Global economics is the key to trumping Russian President Vladimir Putin, wrote New York Times’ columnist Thomas L. Friedman on April 1. Given the extent to which Russia’s economy is integrated with the world, especially with its largest trading partner, the European Union, depriving Russia access to Western banks, financial instruments, and oil and gas revenues is the most effective way of containing the Russian leader.
Friedman continued: “The tools are primarily economic: denying Russian oligarchs (who are widely believed to be the trustees of Putin’s money) access to the Western financial system and reducing the energy revenues flowing into Putin’s coffers.”
Calling this method a “new kind of containment,” Friedman argued that the “Europeans will have to contribute much more” than the 33 people whom the EU sanctioned and suspending military cooperation.
To preserve the global order based on economic interdependence, Friedman cited Michael Mandelbaum, the Johns Hopkins foreign policy expert, who said that the “Germans will have to be willing to forgo their sales of machine tools and cars to Russia, the French will have to cut back or give up arms sales to the Putin regime, and the British will have to stop the Russian oligarchs from using London as a playground and money-laundering site. Most importantly, the Europeans will have to wean themselves from Russian gas.”
That won’t be an easy task since one-fifth of the gas Europe consumes is from Russia. Germany in 2012 consumed 16 percent of the mineral fuels and oils that the EU imported from Russia worth €162.7 billion. The EU’s trade turnover in 2012 was estimated at $330 billion with a negative trade balance.
By contrast, the U.S. is a much smaller trading partner for Russia at $38.1 billion last year. In 2013, the value of its imports was $26.96 billion, more than double the value of its exports.
U.S. President Barack Obama has the power to impose sanctions on key sectors of the Russia economy. He has thus far limited himself to freezing the assets of and imposing travel bans on 20 individuals linked to Russia’s annexation of Crimea. He also targeted Bank Rossiya.
Further sanctions targeting the Russian economy, such as financial services, energy, metals and mining, engineering and defense would also make it tricky for American firms heavily invested in Russia.
General Electric has a fleet of 54 airplanes in Russia and Exxon Mobil has significant exploration projects in Russia. Ford, General Motors, Citigroup, JPMorgan Chase and PepsiCo also have large business interests in Russia.
Boeing currently operates a joint-manufacturing facility to produce titanium in Russia with VSMPO-Avisma Corp., whose parent company is Rostec Corp., which controls the country’s state-owned exporter of arms.
Push back among the chief executives of corporations heavily invested in Russia has already been seen. German Chancellor Angela Merkel recently chided Siemens’ chief executive officer Joe Kaeser for travelling to Moscow.
Based on the transcript of a round-table interview with the Die Welt newspaper published on March 29, the heads of Adidas, ThyssenKrupp and Deutsche Post questioned the need for sanctions.
Still, the West has indicated it would initiate a third round of sanctions whereby firms would be sanctioned for doing business with or transferring arms to Russia similar to measures that are in place against Iran and Syria should Russia invade mainland Ukraine.
“In the age of globalization, when the tools of geopolitics are more economic, everyone needs to sacrifice a little…to sustain a global order where our (Western) values predominate,” wrote Friedman citing Mandelbaum. Crimea, he wrote, is a “test of the West and whether we will use this system (globalization) to shape events our way.”
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