After Crimea voted to secede from Ukraine and join Russia through a referendum, despite EU and US opposition, there are not many cards left in the hands of Western leaders, who had declared the process illegal and vowed to punish Russia with economic sanctions.
If war is not impossible, it is not acceptable to both the Russian and Western parties. This means an economic boycott is the only weapon that the West can use against Russia.
But is this possible? Russia is not like Cuba, which has been under economic sanctions for 55 years. It is definitely not like Iran, which succumbed to sanctions a few decades later. Russia has many powerful political and economic cards that cannot be overlooked by the West, particularly the EU. However, all issues revolve around the interests of each party.
First, Russia is the largest oil and gas producer in the world and is a member of the G8 and the G20. This simply means that imposing economic embargo or sanctions on Russia would shake up the global energy market and, consequently, the entire global economy. Would global economies, including Western ones which are hardly recovering from the financial crisis, tolerate another strong shock at present?
Second, EU countries depend on Russia to meet 30 per cent of their gas needs, which means that imposing an embargo on Russia would seriously harm their economies as no other country will be able to make up for Russia’s gas. Meanwhile, US shale gas production needs years to develop and reach Europe and compensate for the portion of Russian gas.
Third, massive Russian investments in the US financial market, especially in Treasury bonds, would confuse the American economy and cause a real financial crisis if Russia decides to withdraw its investments.
The fourth point is that the Russian market was turned into one of the world’s largest markets for goods and EU products and services over the past two decades. The EU has enormous investments in the Russian economy, especially in energy.
Of course, this does not mean that Russia will not be affected, but it has a strong alternative represented in the BRICS Group, of which Moscow is a member, alongside the other big emerging economies, including China, which is the world’s second largest economy. Other members include India, Brazil and South Africa, which are not expected to participate in the economic embargo.
This will allow Russia to resist Western economic sanctions, as was evident when the Moscow bourse rose 3 per cent on the day following the Crimea voting. This was with the knowledge that the stands of the EU and the US are not identical over the proposed embargo.
Furthermore, there are many countries which will try to distance themselves from this conflict that flared up in a short span of time in an exaggerated manner.
Preliminary indications provide clear evidence that these positions are varied. When Washington announced hardline stances, yet without action, the EU has sufficed with light sanctions related to the cessation of travel visas and freezing the assets of certain individuals in Russia and Ukraine. Meanwhile, other aspects of co-operation, particularly in energy and investment, are still far from reaching the sanctions stage, and will remain so in the near future at least.
Indeed, what is happening now is a geo-political struggle and, therefore, attempts to resolve it through imposing economic sanctions on a country of the size of Russia is useless and would harm all parties and the global economy as a whole.
Resorting to sanctions will also lead to structural changes in international economic ties. This means that constructive dialogue, trust building and considering the interests of all parties without harming the interests of a certain party — as well as creating a balance that does not prejudice the security of neighbouring countries — is the ideal solution to find a way out of this crisis.
The crisis between Russia and the West has a negative impact on global economy, particularly on the financial and capital markets, which may intensify if the parties fail to arrive at solutions satisfactory to all parties.
Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.