5 unintended consequences of US sanctions

The latest round of US sanctions against Russia, Iran and North Korea are supposed to be a militant punitive measure designed to hurt three very different economies, though economies that in various ways have all learned to become increasingly self-sufficient over the years. Far from turning the economies of the aforementioned countries into 1990s Iraq, something very different is happening.

The real consequences of the sanctions are largely unintended from an official American point of view, even though in reality, the sanctions were all about Congress trying to limit the authority and slam the credibility of Donald Trump. This helps explain why few people in America have considered the following, although some voices outside of the Washington elite have voiced important concerns.

1. CONFIRMED: Russia and Iran strike $2.5 billion trade deal 

48 hours before Donald Trump’s self-described reluctant hand signed the sanctions, Iran and Russia struck a $2.5 billion deal wherein Russia will provide train carriages for Iranian rail networks.

As Forbes reports,

“Russia and Iran signed a $2.5 billion deal on Monday to start up a much-needed rail wagon production operation. The agreement was forged between the Industrial Development and Renovation Organization of Iran (IDRO) and Transmashholding, who is Russia’s largest rail equipment supplier. The two sides will set up a new joint venture, which will be 80% owned — although completely funded — by the Russian partner.

Iran is currently in the midsts of what could be called an infrastructure building bonanza. Emerging from decades of sanctions which left much of the country’s transportation infrastructure descending into proverbial ruins, Iran has embarked upon a near complete rebuild of its highway and rail networks. The country is expected to add on 15,000 kilometers of new rail lines in the next five years alone — a rapid expansion which is going to require 8,000-10,000 new wagons each year.

Reinvigorating the transport sector is a key part of Iran’s vision to leverage its geographic position to become a vibrant hub of trans-Eurasian trade, which plugs nicely into China’s Belt and Road Initiative and Russia’s continued economic activity in the post-Soviet neighborhood. Iran is also a core partner, along with Russia and India, in the emerging North-South Transport Corridor, which seeks to create a multimodal trade route that would cut the lead time between cities on the west coast of India and St. Petersburg in half, and has also worked out its territorial squabbles with Russia over the Caspian Sea”.

Thus, Russia and Iran have not only developed even closer economic ties, but are doing so in the medium and long term service of China’s One Belt–One Road initiative which both Moscow and Tehran have embraced.

2. The Death of Liberalism in Russia 

Ever since the end of the horrific 1990s in Russia which coincided with the year 2000 election of Vladimir Putin as President, liberalism (both social, economic and geo-political) has rapidly fallen out of favour.

Where the west still largely sees liberalism as a creed, Russia tends to see it as a failed experiment. That being said, even in recent years, moderate liberals in Russia have asserted that Russia’s relations with the west including and especially the United States, are somehow paramount to relations with Asian countries, fellow Eurasian states and the ‘global south’ of Latin America, Africa and, South Asia and South East Asia.

This sanctions prove once and for all that such a view is folly masquerading as strategy. Forgetting the fact that as a geographically, historically and temperamentally Eurasian state, Russia’s economy and pragmatic style of geo-politics is far more oriental than post-modern occidental, even if one desired to put the US on a paramount level vis-a-vis the rest of the Eurasian world, this has now been exposed as impossible.

If the most outwardly and by many accounts sincerely Russia friendly US leaders in decades, Donald Trump cannot even get a Congress controlled by his own party to refrain from passing punitive measures against Russia, then there truly is no hope for fully-fledged good and functional bilateral relations between Moscow and Washington at this time, this is especially true where America’s increasingly protectionist economy is concerned.

No matter what concessions Russian liberals would make to the US, nothing would be enough given the current political climate in the west. Many Russians have realised that surrendering one’s traditional interests and one’s dignity in the hope of good relations with the US is not only self-defeating but is furthermore, objective folly.

Even former President and current Russian Prime Minister Dmitry Medvedev, often thought of as a closet-liberal has come out with a strongly worded statement to this effect.

The Prime Minister wrote the following in a Facebook post in Russian and English. The English section is re-produced below:

“The US President’s signing of the package of new sanctions against Russia will have a few consequences. First, it ends hopes for improving our relations with the new US administration. Second, it is a declaration of a full-fledged economic war on Russia. Third, the Trump administration has shown its total weakness by handing over executive power to Congress in the most humiliating way. This changes the power balance in US political circles.

