Russian sanctions: why ‘isolation is impossible’

The US-led measures were designed to ostracise Putin, but the rhetoric has not matched reality as Moscow sells arms and builds alliances

Henry Foy in Moscow


© FT montage / AFP


It fires missiles that travel at 2km per second and can hit targets flying twice as fast. It can target 80 different enemy aircraft, drones and cruise missiles at the same time from 400km away, and spot stealth warplanes that previously evaded detection.

But arguably the most dangerous aspect of Russia’s S-400 Triumph missile defence system is the damage it has inflicted on the clout of Washington’s anti-Moscow sanctions programme, and concerted efforts by the US to isolate Russia from the rest of the world.

Despite sweeping sanctions against Russia’s defence industry to shut down its lucrative exports and a ban on other countries buying the S-400 specifically, Russia is doing a roaring trade in what most experts consider the world’s most advanced air defence system.

Over the past year, Turkey and India have signed deals to buy S-400s, China has received its first deliveries, and Saudi Arabia, Qatar and Iraq have begun negotiations over deals to acquire the sanctioned systems.

If the west’s sanctions regime, first introduced in March 2014, was designed to cut off Moscow from the rest of the world and isolate its critical industries, the truck-mounted missile launchers are a $400m-a-piece example of how that effort has failed.


Turkey and India have signed deals to buy Russia's S-400 anti-aircraft missile launcher © AFP


“There is no question about the isolation of Russia. Nobody is even talking about it,” says Andrei Frolov, editor-in-chief of Russia’s Arms Export journal. “There are major breakthroughs thanks to China and India . . . the message is that Russia is still open for business.”

Since 2014 and Russia’s annexation of Crimea, a sanctions regime led by the US and supported by the UK, EU and other western allies has sought to isolate Moscow by curbing its access to external finance, trade and diplomatic support in an effort to force a change in political approach from President Vladimir Putin’s administration.

Initially targeting Russian politicians, the country’s vast energy sector and military-industrial complex, the sanctions have become ever more targeted against individuals and businesses.

Allegations against Moscow of meddling in the 2016 US election, allowing the use of chemical weapons in Syria and carrying out the attempted murder of former spy Sergei Skripal in the UK this spring have resulted in harsher restrictions.

But if the measures were designed to make Moscow an international pariah, friendless and toxic, they are falling short of achieving their goal.

An ever-closer friendship with China has provided Moscow with international finance, new trade opportunities and diplomatic heft. Moscow has also deepened its ties with a host of countries in the Middle East, from Turkey to Israel, Saudi Arabia to Iran, expanding its influence in the region at a time of American hesitation.

At the same time, a steady stream of EU leaders visiting the Kremlin, foreign direct investment from European corporates and continued demand for Russia’s oil and gas exports belies the rhetoric of belligerence from Brussels.

“Isolation is impossible, that is clear,” says Andrei Bystritsky, chairman of the Valdai Discussion Club, a Russian think-tank. “It was possible, 30 years ago, in the Soviet times. Then there were just two blocs. But now there are so many options.”



When it comes to Russian isolation, reality has not matched rhetoric. While major defence deals like the S-400 agreements have drawn the ire of Washington, all of the EU’s biggest economies have quietly continued to do business with their eastern neighbour.

Berlin, a key supporter of sanctions related to the annexation of Crimea, steadfastly supports Nord Stream 2, a Russian gas pipeline being laid under the Baltic Sea that opponents say will only increase Moscow’s influence over Europe’s energy supplies.

French president Emmanuel Macron was Mr Putin’s special guest at the annual St Petersburg Economic Forum earlier this year, telling his host: “Dear Vladimir . . . let us play a co-operative game.” Total, the French energy group, bought a 10 per cent stake in Russia’s $25.5bn Arctic LNG 2 project soon after, and last month opened a new factory close to Moscow.

The UK is one of the most hawkish towards Moscow, but British energy group BP is one of Russia’s biggest foreign investors through its 19.75 per cent stake in Rosneft, the Kremlin-controlled oil company subject to sanctions.


US president Donald Trump, left, meets Russian president Vladimir Putin © Getty


“Look at Total, piling in as much as it can. Look at BP,” says a senior executive at a major international energy company. “You cannot isolate a country as big and as important as Russia. It was never going to work.”

