Image: The Economist

A short break from my reporting - It is the conversations and the questions that make my writing meaningful. I encourage you to send me questions, giving me fodder to write the next article. If you have questions or frustrations about this War and about Ukraine in general, please write via Comments below or by email. I love Ken’s comment about how he feels, “Please excuse my outburst. My brain waves got hold of my fingers and I simply could not get them under control.” Let your brain waves get a hold of your fingers, and send me a note.

Kenneth wrote to me from Austin, Texas: “I am frustrated by the delay and foot dragging on the part of some countries and organizations like NATO, the European Union, the United Nations, and even our USA. It seems the more sanctions that are imposed the more aggressive the Russians become. Why do we/they dribble out these sanctions? I think we across the board need to be much more assertive. Please excuse my outburst. My brain waves got hold off my fingers and I simply could not get them under control. On a bit of an upbeat, there are quite a few Ukraine flags and signs to be seen here and the local Honda auto dealership has a HUGE Ukrainian flag flying from a very high flagpole.”

I can understand your frustration - you feel that not enough is being done to help the Ukrainians. The Ukrainians are fighting not only a war to protect their homeland, but they very well may be fighting the Russians to prevent Putin from expanding into other countries from Georgia to Moldavia, to Poland and Estonia, to Finland and Lithuania. Ukraine is out there by herself - suffering all the lost children, lost homes, lost families, lost economy - all necessary to stop imperialist Russia.

This is a 2 part series on the sanctions imposed on Russia for its aggression on Ukraine. It is a long and hopefully informative discussion on the topic. I know, sanctions don’t sound like a very sexy or interesting topic. But, believe me this is the stuff movies are made of - OK, stories that movies should be made of. Starring Meryl Streep, Robert Downey, Jr., and Jennifer Connelly.

I believe sanctions used in international relations is a very exciting topic. Is it possible to tweak economic globalization in order to restore peace? Can non-violent economic sanctions be successful in ridding human-kind of the tenet that the only way to stop an aggressor is through violent war fare?

I hope you enjoy this series. It is long, I know. I invite you to get yourself a glass of ice tea, put up your feet, and have a nice long read.

Why use sanctions?

Let’s start at an obvious point. The United States and Europe do not want to wage a ground and air war against Russia. It is not merely a question of will or bravery, it is dangerous to think of three super powers - United States, Europe, and Russia - fighting a 21st Century war. Such a war could lead to WW III, nuclear war looming - a fight we have avoided since 1945.  

The United States and the Europeans would rather fight this war against the aggressor using Ukraine as their agent. Believing it is better to spend trillions of dollars in aid to Ukraine, than to send our troops into Ukraine and Russia, we watch a David and Goliath battle from a distance as the Ukrainians fight the Russians for us.  It might cost us at the gas pump or in our taxes.  It might impact our cost of food.  But, this is better than sending our young men and women into battle or risking a nuclear war.  

In truth, what needs to happen is to stop Vladimir Putin. Got any ideas?  Isn’t there anyone who could talk sense into the dictator? I’ve got a very nice collection of books on haiku that I would trade for peace. How about a nice relaxing trip to upstate New York?

Since we don’t have any better ideas, we (and by ‘we’ I mean world leaders) have decided to bulk up the Ukrainian military through massive military aid and by pounding Russia with heavy economic sanctions.  Up to date, the U.S. has sent $7.6 billion in military weapons.  The European Union has promised 30 billion Euros; 6 billion Euros have been disbursed.  

Economic sanctions used against Russia.

The sanctions target exports, imports, banks, businesses, and individuals.

Here is a list.

1. Nonrenewable energy (oil, gas, and coal)

   1. The United States - banned all imports of oil, gas and coal.

   2. Germany - stopped funding and building the Nord Stream 2 gas pipeline.

   3. Oil and gas companies withdrew from Russia.

      • Exxon Mobil - exited all its Russian oil and gas business, valued at more than $4 billion.

