Russia has a $650bn war chest: will sanctions work – and if so, for how long?

The sanctions will be relaxed in return for talks. Everyone will, in time, forget about Ukraine

Putin knows, from experience, that western sanctions will cost money (EPA)

One of the factors in Vladimir Putin’s decision to go to war must have been the reassurance that comes with having about $650billion in hard currency reserves.

He knows, from experience, that western sanctions will cost money, as will a protracted war and/or occupation, and he knows that, even if they are too weak, divided and decadent to even threaten to fight, the Americans and their allies will agree at least some troublesome sanctions.

Bans on trade and financial transactions will indeed be inconvenient and dent the national income. In part, Russia will be using its reserves to buy time – judging that sooner or later, some in the west will relent, and will start to talk about detente and a “reset” in relations, as Boris Johnson once did.

The sanctions will be relaxed in return for talks. Everyone will, in time, forget about Ukraine just as they forgot about interventions in Kazakhstan and Belarus, Crimea, Georgia, the interference in the Armenia-Azerbaijan war, Chechnya, the invasion of Afghanistan, the Prague Spring, the Hungarian uprising and a forty year occupation of Eastern Europe.

Sooner or later, they guess, a formerly hawkish American president will declare a new beginning, a German chancellor will want to do business, and a French president will want to pose on the world stage. They always do. They’ve seen it all before. It’s all about waiting.

In a way, it’s a bit like having lots of money in the bank, but losing your job. Whatever sanctions bring, they will reduce Russia’s ability to make a living, restricting its exports, cutting inward investment, choking off the supply of new technologies and making and taking payments via the worlds financial systems. Russia has wealth, but its income will be reduced.

Eventually, Russia’s “savings” will run down, its currency will become devalued at home through inflation and abroad through deprecation. The rouble is already at record lows. There will be shortages. Russians will be poorer.

The Kremlin calculates that, like the starving and long-suffering citizens of North Korea, they can blame their troubles on vindictive Americans, and that the population is anyway inured to hardships.

Historically, they are famously used to queuing, doing without, and improvising. In due course, home suppliers can pop up to fill gaps. In the case of today’s Russia, Putin can turn to China, Brazil, its client states in Belarus and Kazakhstan, perhaps even India to look after him.

If the Germans won’t sell him a new Mercedes-Benz limousine, then he can ask his friends in China to fix it for him, fully,loaded and armour-plated. It doesn’t take many rogue states or unscrupulous trades to get round any sanctions regime. If there’s money to be made, there’s usually a way.

So, it all depends on whether the sanctions are hard enough and how easy they will be to evade. The indications are that the EU (ie Germany, Italy and Cyprus) won’t agree to cut Russia out from SWIFT, the international payments system. It’s not a great surprise.

For sanctions to work, both sides must get hurt. BP and Renault need to feel the pain of losing their investments in Rosneft and Autovaz/Lada. Air passengers from Europe to Japan, China and the rest of East Asia will face longer journeys. Consumers and businesses in the west will pay more for petrol and gas. Sanctions are a lose-lose game.

History tells us that sanctions rarely play any decisive role in the short term. From Rhodesia to South Africa to Iran, Venezuela, North Korea, Afghanistan and indeed the old USSR and modern Russia, broad sanctions, even authorised by the United Nations, took years to grind down their targets, and even then not completely.

Sporting and cultural boycotts can actually be more hurtful (as they were in apartheid-era South Africa), but again the main impact is on demoralising elites, and that takes time.

Armed interventions, terrorism and civil wars usually end the lives of dictators, rather than a shortage of petrol or loo rolls. As the right used to say of sanctions on apartheid South Africa, and the left say now about sanctions on the Taliban, it is indeed the poorest in those societies who tend to get hit hardest, even with our new “targeted” sanctions on the elites.

But you also need popular pressure for sanctions to work; to do that means getting messages across to the people through the welter of state propaganda blaming “imperialist” foreigners for victimising their country.

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So, yes, $650 billion is a handy sum in anyone’s money, but what will really help Putin ignore the sanctions will be his previous extensive experience of living with them, the willingness of his friends to help him get round them (and the Chinese and Iranians will have plenty of tips) – but, above all, the actual weakness of what the west is threatening to do.

Even now, some want to wait until sanctions are escalated; presumably only when Zelensky has been murdered or exiled and Kyiv razed to the ground will they think about dragging Gerhard Shroder off the board of Rosneft or banning football teams from playing in Russia. It’s pitiful.

As the tanks close in on the presidential palace in Kyiv, it looks very much that only the Russian people can stop Putin, and the nascent signs of protests and dissent suggest that this war on their kith and kin in Ukraine is deeply unpopular.

Sanctions will no doubt remind Russians of what the world thinks of their pariah state and its leader, but they already know what’s going in, who’s responsible and what they must do to stop the agony and the shame of it all.