Putin doesn't look like he's about to give in

GlobalPost

MOSCOW, Russia — They’re the farthest-reaching sanctions the United States and its European allies have slapped against Russia over its role stoking the separatist crisis in Ukraine, but that may not matter much.

Although the new measures may deal a significant blow to Russian business, many analysts say they’re unlikely to make Vladimir Putin budge.

“The West is placing strict terms in front of Putin: to stop supporting the rebels,” said Pavel Salin, a political analyst at the government’s Financial University, about the Russian president. “But it’s impossible for him to do this for internal political reasons.”

After months of apparent disagreement over how to punish Russia, Washington and Brussels appear to have finally at least somewhat united by jointly offering up a series of potentially crippling sanctions.

Earlier restrictions mostly targeted selected individuals. But the new measures reach into key areas such as the finance, energy and defense sectors, and for the first time are aimed at fairly broad swaths of the Russian economy.

Besides affecting several large Russian banks — including state-run VTB, the country’s second-largest — they block the export of technology to the energy sector.

That means Russia will lose out on the crucial Western hardware it needs to explore its deposits of shale gas and Arctic oil, commodities that have been essential to Russian growth under Putin.

The measures also largely freeze up the arms trade between Moscow and the EU.

While denying the measures amount to a “new cold war,” US President Barack Obama struck a firm tone during his announcement of the American sanctions on Tuesday.

“It doesn’t have to be this way,” he said in a televised statement. “This is a choice that Russia, and President Putin in particular, has made.”

Economists say the EU sanctions are likely to hit Russia harder because the two entities share much closer trade and financial ties. Several European countries may even take a significant hit themselves, particularly Britain, since London serves as a major destination for Russian cash.

But Russian banks will suffer over their inability to raise capital in European markets, which in turn may lead to a rise in borrowing costs and a further economic downturn.

While Brussels says it may reconsider the issue in three months, the Kremlin seems unlikely to give into pressure, prompting analysts to believe the sanctions could indeed become long-term.

“There’s no visibility in this area for the moment,” says Natalia Orlova, chief economist at Alfa Bank in Moscow.

That’s ominous for an already sluggish Russian economy, which has been crippled by significant capital flight since the first round of sanctions over its annexation of Crimea in March.

Various international organizations, including the International Monetary Fund, predict close to neutral, if not negative, GDP growth this year.

Nevertheless, the reactions in Moscow have been relatively tame.

VTB claimed the new round of sanctions is politically motivated, suggesting it would have no problem borrowing in other markets. Russia’s central bank, meanwhile, said it would help support any lenders that suffer from the restrictions.

The Foreign Ministry slammed the new restrictions on Wednesday, alleging EU policy is “written under dictation from Washington,” the state news agency RIA Novosti reported.

But earlier this week, Foreign Minister Sergei Lavrov brushed off the potential impact of further sanctions, suggesting Moscow would take the high road by not retaliating.

“I assure you, we will overcome any difficulties that may arise in certain areas of the economy, and maybe we will become more independent and more confident in our own strength,” he told reporters at a Monday news conference.

“We can't ignore it,” he added. “But to fall into hysterics and respond to a blow with a blow is not worthy of a major country.”

Many Russians apparently think so, too.

A recent poll by the independent Levada Center think-tank in Moscow found that only 36 percent believe sanctions will negatively affect them. Roughly the same number is worried about Russia’s potential international isolation over its support of the pro-Russian rebels in eastern Ukraine, the same survey found.

Critics blame widespread Kremlin control over the airwaves for the apparent apathy, which they concede is pervasive.

Boris Nemtsov, a prominent opposition politician and former deputy prime minister, said Russians will one day “realize that [Putin] has driven Russia into a dead end and poverty.”

“But that will not happen immediately,” he wrote for the Echo of Moscow radio station on Wednesday.

Although dissent has been muted so far, not everyone has kept quiet.

Alexei Kudrin, a former longtime finance minister partly credited with boosting the economy under Putin, warned earlier this week of the increasing “anti-Western rhetoric” that’s quietly stoking fears among the Russian business class.

“Businessmen want to work, to invest, build factories and develop trade,” he said in an interview with state news agency ITAR-TASS. “And businessmen are very concerned about what they hear on radio and TV.”

Still, many political experts say the Kremlin is unlikely to give any ground.

US officials say Moscow has only boosted its support for Ukraine’s pro-Russian insurgents since the crash of Malaysian Airlines flight 17, which Washington believes was brought down by Ukrainian separatists earlier this month.

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State media has been vehement in blaming Kyiv for the crash and regularly dismisses any suggestions the rebels are to blame despite the overwhelming evidence.

Thanks to the fierce information war here that’s cast Russia as a resurgent superpower — winning most Russians’ hearts and minds in the process while earning Putin sky-high ratings — cutting support for the embattled rebels is not an option, says Salin, of the government’s Financial University.

That’s why he believes the fresh round of sanctions threatens to further escalate a standoff in which neither side is prepared to cede ground.

“In today’s situation, there’s either a step forward, toward the heightening of stakes, or a step backward,” he said. “That step forward is a precursor to a full-on war in Europe.” 

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