Uneasy wait as Russia keeps Western allies guessing

The US and EU have warned of unprecedented sanctions, but they will need to follow through.

Russian units on their way for military exercises this week. Picture: Getty Images

“I don’t think he’s planning on a New York penthouse in retirement,” says Eugene Rumer, a Russia expert at the Carnegie Endowment for International Peace, referring to Russian President Vladimir Putin.

The US and its European allies have threatened a range of heavy economic sanctions to deter Russia from invading Ukraine, including personal sanctions on Putin.

“Would the sanctions be a blow to the Russian economy? Yes, but will it deter him? I don’t believe so, they can survive it,” Rumer, a former US intelligence officer for Russia who grew up in Moscow, tells Inquirer.

The world could find out in a matter of weeks. US Deputy Secretary of State Wendy Sherman predicted on Wednesday an invasion by the middle of next month, before or after the Olympics in Beijing kick off next week.

“I think that probably President Xi Jinping would not be ecstatic if Putin chose that moment to invade Ukraine, so that may affect his timing and his thinking,” she said earlier, putting a timeline on Russia’s plans for the first time.

The US this week formally rejected Russia’s demands that Ukraine be barred from NATO membership, and the US withdraw its missiles from neighbouring countries in the former Soviet Union.

Putin and French President Emmanuel Macron were due to speak on Friday, but weeks of negotiations have borne little fruit, with an estimated 127,000 Russian troops still hard up against the Ukraine border.

If Russia invades, the US and Europe will need to follow through with what US President Joe Biden has foreshadowed as sanctions unprecedented in history.

Maintaining credibility, perhaps as a warning to China, will come at significant cost for the global economy, so much that some of the proposals might be empty threats.

Russia’s slap on the wrist in 2014 after it invaded Crimea amounted mainly to black-listing individuals and businesses.

Cutting off a nation the size of Russia, whose gross domestic product in purchasing power parity terms is about the size of Germany’s, hasn’t been attempted before.

“We’ve done the stuff that’s easy for us to do already; it didn’t hurt us, nor did it make much of a difference,” Centre for a New American Security senior fellow Emily Kilcrease says.

Russia is in fact already the second most sanctioned state by the US over the past 10 years, with 742 black marks against 1815 for Iran, according to CNAS research.

What has been canvassed this time is meant to be a punch in the face, including banning exports of sophisticated hi-tech goods to Russia, kicking it out of the international payments system known as SWIFT and potentially preventing Russia from using US dollars, which remain the mainstay of international trade.

“Basically it would put Russians in the same camp with Iran and North Korea in terms of ability to access these things,” says Wess Mitchell, a former assistant secretary of state for Europe in the Trump administration and a co-founder of The Marathon Initiative think tank.

Kicking Russia out of SWIFT would be a devastating blow; in 2014 Putin said it would be akin to an act of war. But it might be an empty threat.

How would European nations pay Russia for its gas and oil, with a convoy of trucks filled with euros or gold from Berlin to Moscow? And what if Russia insists on being paid in US dollars?

Broader financial sanctions, such as banning foreigners from trading in Russian government debt securities, wouldn’t do much good either. Putin’s government has inoculated itself from a dependence on foreign capital, accumulating vast gold and foreign exchange reserves, and maintains low government debt and running budget surpluses.

“Russia has been preparing for tougher sanctions and for being cut off from Western technology since 2014, when it first went into Ukraine,” Rumer says. “The Brits are talking the talk on sanctions, but with all the Russian money in London it’ll be interesting to see how they actually respond.”

For Australia, the direct impact of the proposed sanctions would be manageable. The $9m worth of specialised mining technology we export might have to stop. And if Russia were kicked out of international banking system, it wouldn’t be able to buy about $700m of worth of mainly aluminium and live cattle each year.

For Europe, with significant commercial ties to Russia, and the US, which is battling inflation, costs would be significantly greater. Britain, France and Germany have been noticeably reluctant to match the US in sanction rhetoric, especially Germany, which has undermined the transportation of military equipment to Ukraine.

For the US, too, a sharp and sustained jump in the price of oil and gas would supercharge inflation, which is already at a 40-year high without a war, a political disaster for Biden in a critical election year.

Earlier this week the International Monetary Fund warned the price of oil, which rose above $US90 ($128) a barrel this week, the highest level since 2014, would rise further.

Scuttling the Nord Stream 2 gas pipeline, which directly connects Russia to Germany, is another proposal. “If Russia invades Ukraine, Nord Stream 2 will not move forward, one way or another,” US State Department spokesman Ned Price said on Wednesday.

The US has tried to throttle the project from the start, worried Europe’s dependence on gas would increase Russia’s geopolitical leverage, just as Ronald Reagan as US president pushed back against the first pipeline.

But it’s not really an American decision. Europe depends on Russia for about a third of its gas; Germany by even more after the Merkel government decided to phase out nuclear energy. Ordinary Germans might be willing to sacrifice Ukrainian sovereignty if it means keeping the lights on.

US officials are scrambling to sure up gas and liquefied natural gas supplies in the event Russia weaponises its exports, but the greater reality is the gas keeps pumping between Russia and Germany even if there is a war. Russia needs the money and Germany needs the gas.

“They are publicly saying everything’s on table, but I don’t believe that,” says Mitchell, who says the crisis over Ukraine will make Germany even more desirous of getting gas pumping through the new pipeline as soon as possible.

Currently, gas goes from Russia to Europe via Ukraine, which benefits in transit fees. “Germany doesn’t want its energy going overland through a country in a state of simmering conflict with neighbour,” Mitchell says.

And the pipeline won’t be up and running for at least another six months anyway because of regulatory approvals required in Germany and the EU, far after any war between Russia and the Ukraine would be over.

“The Germans are just hiding behind the legal administrative process to hold off on making any decisions,” Rumer says.

Australian cybersecurity firm Internet 2.0 co-founder David Robinson says he’s “seeing a lot of activity in cyber by Russians targeting gas and oil infrastructure around the world”.

Stopping exports to Russia of hi-tech components critical for smartphones and computers, which the White House fleshed out earlier this week, is the least costly type of sanction, falling mainly on niche hi-tech exporters.

The US is still the global leader in technology and China, a possible alternative supplier of some products, might resist providing Russia its inferior technology.

“But such a ban wouldn’t hit straight away, it would take two to three years, and they already have stocks,” says Kilcrease.

For now it’s a waiting game. Most analysts expect Russia to invade, at least using paramilitary forces, and soon because the warmer weather would make the ground muddy and difficult to move equipment.

Robinson, a former Australian Army officer who served in armoured units in Iraq and Afghanistan, says on the contrary Putin has plenty of time, arguing conditions are on balance better as the warmer weather approaches.

“He’s not stupid; he understands when you invade a country you don’t make a lot of friends,” Robinson says.

“You have an advantage over defenders sitting in trenches in the freezing winter, but there is less chance of fog and snow in spring, and you gain the advantage of the long-range weapons tanks can employ, as well as more open air windows.”

The vicissitudes of the Russian weather may be weighing as much on Putin’s mind as the threat of US sanctions.