After the UK was heavily criticised for falling short on sanctions earlier this week (even the Tory chair of the Foreign Affairs Select Committee called them weak) the government has come forward with a much more significant package today. The government believes that its plan to target around 100 entities, including Russia’s biggest defence company, Rostec and some 70 subsidiaries, its second-largest bank, VTB, and one of the world’s largest tank manufacturers, will have a serious impact on the Russian economy. And by including five of Vladimir Putin’s inner circle – including Russia’s youngest billionaire who was previously married to the president’s daughter, Katarina – they hope to inflict political pain.
In full: Boris Johnson outlining further sanctions against Russia following Ukraine invasion
A diplomatic source described these as people with international lifestyles, saying they “come to Harrods to shop, they stay in our best hotels when they like, they send their children to our best public schools and that is what is being stopped”.
They said those people would be “persona non grata” in every major European capital.
So how effective will these economic sanctions be? It is notable that Russians have become less concerned about them.
A poll from the Levada centre showed that when Russians were asked how much they worried about western economic sanctions in 2014, the biggest group said “quite worried” but by December 2021, many more said they weren’t worried at all.
The Atlantic Council think this shift might be explained because of what they call “sanctions inflation”.
After all – their figures show we have already imposed over 200 sanctions on Russia before any of this crisis – 144 of them linked to Ukraine.
In terms of their impact – a chart shared exclusively with ITV’s Peston last night – from Alex Selby-Boothroyd at the Economist – showed that Russian economy did take a hit after the 2014 sanctions. But that was also driven by a dip in the oil price.
Overall the impact of the 2014 measures – was a 0.2% hit to Russian GDP each year up to 2018. So not huge pain. Will it be different this time? Sources tell me that they believe this “unprecedented” package will be economically painful to Russia – they say it will mean a financial hit of “percentage points of GDP” – so much, much bigger than those in 2014. A foreign office source said the measures were “genuinely severe” – and would along with similar steps from allies have the effect of “choking Russia off from huge chunks of the global financial system”.
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Tom Mayne – a fellow at the think-tank Chatham House – told me this was a “step in the right direction” but said the EU - which sanctioned 27 individuals overnight before the invasion began – had gone further on individuals. When we asked officials why they weren’t going further on this they insisted that the net worth of the whole package was huge and unprecedented and also said the plan was to “ratchet” up the pain inflicted on Russia. They admitted there would likely be retaliatory measures that would hurt the British economy (alongside the impact of the rising oil prices) but said it was the right thing to do and the cost of not standing up to Russia was also very high.
The question beyond any of this is whether Putin cares enough to halt his dictatorial desire in Ukraine because of economic pain.
He has repeated his ideology that Ukrainians and Russians are “one people” and that he believes the country must be in partnership with his government. His actions this week suggest that he is determined to push ahead despite international condemnation and financial action. Boris Johnson says that his mission is to make sure Putin fails “diplomatically, politically, economically and ultimately militarily”.
But with no talk of countries actually sending troops to help on the ground – the desperate hope is that economic pain will prove enough.