Sanctions as the New Economic Normal: Impossible to Overcome, but Useful for Development
Valdai Discussion Club Conference Hall (Bolshaya Tatarskaya 42, Moscow, Russia)
List of speakers

A few years ago, sanctions were the hottest topic in the media. The passions have somehow subsided now, but the phenomenon itself is still relevant with sanctions being imposed against Iran, China, North Korea and other countries. As for Russia, first of all, it is worth keeping in mind the sanctions against its energy sector. On January 23, 2019, the Valdai Club hosted an expert discussion, titled “Sanctions and the Oil and Gas Sector: Political Risks for Business”, moderated by Andrey Bystritskiy, Chairman of the Board of the Foundation for Development and Support of the Club.

A distinctive feature of the anti-Russia sanctions is their particular nature: if the restrictions against Iran or North Korea are comprehensive, then the anti-Russia ones are aimed primarily against the most important sector of the Russian economy – oil and gas. According to Alexander Pankin, Deputy Foreign Minister of the Russian Federation, the purpose of these sanctions is not to get something from Russia, but to punish it, and the reasons are purely geopolitical. “Russia is being punished for wrong behavior,” Pankin said. “Is it only being punished for Crimea, for alleged interventions in American elections and so on, or for something more? I am convinced that for something more. For the fact that we are Russia, that we are a country with a huge territory, a huge potential, which is not being managed as someone thinks it should be”. According to Pankin, the US would like to see Russia more amenable, controlled and without nuclear weapons. This cannot be achieved with the help of sanctions, but one can try to weaken their opponents by undermining the foundation of their income system.

However, since no one can hope that it is possible to destroy the Russian economy and reduce its energy exports to zero, we are talking about redivision of the market. Alexei Grivach, Deputy Director General for Energy Projects at the National Energy Security Foundation (NESF), said, echoing Pankin, that the political motives of sanctions are ephemeral and we deal with unfair competition. Using political slogans, Washington tries to achieve benefits at the expense of the supplier and consumers of these energy resources, including the United States’ allies in Western Europe. The speakers agreed that the “grounds” for the introduction of anti-Russia sanctions are just pretexts: in the absence of them there would have been others.

Future prospects cannot be called bright, but pessimism here is superfluous. Since the US sanctions policy toward Russia is systemic, and the requirements to lift the restrictions have not been put forward, the sanctions, as Grivach believes, are “eternal”. As their efficiency decreases with time, the pressure on the energy sector will increase. Alexander Pankin also believes that there certainly will be an escalation. “Because we are an unyielding partner. In their eyes, we are obstinate and show no hope whatsoever that we going to be pliable to their methods”, he said.

Frank Schauff, CEO of the Association of European Businesses, was more optimistic and stressed that although analysts predicted the decline of Gazprom ten years ago, its potential will grow in the next decade, especially with the launch of the Nord Stream 2 gas pipeline. “According to Merkel and Putin, this is not only a business project, it has the potential to influence geopolitics and energy security,” the expert said. The US sanctions against Russian oil and gas sector ultimately hit both Americans themselves, since they cooperate with Russia via  their transnational corporations, and their European allies. According to the expert, the European energy industry is highly dependent on the supplies of the cheap Russian gas, and the American LNG alternative is unlikely to suit it. Therefore, as long as the Russian gas is cheap, the country will remain competitive and influence the European markets. Schauff emphasized that the Nord Stream 2 remains in compliance with all permits, conditions and rules, so the levers of influence on this project from the United States are very limited.

“Sanctions cannot be overcome, but they can be used for proper development,” Alexey Grivach stressed. An excellent example, as one of the participants said, is Iran, which has managed to succeed and develop in spite of sanctions. According to Alexander Pankin, Russia can only follow its own course and continue to work. “We will continue to confidently do what we have been doing, that is, diversifying the energy sector and searching for partners. If we lose some markets, we will find others. We will be looking for alternative options. We must be prepared for the sanctions to become part of the economic reality”, Pankin said.