What do sanctions on Russia mean?

A catastrophe. The answer in one word is this – a catastrophe for the West.

   In some different conditions, may be it would be possible serious and painful sanctions to be imposed on Russia (like the sanctions on Iran). But exactly now, this will be a ritual suicide…
   At current moment the entire West world is in economic depression. No serious reforms are started, the government debt is enormous and continuing growing, unemployment is rising and central banks are printing money in an unbelievable scale. Entire countries are going bankrupt and salvation funds are insufficient that leads to any possible help to be welcome.
   In this case isolating one of the major holders of fresh cash, having almost no debt and willing to help, is simply a madness. It can become a trigger of a chain financial reaction of debt defaults, interest rates rises, and accelerating inflation. The West is not in situation of making rapid moves at any area. And sanctions attack on Russia would be an extremely rapid move.
   Imagine Russia withdraws its money from EU government debt. This will press the rates up. This can bring some weaker parts of the system to default (Cyprus, Spain, Portugal, even Italy). If this happens, the entire EU will collapse. And that is just a case in the debt and finances. Much more dangerous is the situation with the supply with natural resources.
   Germany is about 30% dependent on Russian gas. German economy will have to forget about growth if taking such a blow. But that would be the smallest of problems.
   Almost all Eastern Europe (about 100 million people) is totally dependent on Russian gas. The extreme cases are Bulgaria and Slovakia with over 90% dependency. And not only on gas, but on entire energy.
   Painful sanctions on Russia will simply knock out the economy of these countries and will make them candidates for bailouts. But there will be no one to pay for this. So Eastern Europe will simply crash and this will initiate the disintegration of European Union.
   It is very important to understand that the problem is not only money. Some of Eastern Europe generally lacks a physical possibility to get energy from other sources. Natural gas is pumped from Qatar, but no terminals or gas-pipes for it. With oil is some better. But not perfect. For instance the biggest refinery in Bulgaria is built to use Russian oil. It cannot simply switch to Saudi Arabian or Libyan oil. So Bulgaria will have to import all diesel and gasoline fuels. In addition about 40% of electric power is produced by a Russian fueled Atomic power station. With it turning off, Bulgaria will have to import enormous quantity of electricity at higher price. This will hit the entire economy via the power expenses.
   And the same will happen in Romania, Slovakia, Hungary, Poland, Estonia, Lithuania, Latvia, Czech Republic.
   If all this happens and EU starts to disintegrate, guess who will win from this?
   Eastern Europe cannot exist without being a part of something bigger as organization. Now it is part of the EU, but before that it was part of the Soviet economic block. After the crash of the USSR, Eastern European countries rushed as fast as possible towards EU. But without EU, they will have to seek for another option. And the only possible choice will be Russia with its Customs Union, called also Eurasian Union. So in fact if the West imposes sanctions on Russia and this way destroys the EU, the beneficiary will be Putin.
   Today Russia has enormous reserves. It has a debt of just 9% of GDP and reserves of about 25% of GDP. Russia can survive for years even being fully isolated. In fact Russia can survive for decades if being attacked and this way – if turned on the Russian instinct of survival. Russians can live with $5 per day and accept this as normal, if the country is threatened by foreign enemy. Russian thinking is different from the western. People are ready on big sacrifices and will back their leader even if that means living worse. The cause and fate of “Mother Russia” is top priority there.
   All this is needed to mention for better understanding who will win and who will lose from anti-Russia sanctions. Better situation with reserves and with debt, along with aptitude of people to accept difficulties makes Russia with a serious advantage. Therefore the simple truth is there will be no serious sanctions, they will be limited to verbal and propaganda attacks, and in few months the West will simply forget about Ukraine and Crimea crisis. Unless Putin annexes additional parts of Ukraine. In this case the propaganda counter-attack will continue some more.
Dobri B.
March 25th 2014

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