At a conference in Verona last month, Italy’s deputy prime minister Matteo Salvini told Russian delegates they were “peacemakers” and urged Italian companies to find ways around EU sanctions. “In 2018 we do not need sanctions, we do not need troops. We need dialogue, we need friendship,” he said. “I want to thank Italian businessmen . . . for resisting, for taking up the initiative with this.”

Western diplomats in Moscow privately admit that the sanctions have failed to achieve the impact many of their governments had desired.

Some blame the staggered implementation that has largely allowed Russia’s $1.6tn economy to slowly adjust. Others argue that the recovery in oil and commodity prices since 2016 has provided the Kremlin with enough cash to offset the impact. But others claim that many countries have lacked the resolve to follow through with the measures, fearing the damage to their own companies.

Germany’s Daimler is building a factory close to Moscow that will start producing Mercedes-Benz E-Class sedans early next year. US aerospace giant Boeing opened a production plant in central Russia this summer to manufacture titanium components. Europe is buying more gas from Russia than at any time in history.

All the activity suggests that for company executives, Russia is too large and lucrative to let politics get in the way.

“There is something vitally important in the role of businessmen and policymakers continuing a dialogue,” Bob Dudley, BP’s chief executive, said at the Verona conference. “More and more there is a great importance that business plays in bringing the world closer. There are a lot of forces trying to push us apart.”

Since sanctions were first imposed on Rosneft in 2014, BP’s stake in the company has earned Rbs90.7bn ($1.3bn) in dividends, according to information on the Russian company’s website. “It is very difficult to remain in business for a long time by taking sides . . . we try to build bridges,” Mr Dudley added.

Compared with 2014, Rosneft has doubled the amount of oil it produces from joint projects with foreign companies to 1.4m barrels a day, thanks to partnerships with Norwegian, Vietnamese and Indian groups.

“I am convinced that the mutually beneficial win-win ties will continue to develop, while any further escalation of sanctions will ironically set limits for the US themselves,” Rosneft’s chief executive Igor Sechin, who is banned from entering the US, said in Verona.

The Kremlin has pushed heavily the line that Washington’s use of international sanctions against Moscow will only force third countries to distance themselves from the US.

“It is pretty clear from where we sit that by trying to isolate Russia, America is doing a good job of isolating itself,” says one Asian diplomat in Moscow who declined to be named. “Even the Europeans are developing their own independent Russia policy.”


BP CEO Bob Dudley: 'It is very difficult to remain in business for a long time by taking sides . . . we try to build bridges’ © Bloomberg


As western sanctions sought to close off Mr Putin’s diplomatic options, he struck out aggressively in new directions.

Moscow’s 2015 intervention in Syria to swing the war in favour of Bashar al-Assad’s regime, alongside a strengthened trade and diplomatic outreach to Turkey and a warming of historic ties to Israel and Iran, have made Mr Putin a powerbroker in the Middle East.

But it is Russia’s relationships with China and Saudi Arabia that have seen the most dramatic, and effective, changes in the sanctions era. Built on Mr Putin’s personal friendships with China’s president Xi Jinping and Saudi’s crown prince Mohammed bin Salman, Russia has leaned on Riyadh and Beijing for more than just S-400 sales.

Boosted by new oil supply deals, agriculture and defence shipments, trade with China accounted for 15.5 per cent of Russia’s total turnover last year, up from 10.6 per cent in 2013. At the same time, the EU’s share fell from 49.6 per cent to 43.8 per cent.

In September, Mr Xi visited Mr Putin in the Russian city of Vladivostok, and over shots of vodka, caviar and handmade pancakes, toasted a friendship that they said would stand against US protectionism. As the two leaders talked, their armies took part in joint military exercises involving 300,000 troops, the largest in Russia since 1981.

With Saudi Arabia, too, the S-400 deal has come as part of a wider diplomatic and trade push. Moscow and Riyadh joined forces in 2016 to regulate oil production and drive up crude prices.

Saudi Aramco, the kingdom’s state oil producer, is keen to follow Total’s lead and buy a 30 per cent stake in the same gas project, and is also in talks to set up a petrochemicals plant with Russian company Sibur.






When western governments and executives boycotted a conference in Riyadh last month over the murder of Saudi journalist Jamal Khashoggi, Russia publicly backed Prince Mohammed and sent a large delegation to the event. It was rewarded with a deal for the kingdom’s sovereign wealth fund to join a joint Russia-China development fund.