      • BP - withdrew its 20% stake in Russian oil giant Rosneft, which may cost BP as much as $25 billion.

      • Shell - severed ties with Russian gas giant Gazprom and stopped its $1 billion financing of the Nord Stream 2 gas pipeline.

      • Erin, the Italian energy company - suspended all new purchases of oil and oil products from Russia.

   4. The EU - banned oil imports by sea by the end of 2022.

      Exception: Hungary’s Viktor Orban, a Putin ally, is not part of the ban. In fairness, Hungary is highly dependent on Russian oil, getting 60% of its gas and oil from Russia via pipeline. The rest of Europe gets around 30% of its oil from Russia.

      Germany and Poland have vowed to end all pipeline deliveries, including those delivered by sea.

   5. The EU will halt Russian coal imports this August.

   6. The EU’s future reliance on Russian oil will be reduced- the EU has plans to reduce Russian gas imports by two thirds this year, and completely by 2030.

   7. The British will end all Russian oil imports by the end of 2022.

   8. Switzerland placed an embargo on crude oil and certain refined petroleum products from Russia.

      Result: Gas and oil prices in the world have gone up. Inflation has gone up. Transportation prices have gone up. The value of the yen and the Euro have plummeted. The electorate have forgotten why they are paying higher prices, are blaming their leaders, and are not happy.

      The European Union told its member countries on July 20th that they must cut consumption by 15 percent between now and the springtime to stave off a major crisis as Russia threatens to cut off gas and oil prior to EU imposing sanctions. (NY Times)

      “When Putin cuts gas supplies, he uses energy as a weapon,” German Chancellor Olaf Scholz wrote in an opinion piece in Frankfurter Allgemeine Zeitung on Monday. “Not even the Soviet Union did that during the Cold War,”

      July 20 - “Nuremberg has stopped illuminating its historic buildings, Hamburg landlords are rationing hot water, and Berlin may turn off nonessential traffic lights at night. In Potsdam, even the temperatures on Germany’s beloved saunas have been turned down. It is part of a desperate scramble across Europe to reduce energy consumption in a summer of soaring temperatures and prices and to build up natural gas supplies ahead of the bitter chill of winter — in anticipation that Russia may shut off the gas completely.

      Russia has already stopped sending gas to the Baltic states and Poland, Bulgaria and Finland, and flows to Denmark, the Netherlands and Italy have been reduced…Germany’s heavy reliance on Russian gas makes it especially vulnerable to disruptions…Moscow, supplies 30 percent of the natural gas used for Germany’s electricity production and home heating.” (Washington Post)

      European sanctions against the import of oil and gas from Russia are the most severe of all sanctions and right now feels like it hurts non-Russians more than Russians. But, scholars tell us, don’t be fooled. The boycott of Russian oil will cost Russia bunches of billions of dollars. See Sanctions: Part II. Just let me be clear, the largest export from Russia is oil and gas. Russia really doesn’t have another export. She depends on the world’s addiction to oil.

      Some scholars see this oil war as an opportunity to nudge countries to develop more alternative forms of energy. “There’s no reason why you shouldn’t read this crisis as a huge invitation to just go big on renewables and flexible reserve capacity.” (Adam Tooze, March 1, 2022 interview with Ezra Klein.)

2. Banking

   1. Russian Central Bank- Assets frozen. $630 billion in foreign-exchange reserves, are frozen.

   2. All major Russian banks cut off from SWIFT (like iMessage for Banks, how funds are transferred). Admittedly Banks can find other ways to message, for example, through secured emails, but it will be very cumbersome and inefficient. It’s the combination of SWIFT and the ban on the Russian central bank and their banking system that is bad. They cannot get payments; they cannot access their dollar assets. As a result, they will be unable to participate in the global network of payments.)

