By R. Alan Clanton Thursday Review editor
(Originally published March 25, 2014): Math is punishment. Subtract one, and the G8 is now the G7.
After a preliminary meeting this week, the leaders of the industrialized nations voted unanimously to give the boot to Vladimir Putin, excluding him from the roundtable meeting and banning Russia from future economic talks—indefinitely, that is, unless he can change his aggressive behavior. The G7 also voted to scuttle their plans to hold their next scheduled summit in the newly remodeled and upgraded Sochi, the recent home of the $51 billion Olympic Games. They will meet instead in Brussels in June.
Many might see the decision by the G7 leaders as mostly symbolic, but the economic conference draws large entourages, hundreds of participants, and thousands of writers, reporters and television cameras. The economic impact on Sochi would be like a mini Olympics. And kicking Putin out of the high-profile conference—about as symbolic an act as one can implement—does carry a sting: Putin, like most bullies and autocrats, craves respect—and respectability.
Still, some have complained that the current round of sanctions imposed on the Kremlin will have only marginal impact on Putin’s Russia, a country which has taken a dark turn of late—reincarnating itself in a style and methodology not seen since the end of the Cold War and perhaps even the pre-Gorbachev era.
But short of sending in NATO troops, U.S. Marines and Army Rangers, what else can be done? Lots of things, as it turns out.
Indeed, one of the keys to pressuring Vladimir Putin to back off of any further territorial incursions into the Ukraine may be his close associations with several Russian billionaires.
After the Russian invasion and annexation of Crimea—the Black Sea peninsula which is home to part of the Russian fleet—U.S. President Barack Obama hit Russia with a long list of economic and travel sanctions. Some have said that those sanctions are about as tough as any such program of punishment can get, cutting deeply into an already suffering Russian economy. Others have said that Obama’s sanctions have not gone far enough, and that Putin has been emboldened to act unilaterally and aggressively by a weak, rudderless U.S. foreign policy—an argument made by plenty of U.S. conservatives for weeks now.
In either case, Obama has all but ruled out direct military action (though he has not ruled out the use of technologies like AWACs or surveillance drones which might assist the Ukrainian forces in a potential military showdown). It is unlikely as well that NATO will intervene since few European Union member states want to get into a dust-up with Putin at a time when so many of their economies are dependent on oil and gas supplies from Russia.
But with military options off the table, for now, that leaves a long and sometimes complex list of sanctions and other market and business moves. And a few experts in the business world have said that putting the squeeze on Putin’s billionaire pals—some of whom have checkered pasts and few scruples—will have the immediate effect of punishing Putin where it hurts the most: the bank accounts of the oligarchs and oil chieftains.
One such kingpin is Dmitry Firtash, a Ukrainian oil billionaire with a long rap sheet of charges, including bribery (in numerous countries), bank fraud, coercion, price-rigging and extortion. Firtash is not a driller of oil or a producer of gas, but a middleman whose principal profits came from buying and reselling, often using extra-legal methods, and frequently with little or no oversight or adherence to laws or regulations. Firtash was arrested in Vienna in early March (the Viennese had warrants and papers from the United States, and were cooperating with American authorities in locating Firtash) on charges of bribery in a variety of jurisdictions. Firtash’s main supply client was Gazprom, a Russian energy company known to operate deeply in the shadows of corruption. And Gazprom is a company with close political links to Putin.
The U.S. and its partners in the west hope that by squeezing Putin’s network of oil and gas associates, they can squeeze him politically. He may not ever concede wrongdoing in his aggressions in Crimea—indeed some think that the issue of Crimea’s referendum and subsequent annexation by Russia is a closed deal now—but the harshest business sanctions, those which hurt the billionaires, may give him serious second thoughts about moving troops into other parts of the Ukraine.
The Kremlin has consistently said it is all an exercise, but after completing its takeover of Crimea this past week, many military and intelligence analysts believe that those thousands of Russian troops on the move along the perimeter of Ukraine’s eastern borders are there for more than mere in-the-field training. Many Ukrainians, especially in the east, are fearful that Putin’s intention is to strike deeply into the heart of the Ukraine, perhaps sending troops as far west as the Dnieper River.
