Why Putin Underestimates the Impact of Western Sanctions on Russia
Despite the prominence of Western sanctions against Russia, Putin's actions suggest a measure of indifference towards their potential impact on his nation. This article explores the reasons behind Putin's underestimation and the broader context that informs his strategic decisions.
The Context of Russian-Ukrainian Conflict
Putin's wait for a peaceful resolution to the conflict in Donbas, aligned with the Minsk agreements, has been a calculated move. He anticipated the escalating tension between Ukraine and the separatists, but the failure of negotiations to yield results despite the presence of over 125,000 Ukrainian troops poised to invade, led him to conclude that a peaceful settlement was not in the cards. The bloodshed and the preparations for invasion by Kiev and President Joe Biden further convinced Putin that a military solution was necessary.
The apparent underestimation of sanctions by Putin can be attributed to several factors, including a misjudgment of the economic consequences and a broader strategic calculus. The sanctions, while significant, are not universally applied, with many countries, such as India, recognizing them as primarily affecting the Western world and not necessarily global challenges.
The Misconception of Global Impact
Many observers believe that sanctions have little to no impact on Russia due to their economic resilience and alternative financial mechanisms in place. Contrary to this view, Putin's strategy hinges on a dual-pronged approach: weathering the storm and countering the sanctions through alternative measures. The economic data from 2023 shows that Russia's GDP has increased, and it has surpassed Germany in PPP, indicating a robust economic performance.
The expulsion of Russia from SWIFT, a crucial financial messaging system, has only spurred Russia to develop its own payment networks, such as the NOSTOR and CIPS systems. This shift has not only protected Russia from the liquidity risks associated with SWIFT withdrawal but also expanded Russia's trading partners, particularly in the global south, who are now engaging in trade with Russia in their own currencies.
Breaking Dollar Hegemony
While the sanctions have hit the global trading systems hard, particularly the US, which has seen a significant decrease in dollar trade, Putin's strategy appears to be aimed at dismantling the US dollar's dominant position in global finance. The decline in US wealth linked to each dollar of trade that previously benefited the US economy is a stark reality of the current geopolitical landscape.
Biden's administration, aware of the growing influence of the BRICS nations, is stepping up efforts to establish a parallel payment system among members of the BRICS group. This move is designed to reduce reliance on the US dollar and create a more equitable global financial landscape.
Economic Resilience and Influence
The longer the war continues, the more it is perceived as a strategic victory by Russia. Putin's recent actions, such as the purchase of a villa by the Red Sea, and the assassination of a journalist who exposed corruption, indicate that the war continues to benefit certain influential individuals despite international condemnation.
Evidence of continued funding for military spending and the inflow of black market funds hint at widespread corruption. These factors have spurred calls for a more aggressive stance against corruption once peace prevails, potentially leading to a more comprehensive investigation of financial crimes.
Conclusion: The War Industry's Role
The war industry's interest in prolonging the conflict, and the political ambitions of figures like Volodymyr Zelensky, who has been involved in several financial controversies, all contribute to the continuation of the conflict. Zelensky's personal fortune has seen dramatic increases, yet he buys real estate and maintains a lavish lifestyle despite the ongoing war.
While the West continues to impose sanctions and seek diplomatic solutions, Putin's actions and calculus indicate a much more nuanced and resilient approach. The ongoing war industry and political corruption further complicate any efforts to end the conflict and return to a peaceful resolution.