On Thursday evening, Boris Johnson tweeted new sanctions on “Kremlin associates … to inflict maximum economic pain on Putin and his war machine”. The prime minister claimed to MPs he is leading the west in punishing the Russian president for his invasion of Ukraine. But Mr Johnson’s actions show he is lagging some way behind.
The European Union and the United States have targeted many more of Vladimir Putin’s cronies – and are moving swiftly to take control of their assets. Earlier this week, France seized a superyacht linked to Igor Sechin, the boss of Russia’s largest oil company and an oligarch who Britain has yet to sanction. Left untouched in Britain are the mansions and art collections amassed by wealthy Russians. No wonder many think these assets risk being spirited away.
Russian oligarchy has its roots in the western-inspired reforms of liberalisation and privatisation that followed the collapse of the Soviet Union. From August 1990, Russia was subjected to a form of economic shock therapy which saw the wealth created by millions and owned by the state either frittered away or captured by a small group of individuals. That created the yawning divides in Russia today. Post-pandemic, just 500 Russians control more wealth than the poorest 115 million Russians.
Britain’s political and business model did very well from Moscow-linked money. The Conservative party has been given about £2m since 2012 by a former Russian minister’s wife. Oligarchs liked the City so much it was nicknamed Londongrad. The Square Mile offers anonymity. Its rules can be dodged and are policed by poorly funded watchdogs. An army of lawyers, accountants and public relations consultants can be hired. Tax and libel laws favour the rich. Given the public mood, however, it is unlikely they will be prepared now to litigate for Russian money. Mr Johnson has to end the era of oligarchal cash. But he is going about the business slowly for fear of putting off other rich foreigners.
Ordinary Russians are unlikely to lose much sleep if the oligarchs lose out. But they will be hurt in a wider economic war with the west. Sanctions aim to destroy Moscow’s ability to defend its currency – leading to pain for Russians as interest rates jumped from 9.5% to 20% in a day. The US is severely limiting Russia’s hi-tech imports. Consumers will suffer if factories cannot source key inputs. Big brands such as Ikea are already pulling out, affecting thousands of workers.
But for every action there will be a reaction. Halting the supply of aircraft or vehicle parts might see Moscow retaliate by limiting mineral exports necessary for their manufacture. Mr Putin could refuse to pay off his country’s foreign debts. It is absurd to finance Russia’s ability to wage war by buying its oil and gas, but Europeans have little choice in the short term unless they want to freeze. Sanctions may also help Mr Putin convince his population that economic woes are the result of a hostile west rather than his disastrous war. More countries could unsubscribe from the western-led financial system, rendering empty the threat of exclusion.
The longer fighting in Ukraine continues, the more profoundly the global economy will be rewired – and not perhaps in a good way. Nicholas Mulder, the author of The Economic Weapon: The Rise of Sanctions as a Tool of Modern War, wrote in the Guardian that “expanding the use of sanctions risks further destabilising the world economy”. He said Keynes a century ago thought the lesson after the first world war was that “positive assistance to the injured party” was more profitable than “reprisals against the aggressor”. Today that would mean doubling down on humanitarian, security and economic aid for Ukraine. Which is not a bad idea at all.
