Russia and the Ukraine have been engaged in an armed conflict since February 2022. As a result, and similar to how the west reacted to previous Russian invasions, Europe is inflicting punitive measures on Russia, in the hope of steering policy making in the Kremlin away from current policy choices, as well as punishing Russia. The current sanctions policy, implemented by the UK, EU, Australia and others have been referred to as so called “blanket sanctions”, meaning they don’t differentiate between individuals and sectors and do not consider potential ramifications. These are the diametrical opposite of “smart sanctions”, which are targeted and pin-point specific areas and sectors that have the potential to steer Russian policy making in a different direction.
As was seen is the past couple of months, although Europe’s heart was in the right place, showing solidarity with the Ukrainian nation by spearheading and later enforcing the abovementioned sanctions on Russia, Europe inadvertently committed economic suicide. This is most evident in the energy sector, which despite years of warning regarding the need to diversify its sources, is still as thirsty as ever for Russian gas and oil.
The expected result of this not so strategic policy of “sanction first ask questions later”, has been European countries and cities seeking loopholes and exemptions from sanctions in order to ensure the welfare of citizens in the upcoming winter months. Indeed, many were shocked to see the Hauge in the Netherlands, home of the International Criminal Court and the capital of international justice, applying for a temporary waiver that will enable them to continue importing gas from the Russian majority state-owned company “Gazprom”. The basis for this request was laid in advance by the EU commission when the fifth sanction package was introduced in April of 2022, meaning that asking for exemptions was anticipated on some level.
The fact is, Russia has not been significantly affected by the energy sanctions. In fact, on the contrary, the Russian market is thriving, with the Wall Street Journal reporting at the end of April that, “Moscow is raking in more revenue thanever with the help of new buyers, new traders and the world’s seemingly insatiable demand for crude”. The real victim of these perhaps well-intentioned sanctions packages, have been European consumers who are paying the price at the pump. The hole being burned by this non-strategic sanctions policy in the pocket of the men and women of Europe will only get deeper looking ahead at the upcoming winter.
Germany’s response to the recent shutting down of the Nord Stream 1 pipeline, the primary artery through which Russian gas supplies Europe, is telling. Instead of revisiting its sanctions policy that has negatively impacted private sector companies and which could ameliorate the current energy and burgeoning food and fertilizer crises, it announced a new round of subsidies. Allocating EUR 65 billion towards combatting energy prices, further government spending is not a viable long-term solution to the ever-increasing cost of living. Looking beyond the realm of the ongoing crisis, subsidies, which are eventually paid for by the tax-payer, have been repeatedly shown to do more harm than good. With global fossil fuel subsidies breaking USD 700 billion in 2021 alone according to an OECD report, we are far from on the right track.
Russian opposition activist and staunch critic of the Putin regime, Mikhail Khodorkovsky, has blamed Europe for the dire situation it is facing, claiming alternatives supplies should have been secured before trying to slap Russia on the wrist with blanket sanctions. Khodorkovsky has argued that alternative punitive measures, such as increasing tariffs and targeted sanctions should have been considered before enforcing widespread blanket sanctions on the Russian oil market. The former richest man in Russia and former head of oil behemoth Yukos said during a Politico interview, “At the moment, energy sanctions are hurting Europe, not Russia. My point of view was and remains the same — what on earth are you doing”? While he has a vested interest in this account of the current situation, it is easy to see what blanket sanctions in the gas and fertilizer industries have done to European energy and food prices respectively.
Current circumstances, where cities such as the Hauge have to seek exemptions from sanctions in order to sustain and support the residents of the city, raises a loud and clear question mark on the current sanctions policy. Why is Europe imposing blanket sanctions across multiple industries without calculating the immediate ramifications to its own citizens’ economic interests? Why aren’t alternative punitive measures being considered to steer Russian decision making in the right, and more importantly, less harmful direction for Europe? As the cost-of-living skyrockets, Europeans are exhausted and sick of bearing the literal cost of faulty policy decisions. If the cause of these mistakes was rushed decision making processes, the time to reevaluate these are now, before the cost of living becomes unbearable.