   3. U.S. - restrictions against four major Russian banks.

   4. The UK - all major Russian banks have assets frozen and they will be excluded from the British financial system.

      Result: June 27, 2022. Defaulted: The last time Russian defaulted on it debts was in 1918 during the Russian Revolution. Today Russia defaulted because they can’t find a way to pay their overseas creditors. Remember, no SWIFT and no Western states dealing with Russian banks.

      So, who cares? Well, if defaulting continues, Russia will not be able to get credit in the future. Economists are asking, “Will the default chip away at Russia's standing with still-friendly countries? Will Russia be able to borrow on the international market going forward?” (June 27, 2022 NPR) Is Russian being cornered or is it burning its own bridges?

3. Airspace

   1. The EU, the UK, Canada, and the U.S. closed its airspace to Russian airlines.

   2. Even China’s civil aviation authority banned from China’s airspace Airbuses and Boeings which Russia stole from international lessors shortly after it invaded Ukraine back in February. “In defiance (of global sanctions), Russia’s aviation regulator recommended on March 5 that all Russian airlines with planes leased from foreign carriers, and not registered in Russia, return home immediately and not land anywhere overseas, lest the aircraft be detained and repossessed. Before lessors caught wind of the plot, Russia had absconded with over 500 of their aircraft and had them tucked away in Russian hangars, forevermore out of reach. The planes were valued at over US$10 billion.” （OCCRP)

   3. Finnair rerouted its flights to Asia over the North Pole, the first time a polar route has been used for commercial flights in nearly 30 years.

      Result: No Western or Japanese planes are flying into or out of Russia or are flying over Russia. My friends scheduled in May to fly from Japan to Iceland and instead of flying West over Russia, they had to fly down to Frankfurt, and then over to Iceland. A much longer trip and more costly to the airline.

      Tourism in and out of Russia is kaput! 24.6 million tourists traveled to Russian in 2018. St. Petersburg and Moscow. No Hermitage Museum, Georgian food restaurants, palaces, rivers and canals. And, of course the Russians and Ukrainians aren’t doing any traveling, either. In 2019, Russians spent US$ 36 billion traveling abroad.

      The frequency of flights to some destinations has been reduced and other routes have been dropped.

      Russia issued a reciprocal ban, forcing many airlines to reroute or cancel flights. Aeroflot suspended flights to international destinations due to airspace restrictions and to counter the "risk" of aircraft being repossessed by lessors. (That’s what you get for stealing those planes in the first place!)

4. Multinational companies

   The following is a small portion of the companies that are boycotting Russia.

   1. Food and drink companies.

      1. Starbucks, Coca Cola, and Pepsi - suspended sales in Russia.

      2. Yum Brands (the parent company of KFC and Pizza Hut) - stopped activity and investment in Russia.

      3. Burger King - ended support for its 800 locations operated by franchises in Russia.

      4. Carlsberg, the world’s third-largest beer company - stopped selling beer in Russia.

      Result: Russians will have to forego their morning latte at Starbucks and instead of going to McDonald’s they will have to go to Vkusno & Tochka - Tasty Period, where they will have no French fries until the Fall. (See my News Summary of July 9.) Thousands of Russian jobs will be lost.

      2. Transportation companies

      1. Airbus -no parts and services to Russia.

      2. Australia banned the export of alumina, bauxite and other aluminium ores to Russia.

      3. Boeing - blocked the sale of parts and services to Russia. Boeing has also stopped buying titanium from Russia.

      4. GM, Ford, Renault, and even the Chinese owned Volvo Cars - stopped working or selling in Russia.

      5. DHL, FedEx, and UPS - suspended shipments to and from Russia and Belarus.

      6. Harley Davidson - suspended shipments to Russia.

      7. Stellantis - the company which makes Jeep, Fiat and Peugeot vehicles - suspended imports and exports to Russia.

         Result: The auto industry is a very large industry in Russia. Up to 600,000 are employed in an industry that depends on foreign parts and cars. Again, airplanes will need new parts and new airplanes need to be built.

