The sanctions against Russia are the endurance test for geopolitical crisis management in the 21st century: Can soft power in the form of sanctions be a sufficiently powerful instrument to at least partially replace and complement hard power in the form of military interventions? A prerequisite for soft power to be successful is that sanctions are used wisely and thoughtfully.
The NATO states have made it unmistakably clear that they rule out direct military intervention in the Ukraine war. Therefore, all attention is focused on two aspects: first, the hard power of bravely fighting Ukraine, supported by the West with arms deliveries, and second, the impact of the soft power of far-reaching sanctions against the Russians who caused the war. Never before has a country of this size been subject to such extensive sanctions.
The West’s speed and unity surprised many, not least the Russian government. The sanctions are having a comprehensive effect: the Russian stock market has collapsed, and shares are only traded sporadically, if at all. Russian government bonds have reached junk status, the ruble is plummeting. In view of the fact that the sanctions have restricted access to its own foreign exchange reserves, the Russian central bank can do no other than more than double the key interest rate to 20 percent.
Russian exporters will be required to convert 80 percent of their foreign exchange earnings into rubles. They must take the place of the central bank, as it were, whose hands are tied. The Russian banking system is facing its biggest challenges in decades. Long queues in front of ATMs in Russia and the bankruptcy of foreign subsidiaries are the first signs of a severe stress test of the financial system.
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Inflation is galloping in Russia
Exporters are stopping supplies to Russia because they can no longer convert their ruble earnings into foreign currencies. With the ruble falling, it is becoming increasingly difficult for the population to buy western products – inflation is galloping. Many other interactions are not yet foreseeable, Russia is threatened by one domino effect after the other.
Regardless of the sanctions, an equally dramatic development is taking place through “voting by feet”. Because the moral ostracism of Moscow has further consequences: world-class companies are withdrawing from Russia and writing off their investments there on a large scale, the production of goods is stopped. Western importers avoid Russian products because they now carry a war stigma.
Subsidiaries of Russian companies in the West are experiencing a wave of layoffs, rental and leasing contracts for cars are being terminated. It is already to be expected that Russia is facing a major exodus of highly qualified workers – which could set the country back decades. “Voting by feet” as the softest kind of soft power will take place on many levels without the West having to sharpen the previous sanctions package.
Should the sanction pressure be further increased?
It is undisputed that the West had to react to the Russian aggression with massive measures. The question now is whether he should further increase the pressure to impose sanctions – and with what aim. Smart and comprehensive consideration is required here. In theory, at least, the package of sanctions could be significantly expanded, for example through a Western embargo on raw material imports or Russia’s exclusion from organizations such as the International Monetary Fund.
The West could completely isolate the Russian economy and bring it to its knees. But be careful, because at this point a crucial question comes into play: Would the displeasure of the Russian population as a result of dramatic supply bottlenecks and massive unemployment be directed at Russia’s ruler Vladimir Putin and his system at all? Or would the West, with the support of Moscow’s propaganda, become even more of an enemy?
In the not improbable second case, the dictatorial regime could tighten the reins further and aggravate the situation even more. The great economist John Maynard Keynes warned of the unintended consequences of an excessive sanctions policy, which could lead to a vicious circle. Keynes even advocated logistical and financial help in economic emergencies. Right now, nobody would want to go that far in the case of Russia and the ongoing war. But important consequences can be drawn from Keynes’ admonition.
Silent opposition to Putin is growing in Russia
First, possible further sanctions should be targeted at Putin and his system of rule – and not at the Russian people, however difficult the distinction in implementation may be. One should think here, for example, of Russia’s oligarchs, who have become rich thanks to the sprawling kleptocracy and also enjoy many privileges in the West. Golden passports, opportunities for money laundering and supervisory board mandates must be consistently put to the test. This would further increase the pressure on Putin’s camarilla.
Second, Russian civil society should play an important role. Anti-war statements by scientists, artists and athletes signal that the Russian people are not united behind the government’s course. Overall, the signs are increasing: at least the silent resistance to Putin’s war is growing. We must support these people instead of lumping all Russians together.
Third, dealing with dictators shows that soft power alone is not enough. The intelligent combination of soft power and hard power is the key to solving international conflicts. Because the more credible military deterrence through hard power is, the easier it is to bring partners to the negotiating table or to prevent conflicts from breaking out in the first place. The concept of being able to fight in order not to have to fight reflects this approach.
The stakes are higher than they have been in a long time
Will the previous combination of hard power and soft power be sufficient to reach a negotiated solution in the Ukraine war? There is still no definitive answer to this question. The next initiatives are important. Mediation efforts at the political level are likely to be of central importance – not least the eyes are on the emerging great powers of China and India. They may have a say not only in Ukraine’s fate, but also in how future geopolitical crises can be resolved.
The stakes are higher than they have been in a long time. The start of the war on February 24, 2022 is already reminiscent of the fall of the Berlin Wall on November 9, 1989 in the sense of an epochal turning point. The end of the current turning point is open. It is all the more important to weigh up the next steps wisely.
The author: Jörg Rocholl is President of the European School of Management and Technology Berlin and Deputy Chairman of the Scientific Advisory Board at the Federal Ministry of Finance.
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