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Russian Sanctions Too Little, Too Late

Company Strategy, Economics, Europe
By John Richardson on 01-Sep-2014

By John Richardson

“A common orthodoxy in Western thought – the notion of  a globalising world in which greater prosperity was ultimately analogous to stability – has  been again thrown into contention,” wrote the Financial Times, in an article worth very close reading, headlined Russia’s New Art of War.

The problem with this common orthodoxy is that this concept of working together to achieve “greater prosperity’ has not necessarily been accepted by countries such as Russia.

And now as Russia confronts being both poor and old (see the chart below), it sees a return to the past as the solution.

PoorandageingIts leaders know that sabre rattling in Ukraine is great for their popularity. Vladimir Putin’s domestic popularity rating is 84%. This helps to distract attention away from economic problems at home.

Where will this stop?

The West assumes that economic sanctions might make Russia pause, or even reverse, in its tracks.

But the more that Russia’s economy suffers, the more it might be tempted to further broaden the scope of its “New Art of War” as discussed by the FT. The advantage of this approach, from its viewpoint, is that increased geographical influence will provide more resources to compensate for the economic impact of sanctions.

It could therefore be wishful thinking to assume that Russia’s pursuit of this strategy might not include a decision to cut gas supplies to Europe at some point this winter. Russia’s end-game means that it might well be prepared to accept short-term economic pain from lower gas revenues.

This highlights the failure of Western leaders to recognise that Russia’s weak demographic position has led to it adopting quite different political and economic strategies.

They assumed that prosperity would inevitably be great enough and widespread enough to keep Russia happy, and they so cut back on NATO spending. As you can see from the chart below, from the same FT article, only six member countries are meeting their NATO commitments to military expenditure as a proportion of their GDP.


And so now, very worryingly, the West can only resort to economic sanctions in an attempt to contain Russia. And, as we said, sanctions might well have the opposite of the desired effect.

The lesson in all of this? Demographics shape global economics and politics.