         Eurpope expressed concern about the safety of Western-made aircraft flying in Russia without proper access to spare parts or maintenance.

      3. Finance Companies

      1. Pricewaterhouse, Coopers, and Deloitte - no longer operating in Russia and Belarus.

      2. Western Union- ceased its operations in Russia and Belarus.

      4. Other companies have stopped working or investing in Russia.

      Nike, Adidas, Uniqlo, TJ Maxx, Hermes, and Hugo Boss. Unilever, Ikea, and Estée Lauder.

      Netflix - suspended all serivce in the country.

      Spotify - paid subscription will no longer be available in Russa.

      Disney is out!

      Hitachi - suspended business in Russia.

      Top designer companies, including Prada, Gucci, and Dior shut their doors in Russia.

      Result: Oh, no! How are Russians going to watch “The Great British Bake-Off”on Netflix? Wealthier Russians will not be able to buy the newest handbag or watch from Prada and Dior. And, wait! How are Russian kids going to be able to watch Thor or Frozen?

   8. Individuals

   1. The US, EU, UK and other countries sanctioned more than 11,000 Russian individuals and businesses. As of June 2022, the U.S. and its allies have frozen more than $30 billion worth of sanctioned Russians’ funds and other financial assets. This includes yachts, mansions, art work, and bank accounts.

   2. Russian government officials and family members have been sanctioned. Assets belonging to President Putin and Foreign Minister Sergei Lavrov are frozen in the US, EU, UK and Canada.

   3. The UK has also stopped the sale of "golden visas", which allowed wealthy Russians to get British residency rights.

      Result: Russian citizens are stuck in Russia. Wealthy Russians and oligarchs have lost their mansions and Picassos.

      Wealthy Russian have shifted funds worth hundreds of millions of dollars from sanctioning countries, like the UK and Switzerland, to countries that have not imposed sanctions, like the United Arab Emirates.

   9. Tech companies

   1. Apple - limiting services in Russia and ceased exports of its products.

   2. Google - blocked all online advertising.

   3. IBM - suspended business in Russia.

   4. Microsoft - suspended sale of its products.

   5. The United States and 36 allies have banned the export of semiconductors, telecommunications equipment, lasers, avionics and maritime technology. “Semiconductors, are the brains that operate most modern electronics, from appliances to fighter jets. Russia manufactures few of its own chips, historically relying on imports from Asian and Western companies.” (Washington Post, May 11, 2022)

      Result: Russians are in some instances being forced to use computer chips from dishwashers and refrigerators in some military equipment. Two Russian tank manufacturers stopped production because of a lack of components. (Washington Post, May 11, 2022)

      “President Vladimir Putin said that Russia is facing ‘colossal challenges’ in the high-tech sector, an unusually frank admission of the difficulties the Kremlin is experiencing as sanctions begin to bite.” (July 18, 2022 - Bloomberg)

      Between 50,000 and 70,000 tech professionals have left Russia. According to the Russian Association for Electronic Communications, at least 100,000 more are expected to leave in the coming months. If these calculations are correct, that’s 10 percent of the total number of IT specialists in Russia. (June 1, 2022 - Slate). Meanwhile, according to Bloomberg, the Biden administration intends to remove some visa restrictions for highly skilled professionals from Russia who want to relocate to the United States. Under current proposals, Russians with master’s or Ph.D. degrees in STEM (science, technology, engineering, and mathematics) fields, trained in the U.S. or abroad, could qualify for a simplified entry process.

      Ah ha! Those tricky Americans are stealing Russia’s scientists and tech wizards!!!

Well, that is a lot of billions - $$$$. Lots of jobs. It looks like Russia has been thrown out of the globalization game. That must sting! So how come Putin hasn’t thrown up his arms and said, “I give up?” Basta! Uncle!!!

That’s the question, isn’t it? Let’s talk about that in the next article, Sanctions - Part II. I know, you can hardly wait…