As sanction war heats up, tough choices for Russia, West and Asia

The war of sanctions between Russia and the West has reached a new high after Russia announced a “full embargo” against food imports from the West. The food import ban will adversely impact exporters in the US, the 28 European Union countries, and also Canada, Australia and Norway.

“Until the last moment, we hoped that our foreign colleagues would realise that sanctions lead to a blind alley, and that no one benefits from them. But they did not realise this, and now we have been forced to respond,” said Russia’s Prime Minister Dmitry Medvedev on August 7.

The EU and the US have tried to squeeze Russia for annexing Crimea, in a bid to make Russia accept more responsibility for the actions of pro-Russian rebels in eastern Ukraine. New sanctions, imposed last week, especially targeted key Russian banks, isolating them from European and American capital markets.

But Moscow has shown resilience, and according to some experts, will manage to cope with the sanctions – at least in the short term. Russia has now imposed sanctions of its own, a move that has both confused and worried the West. It also continues to be assertive about its role in Ukraine and faults the West for triggering the current crisis.

The EU and the US had hoped that its sanctions would cripple Russia into submission, or at least force it to change its course on Ukraine. On August 7, a New York Times editorial argued that Russia’s declaration of sanctions in retaliation to Western sanctions would hurt Russia far more than the West.

Yet Russia has persisted, and is partially supported for now, by non-Western countries which are hesitant to follow the West’s lead. Moscow has relentlessly looked to the east and south for alternatives, and has found succour in China and India.

In a bid to decrease its dependence on European markets, Moscow and Beijing, in early 2014, entered into a 30-year contract worth $400 billion for supply of piped natural gas from Russia to China. Given Russia’s estrangement from the European capital market, China also continues to be a source of cheap financing for Russian energy companies that are looking to build new pipelines and upgrade old machinery.

India too has played it part in supporting Russia.US Secretary of State John Kerry was told as much during his visit to India by India’s articulate Minister of External Affairs Sushma Swaraj, who dismissed reports about changes in India’s policy towards Russia.

“There is no change in our policy. We think that foreign policy is in continuity. Foreign policy does not change with the change in the government,” remarked an unflinching Swaraj on August 1. Kerry could only feign optimism and state that Washington “will obviously welcome India joining in with respect to [sanctions], but it is India’s choice.”

Some experts have also argued that Russia’s ban on Western food imports is an excellent opportunity for India to step up its food exports to Russia. The idea of a North-South corridor between India and Russia is not new and has been floated for a while now. The current stand-off between Russia and the West could be a good pretext to move in this direction.

The Russian authorities have also claimed that alternative suppliers in South America and Turkey will step in to stock the rapidly-emptying food shelves in Russian super-markets.

However, Russia may face severe challenges in the medium and long-term, say experts. While Chinese financing can provide Russia’s oil and gas sector a lease of life in the short-term, Russia will need to replace and upgrade old and worn out pipelines which only Western technological knowhow and machinery are capable of. Both have come under tightening sanctions after the MH-17 incident.

An increase in geo-political polarisation will also limit options for India, China and Brazil. Economic sanctions and counter-sanctions cannot be the best options for emerging economies, which urgently require trade and commerce.

But the ongoing geo-strategic conundrum does throw up a number of interesting questions: With Russian financial security and its economy under threat from the West, will its role in BRICS and the New Development Bank be impacted? Will its burgeoning trade with non-western countries be eroded or enhanced? How far will the sanctions push Russia and the West in opposite directions and in what manner will these hostilities influence the balance of power in Asia?

The answers for these questions will be of crucial importance not just for Russia and the West, but also for Asia’s emerging economies.

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