Pro-Russian rallies in several major cities and increasing talk among the pro-Kremlin press have increased the idea of a general referendum to allow Ukrainians to “reunite” with Russia. Whether there are elections or not, any major public disturbances or civil unrest will surely give Putin the excuse he needs for a wider invasion. And a pro-Russia vote, if successful even by a small percentage, will surely embolden Russia to act unilaterally. This raises the specter of a divided Ukraine—the western half of the country aligned with the European Union, the eastern half folded into Russia and under Kremlin authority. Cultural and linguistic differences may also fuel such an outcome, just as it did in Crimea, where over half of the people speak Russian as their native language.
Either way, Obama and his partners among the remaining G8—which include the United Kingdom, France, Italy, Germany, Canada and Japan—hope that squeezing Putin’s economy and denting the profits of his partners will send Putin the message that his aggressions in the Ukraine must stop. Economic growth trumps territorial designs.
According to Bloomberg, since January investors worldwide have already pulled about $5.5 billion from the economy by walking away from Russian stocks and bonds. The U.S. has also asked banks to freeze assets worth many more billions, and the European Union has blacklisted even more Russian individuals than those on the American list. Among the elite of Russian billionaires are businessmen who freely—and frequently—travel from Moscow to a variety of European and worldwide destinations, both on business and for pleasure. Limiting their travel may seem mostly a matter of convenience, but it can create serious hindrance in their need for face-to-face business activities.
The U.S. and its European partners can also target other heavy-hitters among the Russian elite, including Roman Abramovich, another oil billionaire who happens to own soccer teams in Europe. Much of Abramovich’s wealth came from the sale of part of his oil and gas empire to Gazprom in the aught years, and he used some of that cash to buy soccer teams in Europe.
One of Russia’s wealthiest industrialists is Alisher Usmanov, another close ally of Putin, who has a penchant for technology, computers and social media. Until recently he owned large blocks of stock in Facebook and Apple (most of which he sold between 2013 and 2014). Usmanov may be worth well over $17 billion, according to some analysts.
Both are on the list of those for whom sanctions are targeted, and both have shady connections to Putin and the top Kremlin brass. Properly applied, the sanctions will put the squeeze on both billionaires and their extended trading partners, and, in theory, Putin himself.
Many U.S. and British conservatives say the steps are too weak and will have little effect on the stubborn, coldly calculating Putin, the ex-KGB officer and icewater-for-blood apparatchik. Fox News has dubbed President Obama’s list of sanctions “double-secret probation,” a line lifted from the movie Animal House. But U.S. and E.U. officials say that the current sanctions are simply the first step in a series of moves designed to ramp up the pressure on Russia. These include broader, heavier forms of economic quarantine.
But in an increasingly interconnected global economy, many market experts fear that if sanctions are taken to the next level—which could include a deeper freeze on assets and a blockade of more banking transactions—the blowback could adversely affect the economies of a dozen European nations, especially if Putin retaliates by limiting gas sales or cutting off oil supplies. Further, even the sanctions aimed squarely at the billionaires might have repercussions in the western economy: punishing Abramovich could adversely affect his soccer holdings in the U.K.; and cutting off Usmanov could greatly limit start-up and investment capital otherwise available to Silicon Valley start-ups and U.S. tech companies.
Putin has plenty of reason to budge over time, especially if the oligarchs get angry with him over the reversals of fortune. On the other hand, Putin places Russia’s prestige and muscle first: he has made it clear he believes the West is interfering in a region which is well within his sphere of influence, militarily and economically. Of all the former Soviet states, the Ukraine is the one which to Putin bears closest kinship with Russia. Putin has thus far proven intolerant of any moves to westernize the great breadbasket region, east or west of the Dnieper.
In the meantime the world watches as more Russian troops move en masse toward the border between Russia and the Ukraine. If sanctions are to work, their effects had better be felt by Putin soon. Otherwise when the G7 meets in June, the roundtable talk may be of war, not the engine of peacetime economies.
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