New sanctions against Russia, but it’s unclear whether Putin will care

The new round of US and EU sanctions against Russia are the toughest yet, and they might well hit their mark: Russia's business oligarchs. But that still might not be enough to change President Vladimir Putin's behavior.

On Tuesday, President Obama announced a new round of coordinated sanctions that the United States and Europe would be imposing on Russia in connection with its actions in Ukraine:

WASHINGTON — The United States and Europe kicked off a joint effort on Tuesday intended to curb Russia’s long-term ability to develop new oil resources, taking aim at the Kremlin’s premier source of wealth and power in retaliation for its intervention in Ukraine.

In announcing coordinated sanctions, American and European leaders went beyond previous moves against banking and defense industries in an effort to curtail Russia’s access to Western technology as it seeks to tap new Arctic, deep sea and shale oil reserves. The goal was not to inhibit current oil production but to cloud Russia’s energy future.

The new strategy took direct aim at the economic foundation of Russia, which holds the largest combined oil and gas reserves in the world.

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The carefully orchestrated actions on both sides of the Atlantic were intended to demonstrate solidarity in the face of what American and European officials say has been a stark escalation by Russia in the insurgency in eastern Ukraine. Until now, European leaders had resisted the broader sorts of actions they agreed to on Tuesday, and their decision to pursue them reflected increasing alarm that Russia was not only helping separatists in Ukraine but directly involving itself in the fighting.

They are “meant as a strong warning,” Herman Van Rompuy, the president of the European Council, said in a statement on Tuesday that was joined by José Manuel Barroso, the president of the European Commission. “Destabilizing Ukraine, or any other Eastern European neighboring state, will bring heavy costs,” the statement said.

President Obama said Russia’s economy would continue to suffer until it reversed course. “Today is a reminder that the United States means what it says, and we will rally the international community in standing up for the rights and freedom of people around the world,” he told reporters on the South Lawn of the White House.

Mr. Obama said the fact that Europe was now joining the United States in broader measures meant the moves would “have an even bigger bite,” but in response to reporters’ questions, he said it was “not a new Cold War” between the two countries. He also made clear he was not considering providing arms to Ukraine’s government, as some Republicans have suggested, as it tries to put down the pro-Russian insurgency.

“They are better armed than the separatists,” he said. “The issue is, ‘How do we prevent bloodshed in eastern Ukraine?’ We’re trying to avoid that. And the main tool that we have to influence Russian behavior at this point is the impact that it’s having on its economy.”

The American and European actions were intended to largely, though not precisely, match each other. The United States cut off three more Russian banks, including the giant VTB Bank, from medium- and long-term capital markets and barred Americans from doing business with the United Shipbuilding Corporation, a large state-owned firm created by Mr. Putin. The Obama administration also formally suspended export credit and development finance to Russia.

The European Union adopted similar restrictions on capital markets and applied them to Russian state-owned banks. It imposed an embargo on new arms sales to Russia and limited sales of equipment with both civilian and military uses to Russian military buyers. Europe also approved new sanctions against at least three close Putin associates, but did not identify them publicly.

Conspicuously absent from being impacted by this newest round of sanctions, of course, is Gazprom, Russia’s largest energy company and the supplier of natural gas and other energy sources. Notwithstanding that fact, though, these are far tougher sanctions than we’ve seen imposed against Russia to date and, at least in some sense, answer the question I asked earlier this month about whether or not Europe would be willing to step up and take a stand against Russia in the wake of the downing of Malaysia Airlines Flight 17. In reality, the sanctions are not quite as tough as they appear to be on the surface, though. As noted, the sanctions won’t impact the massive energy deliveries from Russia to Europe, which bring huge amounts of hard currency into the Kremlin’s coffers. Additionally, the ban on military contracts only applies to future contracts and does not impact existing relationships. Arguably, this is consistent with the gradualist approach that the US and the West have taken on sanctions since the Ukraine crisis began nearly six months ago, but of course that gradulist approach has not done very much to restrain Putin’s actions so far, so it is unclear what these latest actions will accomplish.

That being said, there does seem to be some indication that Russia is starting to feel the impact of these sanctions:

MOSCOW – Russia, facing the toughest round of Western sanctions imposed since the Ukraine crisis erupted, has adopted a nonchalant public stance, with President Vladimir V. Putin emphasizing the importance of self-reliance and a new poll released Tuesday indicating a “What, me worry?” attitude among the bulk of the population.

But beneath that calm facade, there is growing alarm in Russia that the festering turmoil in Ukraine and the new round of far more punitive sanctions – announced Tuesday by both European nations and the United States – will have an impact on Russia’s relations with the West for years to come and damage the economy to the extent that ordinary Russians feel it.

Until now, Mr. Putin’s tactics seemed to be working. Russia was feeding the separatist insurgency in Ukraine without leaving distinct fingerprints – able to press Kiev to come to terms while avoiding a rupture with Europe that would alienate Russia’s business elite. But that strategy is beginning to crumble, battered under successive shock waves generated by the crisis.

