By Yuri Prasad
Downloading PDF. Please wait... Issue 2795

Sanctions—who really pays the price?

Sanctions can seem like a peaceful alternative. But they are designed to make ordinary people suffer—and risk even further escalation
Issue 2795
A graphic shows riot police arresting a Russian antii-war protester, as a falling line in the style of a graph indicates a collapsing economy caused by sanctions, against the backdrop of rouble notes

Sanctions will hurt those in Russia who resist war

Economic sanctions, far from being a more peaceful way of resolving disputes between states, are an act of war in all but name. Anyone that doubts that should listen carefully to the words of French finance minister Bruno Le Maire.

Talking last week about action by the West against Russia for its invasion of Ukraine, he said his country is “waging total economic and financial war on Russia. We are going to cause the collapse of the Russian economy.”

Think about that for a moment. Russia is a country of roughly 150 million people. If its economy were to collapse in the way Le Maire hopes, it would lead to a catastrophic breakdown of society.

Money would become worthless. Towns and cities would quickly run out of food and, in the midst of the pandemic, health services would collapse. In the panic, friends and neighbours would be forced to turn on each other in a bid to survive.

No one can predict what would emerge from the chaos of an utterly broken country. But that process may have already begun.

The US and the European Union have cut off Russia’s ability to trade in foreign currencies such as dollars, pounds and euros. And they have frozen the assets of many Russian banks. They have also shut Russia out of the Swift messaging system that allows banks to transmit information globally.

That means that Russia will struggle to buy or sell anything on the open market.

But it’s the action against Russia’s central bank that is potentially the most devastating. The West has frozen all of Russia’s assets held in official institutions abroad. That means about half of all the state’s financial reserves are locked down.

In normal times central banks use these reserves to mitigate against daily fluctuations in the value of their currency, and as collateral to borrow against. The architects of the sanctions hope that stopping these functions will cause a run on Russia’s currency, the rouble, and so bankrupt the Russian state.

They calculate that people in Russia will worry they can’t exchange their roubles for dollars or pounds because the banks can’t access foreign currency, and lose confidence in their currency.

If the rouble then collapses it will usher in severe inflation and a sharp recession. It could also lead to a run on the banks. The already long queues of people at Russian cash machines would become a terrible scramble to grab what’s left of their savings.

To stop the rouble falling the state is now having to use what remains of its reserves to buy the currency on international markets. And last week it raised interest rates from 9.5 percent to over 20 percent overnight, hoping to make it profitable to hold on to roubles.

Sanctions are a move designed to hit ordinary people hard in the hope that they blame Putin for the calamity. A big rise in the cost of a weekly food shop will mean next to nothing to a Russian politician or oligarch, but will likely mean workers have to skip meals.

But if the rouble collapses who is to say what conclusions people will draw?

It is possible that an economic meltdown will see people turn their anger on Putin and his regime. But it is also possible that sanctions will be seen as a Western attack and cause people to rally around the Russian flag and help prolong Putin’s rule.

Either way the pressure on the Russian ruling class to respond to the West will be immense. And that could mean military escalation in Ukraine and beyond. Even if the Russian economy stands ruined there is one thing that the regime can rely on—its huge military power and its nuclear arsenal.

Trapped in a corner Putin may decide to lash out.

Those who hope that sanctions offer a less bloody alternative to Nato military intervention in the war in Ukraine are deluded. They are merely another path to a deadly conflict.


How the world’s poorest will suffer now

Sanctions primarily target ordinary people in Russia, but they will impact on people all over the world too.

Commodity prices, including for raw materials and foods, shot up on global financial markets this week in response to the clampdown on the Russian economy.The GSCI index of such goods jumped by 18 percent and is on track for its sharpest rise since 1970.

And fuel prices have seen some of the biggest hikes. That means household bills everywhere will rise still further and inflation will eat away an even bigger portion of our wages.

Russia is a leading supplier of oil, gas and coal. Western sanctions were designed to allow trade in Russian fuel so Europe’s gas supply would be less affected. But now many traders are “self‑sanctioning” and avoiding Russian fuel in the expectation that it could become difficult to sell on. That is causing the price of fuel extracted from other countries to rocket upwards.

