Solving the Russia Problem

We are clearly at the very beginning of the sanctions era. President Vladimir Putin's meeting with his principal economic advisers last week was a serious discussion of the worsening international economic environment and the ways of handling it. Putin is given a range of options, from pursuing structural reform to embracing autarky. The former should be preferable, but it would run against powerful vested interests. The latter is psychologically more comfortable, but its likely effect will be worse than all the sanctions combined. It looks as if Putin has not yet made up his mind, and hopes to weather the remainder of Obama's second term using the reserves Russia has accumulated while trying to torpedo U.S. economic restrictions.

There is palpable resistance on the part of various Western business interests—from German manufacturers to U.S. big oil—against ratcheting up sanctions. The Obama administration's effort to talk Russia down is countered by the Kremlin's outreach to the CEOs of the companies that are doing well in Russia. The U.S. drive for Europe's independence from Russian gas is followed by Gazprom's calculations of how much more the Europeans will have to pay for their gas imports from the United States in the case of such exports will become legally and logistically possible. This competition will continue, but in the end the United States will probably get much of what it wants from its European and Asian allies.

What is less clear, however, is what these sanctions will actually achieve. Making Putin back down and concede defeat in Ukraine is improbable. Driving wedges between the Russian leader and his close associates is equally hopeless. The Russian liberal opposition, already marginalized, will hardly get a shot in the arm thanks to the sanctions. As to the bulk of the Russian people, their instinctive reaction to massive outside pressure against their country is more likely to be a patriotic surge rather than a regime change. The Russian government will now have an excellent reason to explain away the coming economic hardships: U.S. sanctions.

After the end of the Cold War, the West neglected the task of solving the “Russia problem” through integration. Trying to solve it now through economic warfare is not going to work.