Some analysts see Russia’s new friendships as window-dressing, and question whether they are the result of long-term strategy, or a desperate rush by the Kremlin to show the west that it still has friends.

One western diplomat in Moscow says that although historical distrust between Russia and China would mean the countries could never build a full geopolitical alliance, “it is an easy way for both of them to gain some small advantages from each other and have a pop at the US.”

“It is a bit of both: pragmatism and strategy,” says Arkady Dvorkovich, Russia’s deputy prime minister until May this year, when asked about Moscow’s relationship with China. “It obviously makes sense at the moment for Russia given the western context but also in a long-term sense this is a relationship that we want to keep building for the future. They are the world’s most important growth market.”

The pivot away from the west does not sit well with all of Russia’s elite.

Sanctions are slowly cutting off some of Russia’s clique of billionaire oligarchs from access to western countries and their banks, lawyers, schools and hospitals that have become part of their lifestyles. Three sanctioned businessmen have been banned from the elite World Economic Forum in Davos next January. Replacing the cachet and glamour of London is not easy.

“The new partnerships are all well and good, but frankly the elite here are more comfortable in the south of France, not on some island in the South China Sea,” says one sanctioned Russian businessman. “A new world order is obviously better than the current one. But no one here is a big fan of the Chinese life.”

Regardless of their impact, western sanctions will probably continue for the medium term, at least. The Democratic party’s victory in the House of Representatives last week has increased the chance of passing draft legislation imposing more restrictions on Russian banks and sovereign debt.

Few expect that talks between Mr Putin and US president Donald Trump in Paris on Sunday and in Buenos Aires at the G20 summit later this month will ease the pressure on Russia. “In Soviet times, after a meeting of the two leaders the situation always got better. Today it is the opposite,” says Mr Bystritsky. “In the next one or two years the situation will get worse and worse, I think.”

Washington in September imposed sanctions on China’s military for the S-400 purchases, prompting a fierce rebuke from Beijing. It also warned India, Saudi Arabia and Turkey that they too could face consequences for buying the systems.

Undeterred, Indian prime minister Narendra Modi welcomed Mr Putin in New Delhi last month with a hug, and the $5bn deal was signed.

“We will continue to closely follow the trends of the global arms market, and to offer our partners new flexible, convenient forms of co-operation,” Mr Putin told a meeting of his commission on foreign arms sales.

He added: “This is all the more important in the current conditions, when our competitors often resort to unscrupulous methods of struggle: they try to crush and blackmail our customers, including through the use of political sanctions.”

The American Dream

By Jeff Thomas




Many people in Europe and North America are shaking their heads at the rapidly-growing support in their countries for a transition into collectivism. At present, this advance is developing especially rapidly in the US.

Since the election of Donald Trump, large numbers of liberal Americans are beside themselves with despair and are responding with vehement collectivist rhetoric.

But, why should this be so? There have been many US presidents who were more conservative in their views than Mister Trump and, in fact, the Deep State, which unquestionably has more control over the future of the US than any president, is clearly moving forward with a collectivist agenda.

Yet, we’re witnessing an anomaly that’s not only unprecedented in US history; its ramifications and the rhetoric that drive it are often irrational beyond the pale.

A racist is no longer defined as someone who treats those of one race differently from those of another race. A racist is defined as someone who is Caucasian.

A sexist is no longer defined as someone who regards one gender as being superior to another.

A sexist defined as someone who is a male.

A warmonger leader is no longer defined by aggressive behaviour. A warmonger may be defined as a man who attempts to maintain peaceful negotiations with other leaders.

And, predictably, Mister Trump is, therefore, by definition, a racist, sexist warmonger.

The speed at which this Orwellian rhetoric is being adopted by the hoi polloi of the US is alarming and, for those of us who are non-Americans, residing outside the US, the US is rapidly losing its image of respected world leader and resembling instead a perverse circus side show.

But, why now? And why is the reinvention of America occurring so rapidly?

The new American Dream is one of collectivism. Tragically, it’s a dream that always ends the same way.

Well, let’s have a look at history and see if there have been similar occurrences.

In the late 18th century, the French people observed the American revolution and admired the revolutionaries, who removed the aristocracy and led the then-new United States to greatness.