Sanctions are forcing the price of food up too. Wheat prices have risen by almost 40 percent this month, with Russia and Ukraine accounting for almost a third of global wheat exports. Countries in the Middle East, North Africa and Asia will be gravely affected—and the poor that rely on staple foods will undoubtedly be the hardest hit.

“The last time we ran out of wheat we had the Arab spring. When people don’t get their bread they get very angry,” said the head of one major investment firm.


The difference between their sanctions and ours

Economic sanctions have long been an imperialist weapon of choice.

The United Nations Security Council imposed a near total financial and trade embargo on Iraq in 1990 after its invasion of Kuwait. Council members insisted on the sanctions continuing for years after the invasion until the fall of Saddam Hussein in 2003.

In that time Iraq was economically devastated. Malnutrition and disease spread in what had been among the most advanced countries in the Middle East.

Denis Halliday, the United Nations humanitarian coordinator in Baghdad, resigned in 1998 after a 34-year career. “I don’t want to administer a programme that satisfies the definition of genocide,” he said.

The West is happy to dish out sanctions against any regime that offends it, including Iran and Venezuela. But it refuses to support such measures when the regimes in question are their allies.

In the 1980s black South Africans under the yoke of apartheid demanded action from the world to bring down white minority rule. Apartheid violated international law and yet international trade with the country allowed the economy to continue, they said. Western banks and mining firms were among those that prospered from oppression.

Black South Africans understood well that by damaging the economy, sanctions would hit at them too. But they decided it was a necessary price. But world leaders, including Ronald Reagan in the US and Margaret Thatcher in Britain, refused to take action that would limit profits. Thatcher said sanctions were a crime against free trade.

When the left argues in favour of sanctions, as it does against the apartheid regime in Israel, it starts from the demands of oppressed people. It tries to place them in the context of a world divided by rival powers.

When liberals and the West demand sanctions they start from the needs of imperialism.

The sanctions they impose on Russia for its invasion of Ukraine are not designed to help ordinary people in the region. Why, after all, would you impose sanctions that hit ordinary Russians that are demonstrating a growing contempt for Vladimir Putin and his war?

The move is instead designed to demonstrate Western power. It’s a message to the world that says, if you dare to defy the US you will be met with the fate of Russia.


What about workers’ sanctions?

What attitude should socialists take towards sanctions imposed by workers against Russian goods and services? That question is raised sharply by dock workers in Britain that refused to unload Russian cargo ships.

There are many good reasons why workers should refuse to aid the Russian state economically when it is busy turning Ukraine into a burnt out wasteland. But there is a danger that anger against Russian imperialism can be turned into plain anti-Russian xenophobia.

The closing down of a production of Swan Lake last week because the company has the word “Russian” in its name, for example, is nothing but prejudice. So too are attempts to block performances of music by 19th and 20th century Russian composers and the study of classical Russian literature.

Ordinary people in Russia are not the enemy—the bosses and politicians are. Confusing the two will only undermine resistance to president Putin’s war.


Food supply catastrophe in the making

The war in Ukraine poses a catastrophic threat to global food production and is set to have a devastating impact on world hunger, agricultural bosses have warned.

Svein Tore Holsether is the CEO of chemicals giant Yara International, which produces fertiliser, described the war as “a catastrophe on top of a catastrophe”.

Ukraine and Russia account for a huge quantity of basic crop exports. Together they export 29 percent of wheat, 19 percent of corn supplies and 80 percent of sunflower oil exports.

“It’s not whether we are moving into a global food crisis, it’s how large the crisis will be,” Holsether said.

He warned that, a shortage in fertiliser meant that farmers would be unable to plant staple crops that the poorest parts of the world rely on. As a result, he said an additional 100 million people could be suffering from hunger in the next two years.

“One potential consequence is that only the most privileged part of the world population gets access to enough food,” he said.

“A world with unstable food supply is a world with famine in parts of the world, increased mortality, armed conflict, migration, riots and destabalised societies which can further accelerate geopolitical tensions.”

Difficulty in producing and distributing fertilisers would compound increasing food prices, which already soaring to a ten year high.

The longer blood is shed in Ukraine, the further the ripples of this devastating conflict will be felt across the world.

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