What does it mean for them? The US establishment fully outwitted Trump; the President is not happy about the new sanctions, yet he could not but sign the bill. The issue of new sanctions came about, primarily, as another way to knock Trump down a peg. New steps are to come, and they will ultimately aim to remove him from power. A non-systemic player has to be removed. Meanwhile, the interests of the US business community are all but ignored, with politics chosen over a pragmatic approach. Anti-Russian hysteria has become a key part of both US foreign policy (which has occurred many times) and domestic policy (which is a novelty).

The sanctions regime has been codified and will remain in effect for decades unless a miracle happens. This legislation is going to be harsher than the Jackson-Vanik amendment as it is overarching and cannot be lifted by a special presidential order without Congress’ approval. Thus, relations between Russia and the United States are going to be extremely tense regardless of Congress’ makeup and regardless of who is president. Lengthy arguments in international bodies and courts are ahead, as well as rising international tensions and refusal to settle major international issues.

What does it mean for us? We will steadily continue our work on developing the economy and social sector, take efforts to substitute imports, and solve major national tasks, relying mostly on ourselves. We have learned to do so in the past few years, in conditions of almost closed financial markets as well as foreign investors’ and creditors’ fear of investing in Russia upon penalty of sanctions against third parties and countries. To some extent, this has even been to our advantage, although sanctions are meaningless overall. We will cope”.

If even Medvedev is using such language, the message to Russians is clear: Look everywhere, but don’t look to America, not anytime soon, certainly.

3. North Korea and Russia 

Russia and her ally China are deeply angered with America’s aggressive posturing towards Pyongyang. China and Russia have issued a joint statement condemning American militarism over the Korean peninsula while also stating their sincere desire to see Pyongyang refrain from moves which have been viewed by Seoul and Washington as provocative. After all, Russia and China both border North Korea and neither want to see a war, let alone a nuclear war on their doorstep.

Crucially though, both Moscow and Beijing have condemned any further attempts to sanctions North Korea’s economy. Russia in particular ought to go in the opposite direction and try and work with Pyongyang to open up the North Korean economy to Russia. A prosperous North Korea which engages positively with a neighbour that has had historically good relations with Pyongyang, would be a healthy way to de-escalate conflict and gently persuade North Korea to focus on bilateral prosperity rather than the instruments of war.  If Russia and North Korea could reach such an agreement, China would almost certainly approve as Russia and China have developed a level of trust that currently does not exist between China and North Korea.

Such a suggestion was recently made by Russian opposition leader Vladimir Zhirinovsky, a man while in the opposition, has often predicted a great deal of geo-political events, most famously when he anticipated the current Ukraine crisis in the late 1990s.

The sanctions which are manifest of the impossibility of meaningful cooperation with Washington could hasten Russia’s desire to solve the largely US inspired crisis in Korea more rapidly than many anticipate at this time.

4. A boost for One Belt–One Road 

Russia has expressed a commitment to actively participate in China’s global trade, commerce and infrastructure trade initiative from the moment it was announced in late 2013. While the sanctions do not change this, it reinforces the central importance of One Belt–One Road to tapping Russia’s potential in the 21st century for what will certainly be to the economic benefit of all Russians.

While some have challenged One Belt–One Road on the basis of being overly ambitious, America which opposes the plan has increasingly nothing to offer as an alternative. Even if the US did have a counter-proposal for One Belt–One Road, it is clear now that such a proposal would never be offered to Russia with respect or seriousness.

Russia therefore now realises that the road which is open to Moscow is China’s plan and not a would-be western plan. One Belt–One Road is more suited to the Russian economy than any hypothetical western counter-proposals would have been in any case.

5. The Seduction of Europe 

If the US forces its EU partner into a trade war, Russia will be able to exploit this schism by seducing European markets with offers which from the perspective of Dollars and Cents, Europe would be hard pressed to refuse.

Already, Europe is panicking over the idea that countries like Germany might have to purchase expensive American Liquefied Natural Gas which then has to be painstakingly shipped to Europe rather than the cheap and comparatively local alternative of Russian pipeline gas.

Russia could therefore tempt Europe with the carrot of cheap energy and goods while combining it with the stick of demanding Europe drop its own sanctions against Russia, most of which date back to 2014. Russia already has sympathetic ears in southern Europe on this matter and Germany may well be moving in this direction due to America’s blatant disregard for northern European concerns.