Russia and Global Security Risks
Post-Pandemic Sanctions Policy

The pandemic at once revealed several weaknesses of the Euro-Atlantic ideology. First of all, it struck at the idea of a collective West, which was knocked down like a house of cards, as well as at the solidarity between the  Western democracies, writes Dmitry Kiku, Deputy Director of the Russian Finance Ministry's Department of External Restrictive Measures Control.

UN in Action: Humanitarian Issues First and Foremost

In order to help the international community overcome the consequences of the coronavirus, UN Secretary General António Guterres, in the midst of the pandemic, appealed to the leaders of the G-20 members to waive sanctions imposed on countries to ensure access to food, essential health supplies, and COVID-19 medical support. Other UN officials made similar calls.

Unfortunately, no real action was taken. “Cosmetic” measures taken by the Western states to improve the conditions for exemptions from sanctions regimes did not lead to the relief of the difficult humanitarian situation in the developing countries affected by COVID-19. Such deliberate inaction necessitates an impartial assessment by the UN, for example, by Alena Douhan, the UN Human Rights Council Special Rapporteur on the negative impact of unilateral coercive measures on human rights. In her first statement since her appointment in March 2020 as Special Rapporteur, Alena Douhan urged “to remove or at least suspend for the duration of the COVID-19 pandemic the economic sanctions imposed on a number of countries, which create additional problems in the procurement of medical equipment. Economic pressure measures introduced by individual states and regional organisations have a negative impact on the economies of countries and the observance of human rights,” she said.

As for the implementation of the UN Security Council sanctions regimes, (there are 14 of them as of today), it is important to ensure the implementation of existing humanitarian exemptions. This should be monitored by the expert groups accompanying the work of most of the sanctions-related committees of the UN Security Council.

For example, the Panel of Experts assisting the UN Security Council Sanctions Committee on the Democratic People’s Republic of Korea (formally named the Security Council Committee established pursuant to Resolution 1718, hereinafter referred to as the 1718 Committee) in its report to the Security Council in March 2019, indicated significant delays in receiving humanitarian exemptions from the 1718 Committee as being among the main problems faced by the UN agencies and humanitarian organizations. It was recommended that discussions in the 1718 Committee on humanitarian exemption requests be time-bound. The UN Panel’s claims were mainly addressed to the United States, which regularly withheld or blocked humanitarian exemption requests. The criticism had an effect, and in its next report in March 2020, the Panel of Experts noted significant progress in reducing the time taken to approve humanitarian exemption requests submitted to the 1718 Committee.

Washington: toward tougher sanctions

The pandemic at once revealed several weaknesses of the Euro-Atlantic ideology. First of all, it struck at the idea of a collective West, which was knocked down like a house of cards, as well as at the solidarity between the Western democracies. Moreover, the pandemic demonstrated the inability and unwillingness of the United States to be a consolidating link in the fight against the emerging threat. Strengthening the sanctions policy against China and Russia can serve as a kind of “rehabilitation” for Washington vis-à-vis its allies.

Donald Trump’s administration has taken a tough stance on Beijing, blaming China for the damage caused by the pandemic. Since February 2020, about 20 bills and resolutions have been submitted to the US Congress, which contain various sets of sanctions against China with regard to COVID-19.

The upcoming US presidential elections in November this year may become a trigger for strengthening sanctions against Russia. The political situation in America is heating up. It is overlaid by scandals, fake news and the narratives of the post-Trump era, the confrontation between President Donald Trump and the establishment/media. All this turns the sanctions agenda into a “mess” that is difficult to rationalise, let alone to predict.

Over the past year, Washington has intensified its attempts to use sanctions to gain non-competitive advantages. For example, sanctions against Nord Stream 2 were added to the US defense budget, because shale-based LNG has a worse supply economy than pipeline gas from Yamal (Western Siberia). This includes the sanctions pressure against China (the Huawei case), associated with the under-performance of the US companies in the development of 5G technology. It is obvious that such a use of sanctions is contrary to the principles of free trade, but they are allowed by the World Trade Organisation (hereinafter — the WTO), since the WTO rules were worked out by the United States.

Russia’s anti-sanction policy

Obviously, Russia is not shaping the sanctions agenda and accepts the emerging conditions as they are. However, even amid these conditions, decisions are possible that will be more or less constructive, implying different strategic consequences.

The possibility of a proportional response to sanctions is difficult to implement due to the incomparability of the size and structure of the economies of Russia and the Western countries.

In 2014, Russia responded to Western sanctions with agricultural counter-sanctions, which allowed for significant, sometimes double-digit growth in the country’s agricultural sector, not interrupted even during the economic downturn in 2014-2016. Western sanctions made it possible to use this protective measure of “smart” retaliatory measures. This demonstrated that even under the pressure of sanctions, more or less rational steps can be taken.

It is also important to pay particular attention to the issue of extraterritoriality. Sanctions are imposed by different countries, but only the United States sanctions have an extraterritorial scope: the US extends its jurisdiction abroad.

Resisting sanctions launched by other countries can be draconian — as is the case with the United States, which has criminalised American individuals and entities for complying with the Arab embargo against Israel. Such measures have not been taken in Russia.

A strategic response to US extraterritorial jurisdiction is possible in two directions: development of settlements in national currencies (in particular, the use of the euro and the ruble) and non-disclosure of information.

The transition to settlements in national currencies is one of the most important areas of work in the counter-sanction agenda. It is also a forced decision related to the abuse of the US dollar’s status as the main settlement and reserve currency. If the infrastructure has been created to carry out uninterrupted settlements regardless of sanctions inside the country, then in settlements with the outside world, there remains a critically high dependence on the infrastructure controlled by the United States. This is an objective reality that has developed in the global financial system for more than a decade, and it is difficult to change it overnight.

However, this is not impossible, and Washington’s abuse of the dollar’s monopoly will naturally push the global financial system towards a more balanced model. For example, the partner countries of Russia are showing interest in the development of settlements in national currencies. We are optimistic and related long-term work will bear fruit.

In particular, at this stage, the main course of action is to increase the role of the euro, which will lead to a decrease in the dollar’s weight in world trade. The euro can and should replace the dollar, not only in the EU’s settlements with Russia. The EU is also interested in increasing the international role of its currency. This will limit the American ability to impose unilateral sanctions, which in turn will make the world order more democratic (multipolar).

After the reforms carried out by the Government of the Russian Federation in recent years (free exchange rate floating, inflation targeting, fiscal rules), the Russian economy has good macroeconomic parameters, and the ruble has become a reliable currency that has no barriers to international use. Europeans are already actively using the ruble when exporting to Russia — up to 28.5% (for the 1Q 2020).

For reference: according to customs statistics, in the 1Q 2020, 16.9% of Russia’s imports from the EU were paid for in US dollars, 53.7% in euros, and 28.5% in Russian rubles (that is, the share of rubles is 2 times higher than the share paid for in US dollars). During the specified period, 75.9% of oil and gas exports from Russia to the EU were paid for in US dollars, 22.4% — in euros, and in rubles — less than 1% (0.3%); 47.1% of non-oil and gas exports are paid for in US dollars, 44.3% are paid for in euros and 8.4% are paid for in rubles.

As for the non-disclosure of information, it is necessary to understand that this is a forced measure that runs counter to the previous policy of the Government of the Russian Federation to create an open economy. However, restrictions on the disclosure of information are required not by all sanctioned persons, as it is written in the current legislation, but only by persons under US extraterritorial sanctions. In this regard, work is underway to amend or “systematise” special provisions of Russian legislation in terms of information disclosure.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.