RUSSIA & GLOBAL SOUTH
Will the Strategy of Isolating Russia Ever Work?
January 25, 2024
- Alexander LibmanProfessor of Russian and East European Politics, Freie Universität Berlin
Professor Alexander Libman explains why the West has failed at completely isolating Russia, which he attributes to the fundamental logic of markets and the perception of the Russia-Ukraine war in the Global South.
After the full-scale invasion against Ukraine, Russia quickly became the global leader in terms of the number of sanctions imposed against the country. At that time, it appeared that Moscow was on its way to complete economic and political isolation. Firstly, sanctions – especially financial sanctions and exclusion from the international payment systems – should have massively increased the costs of engaging in any economic relations with Russia.
Secondly, the unprovoked aggression should have made Russia highly untrustworthy in the eyes of most potential partners, even those not directly affected by the war. Not only did Russia single-handedly create a major international crisis (without any discernable reasons for it), but it also did not bother to provide a coherent narrative justifying the war (not only for the world, but also, as a matter of fact, for its own citizens).
Two years later, Russia, however, remains very far from being completely isolated. China maintains intense economic and political relations with Russia; countries in the Global South, like India, the United Arab Emirates and Brazil, as well as Russia’s neighbors like Turkey, Armenia, Kyrgyzstan and Kazakhstan, remain intermediaries, facilitating trade between Russia and the rest of the world. International organizations and clubs Russia is part of – like BRICS – continue to function and even attract new members. Although the EU and the US regularly impose new restrictive measures, Russian companies and the state successfully find new ways of evading them.
Economic isolation
From the standpoint of economics, sanctions are an example of protectionism – government measures aimed at constraining free trade and investments across countries. Their motives, however, are different than typical protectionist measures (which are introduced to boost employment at home or strengthen domestic industry). Yet if one looks at purely the economic side of the story, the effects are very similar, while the same constraints are at play as with most other protectionist policies, the most important one being the logic of arbitrage.
Arbitrage means that as long as there exist multiple isolated markets with different price levels for various goods, there are profits to be made from crossing the border and exploiting these price differences. The more isolated the markets are, the larger the profits.
Secondly, the unprovoked aggression should have made Russia highly untrustworthy in the eyes of most potential partners, even those not directly affected by the war. Not only did Russia single-handedly create a major international crisis (without any discernable reasons for it), but it also did not bother to provide a coherent narrative justifying the war (not only for the world, but also, as a matter of fact, for its own citizens).
Two years later, Russia, however, remains very far from being completely isolated. China maintains intense economic and political relations with Russia; countries in the Global South, like India, the United Arab Emirates and Brazil, as well as Russia’s neighbors like Turkey, Armenia, Kyrgyzstan and Kazakhstan, remain intermediaries, facilitating trade between Russia and the rest of the world. International organizations and clubs Russia is part of – like BRICS – continue to function and even attract new members. Although the EU and the US regularly impose new restrictive measures, Russian companies and the state successfully find new ways of evading them.
Economic isolation
From the standpoint of economics, sanctions are an example of protectionism – government measures aimed at constraining free trade and investments across countries. Their motives, however, are different than typical protectionist measures (which are introduced to boost employment at home or strengthen domestic industry). Yet if one looks at purely the economic side of the story, the effects are very similar, while the same constraints are at play as with most other protectionist policies, the most important one being the logic of arbitrage.
Arbitrage means that as long as there exist multiple isolated markets with different price levels for various goods, there are profits to be made from crossing the border and exploiting these price differences. The more isolated the markets are, the larger the profits.
“This creates a paradox: the more Western countries try to restrict trade with Russia, the larger are the benefits for those who position themselves as intermediaries and access the Russian market or buy goods from Russia.”
President Putin and Chinese leader Xi Jinping in Beijing. October, 2023. Source: Wiki Commons
Examples confirming this logic are myriad. India and China import commodities from Russia precisely because Western sanctions force Russia to sell these commodities at a discount; Turkey, the UAE and the countries of the Eurasian Economic Union benefit a lot from the rerouting of trade flows between EU and Russia through their territory. For Chinese companies (e.g., automakers), the exit of Western firms from Russia, along with Western sanctions, became an excellent (and historically unique) tool to acquire new markets: Russia is now the largest importer of Chinese cars in the world.