France was heavily in debt and the country was ripe for revolution. All that was needed was a charismatic hero who would tell the French people that they were entitled to be raised up – to rid themselves of the rich aristocracy, embrace collectivist concepts and they’d be on the road to the land of milk and honey.

They found their hero in Maximilien Robespierre. But good times did not follow. Instead, what was delivered were purges, assassinations, brutal dominance by the new leaders and, finally, economic collapse.

Similarly, after a particularly bad patch of national indebtedness, the people of Russia overthrew the aristocracy. The people happily awarded power to the Bolsheviks, who promised the healing balm of collectivism. What they delivered was continued poverty, oppression and economic deterioration.

Chairman Mao did much the same in China, first convincing the people that they were oppressed by the evil rich and promised the equality of collectivism. He delivered, instead, a two-class system of small numbers of oppressive leaders and large numbers of poor workers. And, of course, he also delivered more uniform levels of poverty.

In Cuba, the people were understandably terrified of dictator Fulgencio Batista and the regime of violence and indebtedness that he’d created in Cuba. Enter the charismatic Fidel Castro, who made no real promises, other than to end the dictatorship and make Cubans equal. The people of Cuba were so enamoured of him that little in the way of violence was necessary to implement revolution. When the revolutionaries marched toward Havana, there was so much celebration along the way, and so many government troops joined the rebels, that Mister Batista simply hopped on a plane with bags of money and disappeared.

Even before collectivism could be implemented, the hero began the purges, assassinations and brutal dominance. As always, collectivism seemed promising initially, but eventually led to complete economic collapse.

And yet, in spite of these and other examples of charismatic leaders who tout the panacea of collectivism, then deliver uniformly disastrous results, we now observe an otherwise informed nation of Americans vehemently praising the repeatedly disproven virtues of collectivism. How is this possible?

Well, let’s ask Tulio Hernández, a sociologist who’s living in exile in Columbia, having escaped increasing poverty and persecution in his native Venezuela, once one of the richest countries in the western hemisphere.

How on earth did Hugo Chavez con his people into throwing away their prosperity, in favour of the promises of collectivism? Mister Hernández says that this was no accident, but a carefully crafted plan intended to appeal to the basest emotions of Venezuelans.

“According to Chavez’s logic, some people are evil – traitors who wish for bad things and oppose everything good. Before, they were not seen as adversaries, but as enemies of Chavez and the nation. They needed to discredit these enemies – eliminate them politically and morally, and, if necessary, eliminate them physically. Venezuela hadn’t experienced ideological expressions of hatred like this before. The people held grudges against the upper class and politicians, but hatred, as an expression of ideology, is a new phenomenon. Hugo Chavez sowed hatred, by dividing the nation into revolutionaries and reactionaries… into defenders of the nation and traitors.”  
The reader might wish to read that paragraph again, but, this time, to imagine Mister Hernández as an American in exile, describing the irrationality and rhetoric of those promoting collectivism in the US. In this light, he’s describing exactly what’s taking place in the US.


The playbook this time around is the same as it has been in the past.

• Wait until national indebtedness and other political failings have created worry amongst the populace
• Blame the aristocracy and create a constant barrage of anti-aristocrat rhetoric
• Convince the people that their leaders are not only incompetent, but evil
• Create a massive campaign to discredit the existing leader in every way (incompetence, corruption, immorality, etc.)
• Put forward a charismatic hero who will focus on regime change, whilst promising only vague solutions
• Implement a takeover and, with the help of public anger, create purges and assassinations and institute the dominance of a police state

The Deep State in the US has achieved the first two of these steps and is well-along with the third and fourth. What now remains is the introduction of a charismatic hero and the implementation of the final stage.

The American Dream of resourcefulness, industriousness and self-reliance is very much on the way out. The new American Dream is one of collectivism. Tragically, it’s a dream that always ends the same way.

China Choo Choo Chooses Japan

China looks to Japan as a companion on the “New Silk Road.”

By Phillip Orchard

(click to enlarge)

(click to enlarge)

(click to enlarge)

(click to enlarge)

Populism's Common Denominator

What unites supporters of authoritarian, upstart politicians like US President Donald Trump and Brazilian President-elect Jair Bolsonaro is revulsion against the corruption of the political process. But voters will learn the hard way that strongman rule exacerbates rather than mitigates corruption.

