21/11/2024
POLITICAL AND ECONOMIC ADDICTION: DEPENDENCY OF WESTERN DEMOCRACIES ON TOTALITARIAN REGIMES
During wartime, one of the most pressing issues remains the provision of material and economic resources for conducting military operations. An aggressor can suffer defeat even while having an advantage in personnel and equipment. A striking example of this is World War I: despite the fact that the German Empire did not allow a single foreign soldier onto its territory and won numerous battles, it ultimately faced defeat due to its devastated economy.
The war waged by russian federation against Ukraine has lasted nearly three years. Western countries have implemented numerous sanction packages aimed at depleting the aggressor's resources. However, in practice, this depletion is not evident. What is the reason for this? Could it be that Russia's resources are inexhaustible? The events of recent years indicate that Western sanctions are merely a smokescreen for civil society. We support Ukraine but money is valued above all.
The article [1], published a year ago, highlights the schemes for circumventing sanctions by russian federation. Since then the situation has only worsened.
Kremlin utilizes the countries of the Eurasian Union and neighboring states as transit nations to circumvent sanctions. A compelling example can be seen in the export from the European Union (EU) to two countries in the Caucasus region (Georgia and Armenia) and Central Asia (Kazakhstan and Kyrgyzstan) over the past ten years. Picture 1 illustrates the range, marked by green dotted lines, which reflects the natural or pre-war export levels from the EU to these countries up until 2022.
However, following the russian invasion of Ukraine and the introduction of initial sanctions, a surprisingly rapid increase in exports has been observed to the mentioned countries. Compared to 2021, exports increased by 71% in 2022 and by 121% in 2023 [3]. At the same time, none of the importing countries show significant economic growth that could explain such an increase in export volumes.
There is no doubt that goods resulting from the surplus exports are reaching russian federation. This is confirmed by statistics on freight transportation in Kazakhstan, Kyrgyzstan, Georgia, and Armenia, particularly in their border regions.
The statistics in the Kyrgyz border region of Talas, adjacent to Kazakhstan, are particularly striking. In 2022 and 2023, freight volumes in the Talas region amounted to 11.8 million and 14.9 million tons, respectively, compared to only 2.7 million tons in 2021 [2]. All of this freight is routed to russia via Kazakhstan.
It should be emphasized that exports to russian federation through third countries include electronics, electrical equipment, machinery, and vehicles — essential tools for conducting war. For instance, Ukrainian Armed Forces specialists have found Western microchips in missiles used by the Kremlin to strike civilian infrastructure in Ukraine.
The situation with other Western countries is similar to that of the EU: the United States, the United Kingdom, South Korea, and others are utilizing third countries for trade with russia. Therefore, one of the key directions of the sanctions policy — limiting the russian federation's access to the instruments of warfare — has been failed by the Western democracies.
Another important direction of the sanctions policy is to prevent replenishment of the aggressor's financial resources. Revenue from oil trade constitutes a significant portion of Russia's budget (25-30%) which justifies the corresponding decision by Western countries to impose sanctions in this trading sector.
In December 2022, a group of G7 countries in coordination with the EU introduced a price cap on Russian oil shipped by sea at $60 per barrel while global prices hovered around $80-85.
How was this sanction intended to work? International insurance companies insure all oil transported by tankers by sea until it reaches its destination. Consequently, insurance companies and carriers were supposed to refuse to transport russian oil if the purchase price exceeded $60; otherwise, they risked facing sanctions themselves. In this way, russia was expected to lose excess profits from oil sales. However, this sanction has proven to be ineffective in practice.
The shadow fleet of tankers created by russian federation enables the country to sell oil at market prices, thereby circumventing sanctions. Greek shipbuilding oligarchs facilitated the establishment of this fleet by selling a significant portion of their tankers either directly or through offshore companies. Picture 2 illustrates the volume of oil tanker shipments departing from russian ports based on the location of the beneficial owner's headquarters [4].
The light gray color on the graph denotes the shadow fleet. Notice how the share of this color increases while the share of Greek carriers correspondingly decreases. Greek shipbuilding oligarchs are aiding russia in circumventing sanctions, while the EU simply ignores this activity. As summary, another important aspect of the sanctions policy has been failed.
In addition to the toothless sanctions policy from the West, the russian economy remains afloat with the support of China. Only in September this year, the East Asian country exported machining tools and electrical equipment worth $3.5 billion! Without China's assistance, the russian military machine would not be able to function. What actions have Western countries taken to stop these supplies? None.
The presented facts indicate a deliberate inaction on the part of Western democracies regarding sanctions policy. It should be noted that no one is obligated to impose sanctions against russia or China nor to assist Ukraine. However, in the third year of the war, it is essential to determine what goals are to be achieved and act according to a clear plan. Either join together to combat totalitarian regimes in restoring international law, or step forward and declare: "We love putin and xi, even more their money, and will kiss their asses for it. As for Ukraine, let it perish; we are tired of its struggle."
Yet, the russian brazen invasion will not end with Ukraine. If Ukraine is sold out — then what is next? Will the inevitable invasion of European Union countries by russia unfold differently? Everything will be as it is with Ukraine: missiles equipped with European components, perhaps even from your country, will rain down on the cities, European tankers will transport russian oil, and offshore funds will flow through European banks.
Over the last thirty years, Western countries have been solving their economic problems by relying on cheap energy supplies from russia, accessible labor and the vastness of the Chinese market. Western companies have reaped short-term profits, politicians have gained political capital, and ordinary citizens have benefited from cheap, often low-quality products. But what have russia and China gained in return? They have acquired access to unlimited financial capital and modern technologies, as well as the ability to act with impunity against freedom fighters both in their own countries and in neighboring states, transforming into true monsters. Indeed, these monsters have been nurtured by our own hands.
Most importantly, Western democracies have fallen into a genuine dependence on totalitarian regimes. Just think about it. We in the West wake up every day pondering about the new red lines set by putin and xi. How are they doing? Have they eaten well? Did they take a bathroom break? Is their health stable, or should we prepare a plane to Charité? Let’s draw a new red line for ourselves just in case not to upset putin and xi. It's simply pathetic behaviour, akin to that of a drug addict before a dealer.
To inflict real economic damage on russia, clear sanction measures should have been implemented the day before yesterday:
- close the re-export of sanctioned goods to russia via third countries
- establish criminal liability for heads of Western companies who violate sanctions
- apply significant pressure on China to reduce the flow of goods needed by Russia for conducting war.
In order to counter the advance of dictatorships, countries that respect freedom must change their approach to economic activity. There is a need to deepen cooperation with nations that share common values and principles while reducing economic dependence on totalitarian regimes.
Otherwise, the ideologies of ruscism and modern communism will soon grind up Western democracies and spit them out into the garbage bin of history. Believe Ukrainians, who have endured centuries in the prison of nations, that these ideologies and their bearers will erase the memory of your past and your roots, leaving no name behind.
[1] Large capital on the Kremlin’s side
https://www.ukrainian-spirit-gbg.se/2023/06/blog-post.html
[2] Russian sanctions evasion through third countries
https://www.berneunion.org/Articles/Details/859/Unresolved-questions-Regional-trade-patterns-change-in-wake-of-EUs-Russia-sanct
https://info.ceicdata.com/eus-exports-to-kyrgyzstan-surge-signalling-russian-sanctions-evasion
[3] IMF database of export to counterparts
https://data.imf.org/regular.aspx?key=61726508
[4] How Greek shipbuilding companies profit from the Kremlin's war
https://worldcrunch.com/business-finance/russian-oil-greek-shipping
https://x.com/robin_j_brooks/status/1848015599466627255