More frequent and prominent critics are saying that Mr. Putin and the hard-line leaders in the Kremlin overreached by suggesting that Russia, far more dependent than the old Soviet Union on international trade and financial markets, could thrive without the West.

“They were not anticipating the West to make radical moves, costly moves,” said Nikolai Petrov, an independent political analyst. “What is happening is different from what they wanted and what they expected.”

He and others pointed to the downing of the Malaysia Airlines Boeing 777 over embattled southeastern Ukraine on July 17 as upsetting the balancing act that Mr. Putin had managed to pull off to maintain support from the public, hard-line nationalists, the security services, the oligarchs and the more liberal business community.

“Until this catastrophe, Putin’s calculations were pretty good in terms of being able to win any tactical battle,” Mr. Petrov said.

The Kremlin had been counting on its ability to maintain just enough instability in Ukraine to keep the country dependent on Russian good will, while making Europe and the United States cautious about intervening too assertively there.

Right after this weekend, when the likelihood of more serious European sanctions materialized, Mr. Putin met with advisers to say that Russia needed to become self-reliant. He was referring to arms production previously done in Ukraine, but the sentiment echoed in other fields.

“No matter what the difficulties we may encounter, and to be honest, I do not really see any big difficulties so far,” he said, according to a transcript on the Kremlin website, “I think that they will ultimately work to our advantage because they will give us the needed incentive to develop our production capability in areas where we had not done so yet.”

Domestically, grumbling over the creeping isolationism has grown louder. Roughly 50 percent of the economy is state-run, and the loyalty of those who direct such companies to Mr. Putin remains absolute. But the rest are changing.

“It is still a very polite version: ‘Maybe something is going wrong,’ ” said Sergei Petrov, an opposition member of Parliament and the founder of Rolf, one of the biggest car importers in Russia. “They would never say it to you, a foreigner, but I hear more and more critics.”

A former finance minister and a close Putin ally, Alexei Kudrin, voiced rare public criticism of Kremlin policy in an interview last week with the state-run news agency ITAR-TASS.

Mr. Kudrin said he was worried that the Ukraine crisis would drive Russia into a “historic confrontation” that would retard the country’s development across the board.

The business community was dismayed by the amount of anti-Western comments on television and radio, he said, indicating a “fundamental” shift that made the West Russia’s adversary again.

“Things are different in business,” he said. “Businessmen want to work, to invest, build factories and develop trade.”

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“In my opinion, we face a critical situation today,” Lev Gudkov, the director of the Levada Center, an independent polling organization, told a weekend seminar audience. “But our society does not realize it against a backdrop of patriotic and chauvinistic euphoria.”

That euphoria was rooted in the relatively bloodless, seemingly costless annexation of Crimea in March. The public expected that the rest of the crisis in Ukraine would be resolved with similar ease.

“The situation began changing dramatically after the crash of the Boeing,” Mr. Gudkov said. “According to our research, reaction inside the country was quite weak, but the Western European public has drastically changed its attitude towards Russia.”

What this all means for the future is hard to tell. Vladimir Putin does not strike me as someone who concerns himself very much with public opinion in general, and the unease that is expressed above doesn’t exactly rise to the level of serious dissent. Even if it did, the majority of Russians seem to be buying the line that the Kremlin is selling them and perfectly happy to go along with the Russian nationalism that Putin is using to justify his policies in Ukraine and potential threats to other nations in Eastern Europe. If there are going to be problems ahead for Putin, then, its not likely to come from the general populace but from the Russian oligarchs that are among his biggest political allies. This is at least part of the logic behind the sanctions that the US and Europe have adopted to date, namely the idea that if these oligarchs starting becoming unhappy with the impact sanctions are having on their heretofore comfortable lifestyles that included traveling the world at will, they will put pressure on Putin to stand down. Even if the first part is true, though, I’m not sure there’s much of any reason to believe that the second part will come to pass. After all, these sanctions aren’t going to sap the oligarchs of their fortunes, and it strikes me as being somewhat wishful thinking to base policy on the idea that making life less convenient for them is going to set in motion a course of events that will result in Putin backing down.

If it turns out that way, it would not be all that surprising. Historically, sanctions alone have not proven to be a very good means of getting nations to change a course of actions. Although sanctions have apparently played a role in bringing them to the negotiating table in Geneva, for example, sanctions have done little to deter Iran from continuing to develop a nuclear capability. The sanctions imposed by President Carter did little to deter the Soviets in their invasion of Afghanistan, and in some ways actually ended up hurting American farmers who had been selling wheat to the Soviet Union more than it did the Soviets themselves. The American embargo against Cuba hasn’t resulted in the end of the Castro regime. In no small part, of course, these sanctions haven’t worked because the authoritarian regimes that they were directed against didn’t really care very much about whatever economic pain might be inflicted on the general populace. Given that this seems to be true of Putin’s Russia, one has to wonder if these sanctions, or even a future round that is even tougher than what was announced Tuesday, will accomplish anything at all.

Doug Mataconis appears on the Outside the Beltway blog at http://www.outsidethebeltway.com/.