cent - measures to stimulate the economy and investment.
SANCTIONS ALSO AFFECTED EUROPE: Belgium's major digital screen producer Barco's senior sales executive told newsmen in Brussels in October last year that the company lost its top Russian shipbuilder as a client. European Union (EU) blacklisted Russia's United Shipbuilding Corporation (in July 2013) and this ended Barco's sell of its screen to the company for its vessel training simulators. This shows how sanctions are having impact not only on Russia but also on the Europe's recession-driven economy which can hardly endure it.
For example, EU's statistics office Eurostat says, in August (the sanction was imposed in July), EU's exports to Russia fell 19 per cent to 7.9 billion euros ($9.91 billion), a loss of 2.0 billion euros compared to July. The drop, however, also reflects the food ban that Russia has imposed in August in retaliation to Western sanctions. Total EU exports to Russia fell by 12 per cent in the first eight months of this year compared to a year ago.
Also in August, EU exports of machinery and transport equipment fell 23 per cent as against July. Compared to a year ago, those exports fell 21 per cent.  Manufactured exports to Russia fell 16 per cent across the 28-nation bloc in August. Germany, which accounts for one-third of its sales to Russia, saw a sharp drop in sales of those goods, while Italy's manufactured exports also tumbled by half.        
RUSSIAN EXPECTATIONS: After a relatively longer stay for a geopolitical analyst, Geopolitical Weekly's George Friedman returned home with interesting insight of Russia. In his article Viewing Russia from the inside, he observed: "I thought the economic problems of Russia would be foremost on the people's minds. The plunge of the ruble, the decline in the oil prices, a general slowdown in the economy and the effect of the Western sanctions all appear in the West to be hammering the Russian economy. Yet, this was not the conversation I was having. The decline in ruble has affected foreign travel plans, but the public has only recently begun feeling the real impact of these factors, particularly through inflation.
"But there was another reason given for the relative calm over the financial situation, and it is not very seriously. The Russians pointed out that economic shambles was the norm for Russia, and prosperity the exception. There is always the expectation that prosperity will end and the normal constrictions of Russian poverty return.
"The Russians suffered terribly during the 1990s under Boris Yeltsin but also under previous governments stretching back to the czars. …The golden age of the previous 10 years was coming to an end. And that to be expected and it would be endured. The government officials meant this as a warning and I do not think it was a bluff. The pivot of the conversation was about  sanctions, and the intent was to show that they would not cause Russia to shift its policy toward Ukraine."
 Friedman, however, mentioned that to his understanding the Russians were not thinking of cutting off natural gas supplies to Europe. As mentioned earlier, Russians have special capacity to endure hardship that would break most other countries. He felt that no one should believe that through sanctions, however harsh, Moscow would be made to capitulate. But this does not mean that the Kremlin would also sit idle if things continue as it is. For example, Kremlin can seize the assets of the European companies in Russia and curtail agricultural imports from Europe.  
RUSSIAN 'BEAR' FIGHTING: The effect of the kind of sanctions that the Western leaders tend to believe would force the recipient country or countries to capitulate, therefore, is not happening in Russia. It did not happen in Iran and Iraq though sufferings of the people and, in particular, women and children did multiply. This can cause humanitarian disaster as it has caused in Iran and Iraq.
An agency report says the Russians appear to be behaving it is like the hardship of 1998 they had to endure. But the situation then and now is vastly different. For example, Russia was in effect a bankrupt country then but it is now in a pretty good shape financially. High oil price in the past decade had allowed Moscow to pile up substantial hard currency reserves. Even after it had to spend heavily to support the ruble, the central bank's reserves still stand at $400 billion.
Public debt is just over 10 per cent of GDP (gross domestic product) and the budget remains balanced and the government has a big rainy day fund to draw upon and sustain social spending.          
Russian strongman, President Vladimir Putin while addressing his annual end-of-the-year press conference in Moscow did stick to his fiery anti-West rhetoric and branded Ukraine's attempt to crush a Moscow-backed separatist uprising in the eastern part a "punitive operation". He made a strong attempt to quell fears of economic collapse and promised a rapid recovery from the worst financial crisis of his rule and reiterated that his stand of Ukraine has not changed.
An undaunted Putin accused the West in the press conference of wanting to tame the legendary Russian bear, the animal symbolising his country and asserted its goal was not to punish Moscow for seizing Crimea from Ukraine in March but to undermine Russia's independence.
For the Americans and the Europeans, the sanctions seemingly reflect their thresholds of pain and so designed to cause pain that the West could not withstand. The effect may vary, if applied to others. So the level of tolerance of pain is at the issue now.
[email protected]