Certainly, the threat of new sanctions makes some companies from these countries to rethink their engagement with Russia; however, others will then come to take their place, attracted by even more lucrative economic opportunities. This does not mean that this “shadow integration” of Russia into the global world is in any way efficient or superior to how the Russian economy worked before the war. The costs of arbitrage are substantial – meaning that imports to Russia are getting more expensive (or are of lower quality) and Russian exports are sold at a lower price. However, the new model works. Wealthy Russians still have access to luxury goods; Russian factories continue to run; and, what is particularly worrisome, the Russian military-industrial complex obtains the parts it needs to supply the Russian army in Moscow’s war against Ukraine.
Ultimately, this means that the complete economic isolation of Russia is unlikely as long as the Russian economy remains a sufficiently attractive economic partner with a large domestic market and valuable resources. The main reason why sanctions against North Korea (or even Iran) worked much more effectively than against Russia is that North Korea or Iran had much less to offer to their foreign economic partners than Russia does.
There are limits to the effectiveness of even the most severe secondary sanctions the West could impose against those willing to trade with Russia. At the very least, these limits are determined by the monitoring capacity not only of the West, but of national governments. In the worst case, Russia’s shadow integration into the world economy could trigger the emergence of alternative payment systems and trade routes that are entirely outside Western control – this would be a substantial blow to Western statecraft in the long run.
There is, however, an actor that can effectively put an end to the model of “shadow integration” and that in fact remains the biggest threat to the functioning of the Russian economy – the Russian government itself. In the past, Putin shied away from major interventions into the functioning of markets and nationalization – however, there is no guarantee that this will continue moving forward.
Certainly, the threat of new sanctions makes some companies from these countries to rethink their engagement with Russia; however, others will then come to take their place, attracted by even more lucrative economic opportunities. This does not mean that this “shadow integration” of Russia into the global world is in any way efficient or superior to how the Russian economy worked before the war. The costs of arbitrage are substantial – meaning that imports to Russia are getting more expensive (or are of lower quality) and Russian exports are sold at a lower price. However, the new model works. Wealthy Russians still have access to luxury goods; Russian factories continue to run; and, what is particularly worrisome, the Russian military-industrial complex obtains the parts it needs to supply the Russian army in Moscow’s war against Ukraine.
Ultimately, this means that the complete economic isolation of Russia is unlikely as long as the Russian economy remains a sufficiently attractive economic partner with a large domestic market and valuable resources. The main reason why sanctions against North Korea (or even Iran) worked much more effectively than against Russia is that North Korea or Iran had much less to offer to their foreign economic partners than Russia does.
There are limits to the effectiveness of even the most severe secondary sanctions the West could impose against those willing to trade with Russia. At the very least, these limits are determined by the monitoring capacity not only of the West, but of national governments. In the worst case, Russia’s shadow integration into the world economy could trigger the emergence of alternative payment systems and trade routes that are entirely outside Western control – this would be a substantial blow to Western statecraft in the long run.
There is, however, an actor that can effectively put an end to the model of “shadow integration” and that in fact remains the biggest threat to the functioning of the Russian economy – the Russian government itself. In the past, Putin shied away from major interventions into the functioning of markets and nationalization – however, there is no guarantee that this will continue moving forward.
“Populist redistributive policies, fights over attractive assets or disruptions driven by a new mobilization wave could cripple the Russian economy much more effectively than any Western sanctions.”
Сhina's Geely Haoyue L. Source: Wiki Commons
In this case, the interest of non-Western countries in finding ways to evade sanctions would quickly disappear, simply because Russia would become less attractive economically. So far, however, this has not happened.
When sanctions against Russia were introduced, one of their main goals was not only to affect the Russian economy and politics, but also to demonstrate to dictators worldwide that certain types of foreign policy behavior would be very costly for them. The failure to economically isolate Russia, unfortunately, seems to teach powerful autocrats an entirely different, and, from point of view of the EU and the US, completely undesirable lesson: one, in fact, can weather even with the most severe Western sanctions. In the last two years, the entire world has learned the limits of Western economic power – and this could have severe implications in the future.
