Thursday night Boris Johnson tweets new sanctions against “Kremlin aides … to inflict maximum economic pain on Putin and his military machine.” The prime minister told lawmakers he was leading the West in punishing the Russian president for invading Ukraine. But Mr Johnson’s actions show that he is far behind.
The European Union and the United States have turned to many more close to Vladimir Putin – and are moving fast to take control of their assets. Earlier this week, France captured a superyacht linked to Igor Sechin, head of Russia’s largest oil company and an oligarch whom Britain has not yet sanctioned. Left untouched in Britain are mansions and art collections amassed by wealthy Russians. No wonder many believe these assets are at risk of being taken away.
The Russian oligarchy has its roots in Western-inspired liberalization and privatization reforms that followed the collapse of the Soviet Union. Since August 1990, Russia has been subjected to a form of economic shock therapy that has seen wealth created by millions and owned by the state, or scattered, or seized by a small group of people. This created the gaping divisions in Russia today. After the pandemic, only 500 Russians control more wealth than the poorest 115 million Russians.
The British political and business model has done very well with the money associated with Moscow. The Conservative Party has received about 2 million pounds since 2012 from the wife of a former Russian minister. The oligarchs liked the city so much that they received the nickname Londongrad. The square mile offers anonymity. Its rules can be circumvented and controlled by poorly funded observers. An army of lawyers, accountants and public relations consultants can be hired. Tax laws and defamation laws benefit the rich. However, given public sentiment, it is unlikely that they are now ready to sue for Russian money. Mr Johnson must end the era of oligarchic money. But he is running the business slowly for fear of repelling other wealthy foreigners.
Ordinary Russians are unlikely to lose much sleep if the oligarchs lose. But they will be hurt in a wider economic war with the West. The sanctions are aimed at destroying Moscow’s ability to defend its currency – causing pain for Russians as interest rates jumped from 9.5% to 20% in one day. The United States is severely restricting high-tech imports from Russia. Consumers will suffer if factories cannot receive key input. Big brands like Ikea are already withdrawing, affecting thousands of workers.
But there will be a reaction to every action. Suspension of supplies of aircraft or vehicle parts could lead to Moscow’s reaction by restricting exports of minerals needed for their production. Putin may refuse to pay his country’s foreign debts. It is absurd to fund Russia’s ability to wage war by buying its oil and gas, but Europeans have little choice in the short term unless they want to freeze. Sanctions can also help Putin convince his people that economic problems are the result of a hostile West, not a catastrophic war. More countries could opt out of the Western-led financial system, making the threat of exclusion meaningless.
The longer the fighting in Ukraine continues, the deeper the global economy will be restructured – and perhaps not in a good way. Nicholas Mulder, author of Economic Weapons: The Rise of Sanctions as an Instrument of Modern Warfare, wrote in the Guardian that “expanding the use of sanctions risks further destabilizing the world economy.” He said Keynes a century ago believed that the lesson after the First World War was that “positive help from the affected country” was more profitable than “repression against the aggressor”. Today, that would mean doubling humanitarian, security and economic aid to Ukraine. Which is not a bad idea at all.