Barry Eichengreen  




BRUSSELS – Following Emmanuel Macron’s election as president of France in May 2017, global elites breathed a sigh of relief. The populist wave, they reassured themselves, had crested. Voters had regained their sanity. Helped along by an electoral system in which the two leading candidates faced off in a second round, the “silent majority” had united behind the centrist candidate in the runoff.

But now we have Brazil’s presidential election, in which Jair Bolsonaro, who displays the authoritarian, anti-establishment, and anti-other tendencies of a textbook populist, won decisively in the second round. A two-round electoral system in which the runoff pits a populist outsider against the last mainstream candidate standing is no guarantee, evidently, that the center will hold.

A similar lesson flows from Italy’s election earlier this year. The country’s electoral rules had been reformed to add a majoritarian element to its proportional representation system, the goal being to encourage pre-election coalition building among mainstream parties. Instead, it brought to power a coalition of the populist left and right. Electoral engineering, it would seem, is not only ineffective in beating back the extremist threat; it can have unintended, counterproductive consequences.

Containing populism, it follows, requires more than fine-tuning the electoral system. It requires addressing the basic grievances responsible for voters’ rejection of mainstream politicians and parties in the first place.

Unfortunately, there is little agreement about the nature of those grievances and therefore no consensus on how to respond.

One view, naturally favored by economists, is that economic complaints are at the root of the populist revolt. Italy has experienced stagnant productivity growth for more than two decades, while unemployment – particularly youth unemployment – has risen to devastating levels. Brazil, having only recently become accustomed to the status of a fast-growing economy, experienced a massive recession in 2015-2016, and 2018 is shaping up to be another bleak year.

But the US fits awkwardly into this mold. By the time of the 2016 election that brought President Donald Trump to power, the US economy had been expanding for six consecutive years. This is a reminder that populism is about more than economic growth. It is also about distribution, something that is equally a problem in Italy and Brazil. And it is about economic insecurity: Even those who are benefiting now have doubts about whether they – and their children – will benefit in the future.

Still, the booming US economy should at least give pause to those who favor the narrowly economic interpretation of the current wave of populism.

Alternatively, the current wave of populism has been viewed as a response to the perceived threat, as much political as economic, from so-called outsiders to the dominant cultural group. For Italian populists like Matteo Salvini, this means immigrants, primarily dark-skinned people from Africa who wear their outsider status on their sleeves. For Bolsonaro, it means racial minorities, women, and other groups that challenge the hegemony of the white working class. Trump displays both tendencies, claiming without substantiation that Middle East terrorists are among the migrants and asylum seekers from Central America, while reinforcing the racial, religious, and anti-feminist animus of his base.

Again, however, actual electoral behavior does not fall neatly along predicted lines. Bolsonaro received a surprising degree of support from black voters. Trump gained a strong plurality from women in an election held shortly after the release of the notorious “Access Hollywood” tape, on which Trump was heard boasting about sexual assaults he had committed.

What unites supporters of these upstart politicians, therefore, must be something else. In fact, the main ingredient is revulsion against the corruption of the political process. Voters are attracted to political outsiders – the more authoritarian the better – who promise to “drain the swamp.” Herein lies the appeal of Trump and Bolsonaro, who promise to clean up their countries’ “mess” by whatever means necessary. The corruption and ineffectiveness of a succession of mainstream coalitions, and the promise of outsiders to do better, whether credible or not, similarly motivates Italian supporters of the right-wing League party and the left-wing Five Star Movement.

Unfortunately, voters have no way of gauging who is truly committed to rooting out corruption. And, by delegating this task to a leader with authoritarian tendencies, they empower him to repopulate the swamp rather than draining it – to simply replace the mainstream’s alligators with his own. We have already seen this tendency in the US. We are about to see it in Italy and Brazil.

Voters will learn the hard way that authoritarianism exacerbates rather than mitigates corruption, because it abolishes checks and balances on those pulling the levers of power. Once they learn this lesson, they are likely to give mainstream politicians and the democratic process another chance. Unfortunately, political institutions and civil society can suffer very considerable damage in the interim.


Barry Eichengreen is Professor of Economics at the University of California, Berkeley, and a former senior policy adviser at the International Monetary Fund. His latest book is The Populist Temptation: Economic Grievance and Political Reaction in the Modern Era.