Political isolation
From the point of view of the West, lack of trust makes it impossible to engage in dialogue with Russia. In fact, so much trust has been lost that most Western politicians and think tanks do not even have a clear vision for reengaging with Russia, i.e. on what terms that would be possible at all (and what Russia – regardless of who is going to rule it – should do to regain trust). Russia is seen as fundamentally unpredictable. This appears to manifest itself, to name one thing, in the persistent speculation about potential direct Russian aggression against NATO countries: from the Western perspective, one simply cannot rule it out (ultimately, most analysts ruled out the full-scale invasion of Ukraine, and they turned out to be wrong).
The Global South, however, does not seem to treat Russia with the same fear and doubt. The most fundamental reason for that lies in their completely different perception of the war. For the West (especially for the EU, whose attitude toward Russia saw a rather major transformation), the full-scale aggression against Ukraine was inconceivable, a unique event since the end of World War II (it is not unusual to refer to the war in Ukraine as the first war in Europe since 1945 – ignoring the Yugoslav Wars and the wars in the Southern Caucasus). For most countries in the Global South, it was not.
Wars – from border skirmishes to full-scale invasions – are a regular part of international politics in Asia, Latin America and Africa.
When sanctions against Russia were introduced, one of their main goals was not only to affect the Russian economy and politics, but also to demonstrate to dictators worldwide that certain types of foreign policy behavior would be very costly for them. The failure to economically isolate Russia, unfortunately, seems to teach powerful autocrats an entirely different, and, from point of view of the EU and the US, completely undesirable lesson: one, in fact, can weather even with the most severe Western sanctions. In the last two years, the entire world has learned the limits of Western economic power – and this could have severe implications in the future.
Political isolation
From the point of view of the West, lack of trust makes it impossible to engage in dialogue with Russia. In fact, so much trust has been lost that most Western politicians and think tanks do not even have a clear vision for reengaging with Russia, i.e. on what terms that would be possible at all (and what Russia – regardless of who is going to rule it – should do to regain trust). Russia is seen as fundamentally unpredictable. This appears to manifest itself, to name one thing, in the persistent speculation about potential direct Russian aggression against NATO countries: from the Western perspective, one simply cannot rule it out (ultimately, most analysts ruled out the full-scale invasion of Ukraine, and they turned out to be wrong).
The Global South, however, does not seem to treat Russia with the same fear and doubt. The most fundamental reason for that lies in their completely different perception of the war. For the West (especially for the EU, whose attitude toward Russia saw a rather major transformation), the full-scale aggression against Ukraine was inconceivable, a unique event since the end of World War II (it is not unusual to refer to the war in Ukraine as the first war in Europe since 1945 – ignoring the Yugoslav Wars and the wars in the Southern Caucasus). For most countries in the Global South, it was not.
Wars – from border skirmishes to full-scale invasions – are a regular part of international politics in Asia, Latin America and Africa.
“For the Global South, Russia’s unprovoked aggression does not necessarily mean that Russia cannot be dealt with at all.”
Kazakh President Kassym-Jomart Tokayev. Source: Wiki Commons
The question is rather what the interests and capacities of Russia are with respect to particular world regions. And from this point of view, the war in Ukraine, first, made Russia much more interested in maintaining relations with the Global South, and second, reduced Russia’s capacities and limited its attention span (now, Russia’s entire foreign policy seems to be dominated by the Ukraine war). Against this backdrop, working with Russia is considered quite doable.
Moreover, some countries in the Global South embrace the strategy of what one could call “political arbitrage” – positioning themselves as valued intermediaries between the West and Russia, or at least, as a target for and a beneficiary of competition between the West and Russia, with each side trying to bring these countries over to its side.
For Russia’s immediate neighbors, maneuvering between Moscow and the West appears to be the only feasible choice: it is much less risky and much more beneficial than taking a side. The leaders of these countries over time seem to be growing more and more skilled in this maneuvering. A case in point is Kazakhstan: on September 28, 2023, its president reassured the German chancellor that his country was going to implement sanctions against Russia, while the next day he stated that Kazakhstan was going to develop trade relations with Russia. For more distant countries, meanwhile, the benefits of political arbitrage could also be substantial, while the risks of alienating Russia are, of course, much smaller.
