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Sensemaker: Are sanctions working?

Sensemaker: Are sanctions working?

What just happened

Long stories short

  • Turkey lifted its veto on Finland and Sweden joining Nato.
  • Nicola Sturgeon said she would seek clearance from the UK’s Supreme Court for a second Scottish independence referendum.
  • Ghislaine Maxwell was sentenced to 20 years for trafficking girls for Jeffrey Epstein.
  • Dame Deborah James, who changed the way the UK talked about cancer, died aged 40.

Are sanctions working?

At least 20 civilians were killed by the Russian missile that struck a shopping mall in Kremenchuk on Tuesday. Almost 50 were injured; dozens are missing. 

Missiles cost, and not just lives. The 1,300 that Russia launched at Ukrainian cities during the first two months of the War cost €7.7 billion, says the actor Arnold Schwarzenegger. “At the same time, Europe sent Russia €44 billion for fuel.” The number of missiles fired and the amount Russia has received for oil and gas have more than doubled since.

When the war started western governments said their sanctions were unprecedented and would quickly bring the Russian economy to its knees. But Russia is still awash with energy revenues. So will sanctions work or don’t they? And if they will, how long will it take?

So far the EU has frozen $24.5 billion of Russian Central Bank assets and €29.5 billion of oligarch-owned assets. But even with a paralysed central bank, the ruble remains strong and the war machine funded:

  • Most of those fossil fuel bills are now paid in rubles.
  • All are paid to Gazprombank, which has avoided sanctions precisely so it can receive these payments.
  • The same bank pays the wages of Russian troops in Ukraine – literally, with EU money for Russian oil and gas, Ukrainian investigative journalists have found.  

Other sanctions – on payments by Russia to its creditors – forced it into a technical default on its foreign debt this week. It was the first time Moscow missed an overseas interest payment since 1918 but Russia doesn’t seem to be suffering the normal consequences.

  • It has the money. “Anyone can declare whatever they like,” Russia’s finance minister, Anton Siluanov, said. “But anyone who understands what’s going on knows that this is in no way a default.”
  • Any contraction as a result of the default would be from a low base because the Russian economy has already shrunk due to the war. 
  • Moscow doesn’t need to borrow abroad because at current high prices its oil and gas earnings amount to nearly $1 billion a day.  

Does this mean sanctions don’t work? Not at all. They do. Vladyslav Rashkovan, an Alternate Executive Director of the IMF, notes that Russia is now disconnected from foreign capital markets, major banking systems and rating agencies. He says the default is a severe blow to Russia’s image in the financial markets, which could shut off its access to international capital for many years; and that Western investors holding about $20 billion in Russian Eurobonds may now sue to have these debts repaid from frozen Russian central bank assets in the US and EU. 

The list of sanctions and threatened sanctions announced since the invasion is now long.

  • The EU says it will ban all imports of oil by sea from Russia by the end of 2022.
  • The US banned all Russian oil and gas imports in April.
  • The UK will phase out Russian oil imports by the end of 2022.
  • Germany has frozen plans for the opening of the Nord Stream 2 gas pipeline. 
  • The EU says it will halt Russian coal imports by August.
  • An import ban on Russian gold was announced this week by the UK, US, Canada and Japan.
  • A ban on the export of dual-use goods – items with both a civilian and military purpose – by the UK, EU and US has been in place since 2019.

What’s missing. The EU still cannot bring itself to forsake Russian gas, which it relies on for about 40 per cent of its gas needs. A full gas embargo would be by far the single most effective sanction for Ukraine, and there’s no sign of it.  

So do sanctions work? They do. Are there enough to stop the war? Not yet.   


EY on the naughty step
Ernst & Young has been fined $100 million by the Securities and Exchange Commission in the US after a whistleblower said auditors had been cheating in ethics exams. It’s the SEC’s largest-ever penalty for an accounting firm and twice as big as one levied on KPMG in 2019 when its staff were found to have been cheating on internal training tests. For a big four firm whose business depends on a reputation for probity to let staff cheat on ethics tests beggars belief, but that seems to be what happened: the size of the EY fine is partly a result of the firm’s failure to fess up promptly when the SEC asked if it had a problem; and partly because of a finding that a significant number of staff who didn’t cheat knew that others had and failed to report them.


Trash hits the moon
A large piece of rocket debris has hit the moon, and mystery surrounds the identity of the responsible party. Self-appointed space trash trackers initially thought it was SpaceX and identified a 2015 launch as the culprit, but SpaceX didn’t cop to it and the trackers have since decided the impact could have been by a piece of China’s 2014 Chang’e 5T1 rocket. China says no. Either way, while space debris in earth’s orbit is a growing problem, debris that reaches escape velocity, heads out into the cosmos and hits the moon (a small target in a big void) is rare. 

The 100-year life health, education AND GOVERNMENT

Census intel
The first batch of 2021 UK Census data is out and if Boris Johnson is serious about being in office until the middle of the next decade he should take note: the population is ageing fast. A sixth of the population of England and Wales is now over 65 – 2.2 per cent more than in 2011. In raw numbers, that’s 1.9 million more over 65s the NHS needs to have the capacity to care for as they age. At the same time, the proportion of under 15s is decreasing. That’s fewer people who will eventually move into the workforce. Looking wider, abortion rates have never been higher and fertility rates have never been lower as the financial insecurity of the last few years puts pressure on women and their partners. Chris Snowdon of the Institute for Economic Affairs tells the Telegraph the demographic changes are an “economic time bomb” that “no politician knows how to defuse”. They better figure it out. 

Our planet CLIMATE AND geopolitics

America dries out
This is not a good time to be growing almonds, olives, grapes, citrus fruit or lettuce in the western US. Temperatures are up, crop yields are down and the cost of water is going through the roof. Forbes has had a look at rates of water withdrawal from aquifers and reservoirs for irrigation – compiled from Nasa and other US government sources by RV Guha, a Google fellow – and found a correlation between withdrawal rates and negative effects of climate change. There’s one possible consolation: hints of a self-correction mechanism in Texas, where the cost of water for livestock and to grow their feed is now so high some farmers are considering quitting the meat business.  


He was the f***ing president 
In the week before the 6 January insurrection at the US Capitol, President Trump knew what was coming and wanted to be there, according to the – by any standards – sensational testimony yesterday of Cassidy Hutchinson, a former aide to Trump’s chief of staff. In fact, he wanted to be there so much that when the day came he told his Secret Service detail, as Hutchinson put it, “‘I’m the effing president, take me to the Capitol now’.” He then tried to grab the steering wheel of his armoured SUV and when told to let go went for the driver’s “clavicles”, ie neck. What a charmer. 

An equally substantial note from the annals of democracy’s fight for survival comes in the form of a landmark speech by General Sir Patrick Sanders, newly appointed Chief of the General Staff in the UK. He plans to mobilise the British army for one overwhelmingly important task: fighting and winning a land war in Europe against Russia. “This is the moment to defend the democratic values that define us,” he told an audience of (mainly) fellow soldiers. “This is our moment. Seize it.”

Thanks for reading. Please share this around and tell us what we’ve missed. News tips and story ideas are welcome. Email them to sensemaker@tortoisemedia.com.

Nina Kuryata
Contributing Editor

With additional reporting by Giles Whittell and Phoebe Davis.

Photographs Getty Images, Oleg Petrasyuk/EPA-EFE/Shutterstock

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