Western sanctions and the weaponization of finance will not save Ukraine

As Ukraine pays the ultimate price in the Russo-American feud, NATO fails in all its grand promises for peace and security

Sanctions, sanctions and sanctions, a seemingly never-ending flow of sanctions. This is the Western response the world has witnessed as Russia invades Ukraine.

The West’s reaction has been lacklustre and criticised by many, including Ukrainian President Zelensky, who stated: “We’re defending our country alone. The most powerful forces in the world are watching this from a distance.” Although numerous NATO members are supplying Ukraine with military equipment, such as Germany sending 1,000 anti-tank weapons and 500 Stinger missiles, this will not be enough. Ukraine is alone in facing one of the deadliest armed forces on the planet with a reputation for ignoring human rights.

The West may believe its sanctions are working, but the war has not ended, nor will it end until Russia has its demands met.

Sanctions, yet again

Sanctions were introduced as far back as 2014 by both the US and the EU as a way to deter Russia from interfering in Ukraine. The result was the continued annexation of Crimea and the backing of separatist forces in Luhansk and Donetsk. In other words, sanctions did not work.

Sanctions have thus far failed because Russia has a severe advantage, its energy supply to Europe, which makes up roughly 60% of its overall exports to the EU. In fact, Russia supplies 26% of Europe's crude oil and 38% of its gas. For as long as the EU relies on Russian energy, there is nothing Brussels can realistically do to counter Moscow.

This situation is worsened due to Berlin's rigid anti-nuclear policy, forcing Germany to rely on Russian gas, putting the economic powerhouse of Europe in a precarious position when it comes to Russian relations. Even though the EU has gone as far as freezing the Nord Stream 2 project, the Nord Stream 1 and all other pipelines from Russia still have gas flowing. In fact, the West is currently spending $1bn per day on Russian energy, a price that is likely to rise as Russia will undoubtedly attempt to punish the EU.

While energy dependence is unavoidable, there is a rather long list of working sanctions that have been announced by the EU, including banning the sale of aircraft and equipment to Russian airlines and limiting Russia's access to high-tech, such as semiconductors and software.

The West has also barred Russia from the Society for Worldwide Interbank Financial Telecommunication (SWIFT). However, ejecting Russia from SWIFT is not the victory many believe it to be. Although it does add difficulties to international trade for Russia, commerce will not end. Transactions with Russia will revert to how they were done prior to SWIFT, a slower process with more paperwork, but trade will continue. Furthermore, Russian banks might route payments via countries that have not imposed sanctions, such as China, which has its own SWIFT system, known as the Cross-Border Interbank Payment System (CIPS). India is also pondering an alternative to SWIFT and will most likely develop something in order to continue its yearly $8bn trade with Russia.

A far more threatening manoeuvre has been the freezing of Russian assets. Russian funds were reduced by a considerable amount, roughly half of the $630bn in reserve. Moreover, many private individuals lost fortunes, including Putin's closest allies, around $127bn.

Russia shrugs

As stated above, many sanctions have been introduced, yet Russia is not deterred. Moscow will not stop until Kyiv declares neutrality because security is vastly more important than the economy.

From a geopolitical perspective, this should come as no surprise. Ukraine is an entry point into Russia, a flat and open entry point at that, and has been somewhat of a weakness for Russia in previous wars involving Europe. Moreover, Russian President Vladimir Putin had warned the West that NATO had expanded far too much and that any further expansion into nations such as Ukraine would have consequences. We are now experiencing sad consequences.

Another ramification of this war is that Russia and China are now reliant on one another. As the US pushes to contain the two powers, they seemingly become closer allies. With sanctions introduced by the West, Moscow is now developing trade ties with Beijing, especially in energy. China will be all too fond of this situation since they are currently sanctioning Australian coal: a formerly essential trade that kept China powered up. A deal to sell 100 million tons of coal to China, worth more than $20bn, is the first step in increasing trade between the two allies.

With Beijing and Moscow standing side by side, both economically and politically, the probability that Russia will back down from Ukraine is near zero.

Consequences for the West

While Putin has remarked he has no interest in going further than Ukraine, which is most likely true, the real issue in the future will be Chinese interests in Taiwan. If Western promises of security and defence simply lead to sanctions rather than actions, Chinese Chairman Xi Jinping and the CCP may find a war in Taiwan to be a genuine possibility.

Something else to consider is that many nation-states will now be cautious of the Western financial system. If the US and the EU can freeze assets and remove nations from their SWIFT system, there is a risk that any and all rivals of the West can face the same fate. This may result in the development of a counter financial system, perhaps led by Russia itself, or more likely, China.

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