Finally, in the eyes of the Global South, Western countries (especially the US) also do not necessarily enjoy high credibility. They hardly have a track record of never starting wars on questionable grounds and never exploiting their dominance for their benefit. To name just a few things that reduce the trustworthiness of the West: its colonial past; CIA backing for Operation Condor in Latin America in 1975-83; the US invasion to Iraq in 2003; and Germany’s justification of bombing Yugoslavia in 1999 because of the so-called Operation Horseshoe plan of the Belgrade regime, which most likely never existing. This makes the global isolation of Russia less likely and the arguments of Western diplomats and politicians less convincing.
As in economic relations, politically the key actor that can isolate Russia and limit its attractiveness in the eyes of the Global South is Russia itself. By exiting the grain deal (see Russia.Post about it here), Russia damaged its reputation in the eyes of African countries to an extent no effort of the West could have achieved. Similar decisions in the future could turn out to be very costly for Moscow.
Russia on the path to self-isolation?
Summing up, both economic logic (the benefits of arbitrage) and political factors (Russia not being perceived as a particularly untrustworthy partner) make the isolation of Russia unlikely. Pragmatism on the part of governments in the Global South and their economic actors will help Russia to remain part of the global web of political and economic relations. Western efforts to isolate Russia are unlikely to change that.
What can, however, have a significant effect on Russia’s position in the world economy and politics is decisions of the Russian government itself. By destabilizing its own economy or making costly errors in its relations with countries in the Global South, Moscow could find itself on a path to self-isolation. There is no certainty that will happen. However, one lesson that can definitely be drawn from the war in Ukraine is that the ability of Putin’s regime to make mistakes with serious repercussions should not be underestimated.
Moreover, some countries in the Global South embrace the strategy of what one could call “political arbitrage” – positioning themselves as valued intermediaries between the West and Russia, or at least, as a target for and a beneficiary of competition between the West and Russia, with each side trying to bring these countries over to its side.
For Russia’s immediate neighbors, maneuvering between Moscow and the West appears to be the only feasible choice: it is much less risky and much more beneficial than taking a side. The leaders of these countries over time seem to be growing more and more skilled in this maneuvering. A case in point is Kazakhstan: on September 28, 2023, its president reassured the German chancellor that his country was going to implement sanctions against Russia, while the next day he stated that Kazakhstan was going to develop trade relations with Russia. For more distant countries, meanwhile, the benefits of political arbitrage could also be substantial, while the risks of alienating Russia are, of course, much smaller.
Finally, in the eyes of the Global South, Western countries (especially the US) also do not necessarily enjoy high credibility. They hardly have a track record of never starting wars on questionable grounds and never exploiting their dominance for their benefit. To name just a few things that reduce the trustworthiness of the West: its colonial past; CIA backing for Operation Condor in Latin America in 1975-83; the US invasion to Iraq in 2003; and Germany’s justification of bombing Yugoslavia in 1999 because of the so-called Operation Horseshoe plan of the Belgrade regime, which most likely never existing. This makes the global isolation of Russia less likely and the arguments of Western diplomats and politicians less convincing.
As in economic relations, politically the key actor that can isolate Russia and limit its attractiveness in the eyes of the Global South is Russia itself. By exiting the grain deal (see Russia.Post about it here), Russia damaged its reputation in the eyes of African countries to an extent no effort of the West could have achieved. Similar decisions in the future could turn out to be very costly for Moscow.
Russia on the path to self-isolation?
Summing up, both economic logic (the benefits of arbitrage) and political factors (Russia not being perceived as a particularly untrustworthy partner) make the isolation of Russia unlikely. Pragmatism on the part of governments in the Global South and their economic actors will help Russia to remain part of the global web of political and economic relations. Western efforts to isolate Russia are unlikely to change that.
What can, however, have a significant effect on Russia’s position in the world economy and politics is decisions of the Russian government itself. By destabilizing its own economy or making costly errors in its relations with countries in the Global South, Moscow could find itself on a path to self-isolation. There is no certainty that will happen. However, one lesson that can definitely be drawn from the war in Ukraine is that the ability of Putin’s regime to make mistakes with serious repercussions should not be underestimated.
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