Wed, Sep 12, 2018 - Page 9 News List

Vladimir Putin’s wars abroad take heavy toll on Russians’ welfare

By Anders Aslund

The trade war has hurt Ukraine more, but Russia, too, has lost a significant export market and a major source of imported military equipment. Once Russia’s most important energy customer, Ukraine has not imported any natural gas from Russia since November 2015.

Russia’s asset seizures in Crimea and Donbas have also been costly.

For example, under a 1998 Ukrainian-Russian bilateral investment treaty, Ukrainian companies have filed at least eight lawsuits against the Russian Federation at the Permanent Court of Arbitration in The Hague, Netherlands.

The Ukrainian state-owned energy giant Naftogaz and its subsidiaries alone are claiming US$7 billion in damages, while Oschadbank, Privatbank and Ukrnafta are seeking compensation of US$1 billion each.

One case brought by a group of Ukrainian companies has already been won and the rest are likely to go the same way. At this rate, Russia’s illegal confiscations will probably cost it at least US$10 billion.

Naftogaz has also brought a successful case against the Russian energy giant Gazprom.

In February, the Stockholm arbitration court ruled that Gazprom must award Naftogaz US$2.56 billion in damages for breach of a previous agreement between the two companies.

Gazprom has since refused to pay and Naftogaz has responded by going after its assets abroad. Gazprom’s disregard for a commercial arbitration verdict could prove costly indeed.

With no solution to the Ukraine conflict in sight, sanctions will likely remain in place for the long term.

Sanctions tend to be sticky, because the conflicts that spur them usually multiply and evolve.

For example, the US in April imposed additional sanctions in response to Russia’s interference in the 2016 US presidential election. The new measures have hit the Russian ruble and stock market hard.

And now, the US Congress is leading a new offensive following Putin and US President Donald Trump’s suspicious summit in Helsinki this summer.

Having already enacted the Countering American Adversaries Through Sanctions Act last year, a bipartisan congressional coalition would soon approve even more severe sanctions, most likely hitting Russian sovereign debt and state-owned financial institutions.

The mere threat of more US sanctions has already roiled the Russian market.

While Russia’s annual growth rate is stuck at an anemic 1.5 percent, the annual civilian, legal and other related costs of its military aggression are now at least 3 to 4 percent of GDP — or US$45 billion to US$60 billion.

The Kremlin might be managing for now, but sooner or later, these mounting costs will have serious political consequences.

Anders Aslund is a senior fellow at the Atlantic Council in Washington.

Copyright: Project Syndicate

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