The Effect of the Sanctions: Is Iran Cracking Down Under the Strain?

I have to confess that the title of this post is a little of a clickbait. In reality, I will tell you more about Italy than about Iran. But, perhaps, from the story of how Italy reacted to the international economic sanctions imposed on the country in 1935, we can learn something about what could be the result of the current sanctions on Iran. Above, a photo from 1935, it shows a stone slab with the engraved words. "On 18 November 1935, the world besieged Italy. Perennial infamy on those who favored and consumed this absurd crime." Most of these slabs were destroyed after the defeat of Italy in WW2, but some can still be found.

In 1935, Italy invaded Ethiopia, at that time the only remaining free African country. Why exactly that happened is a long story. Let me just say that, in part, it was a revenge for a defeat suffered long before, when an early attempt at invading Ethiopia had failed. In part, it also had to do with reacting to the financial crash of 1929: governments often tend to seek for external enemies to distract people from internal troubles. Then, in part, it was seen as a way to displease the hated British, seen as guilty of not providing for Italy the coal that the Italian economy needed. And, finally, it had to do with some nebulous dreams about rebuilding the Roman Empire. It may sound silly, today, but if you read what people wrote at that time in Italy, that idea of creating a new Roman Empire was taken seriously.

Whatever the reasons, in 1935 the Ethiopian army was overwhelmed by the modern weaponry deployed by Italy, planes and tanks, with the added help of poison gas bombing, a military innovation for that time. The final result was that the King of Italy gained the dubious honor of taking for himself the title of "Emperor of Ethiopia" and that Italy gained "a place in the sun" in Africa, as the propaganda described the results of the campaign.

A victory, yes, but a hollow one. From the beginning, Ethiopia was only a burden for the Italian economy and the costs of the military occupation were just too much for the already strained Italian finances. The final result was perhaps the shortest-lived empire in history: it lasted just five years, collapsing in 1941 when the Italian forces in Ethiopia were quickly defeated by a coalition of Ethiopian and allied forces.

An interesting side effect of the invasion of Ethiopia was the story of the imposition of economic sanctions on Italy by the League of the Nations. It was a half-hearted effect to stop the invasion, but the war lasted just 8 months and the sanctions were dropped just two months afterward. Their effect was nearly zero in economic and military terms but, in political terms, it was a completely different story and the consequences reverberated for years. Here are some of these consequences:

1. The Italians were not only appalled at the sanctions, they were positively enraged. According to the international laws of the time, for a state to attack another was not in itself a crime (unlike the use of chemical weapons, but that came to be known only later). So, most Italians felt that they were punished for having done something -- annexing an African country -- that the other Western Powers had done before without anyone complaining. The result was a burst of national pride and a strong wave of popular support for the war. That generated also a wave of personal popularity for the Italian leader, Benito Mussolini, seen as the one who was making Italy great again (some things never change in politics).

2. The sanctions transformed a war waged on a poor and backward country into something epic and grandiose. Italians perceived the struggle against a coalition of the great powers of the world, Britain in particular. And, by defeating this coalition, Italy showed that it was a great power, too, on a par with the others. This idea had terrible consequences when it led the Duce, Benito Mussolini, to think that Italy could match the military capabilities of the major world powers in WW2.

3. The government propaganda in Italy used the sanctions to magnify the importance of the Ethiopian campaign, seen as a turning point in the quest for a new Italian Empire. As a result, Ethiopia became a national priority, to be kept at all costs. At the start of WW2, Italy had more than 100,000 fully equipped troops there. Without the possibility of being resupplied from Italy, these troops had no chances against the British and they were rapidly wiped out. What might have happened if they had been available in other war theaters? It is unlikely that the final outcome of WW2 would have changed, but, who knows? The battle for Egypt in 1942 could have had a different outcome if Italy had been able to field 100,000 more troops there and, maybe, taken the Suez canal.

This catalog of disasters is so impressive that we might wonder if the sanctions were not just the result of incompetence and idiocy, but of an evil machination. Could it be that the British had wanted Italy to engage in an adventure that was sure to lead the country to ruin, later? Of course, it is unlikely that the British had been planning for exactly what happened, but it is not impossible that they understood that the Italian military apparatus would be weakened by the task of keeping Ethiopia and that would make Italy a less dangerous adversary in case of an all-out military conflict. If the British had planned that, they truly deserved the reputation they had at the time (and that they still have) described with the name of the "Perfidious Albion."


That's the story of the sanctions against Italy, now let's go to the sanctions against Iran. First of all, a disclaimer: I don't claim to be an expert in Iranian matters and politics. I don't speak Persian and I visited Iran only once in my life. So, I can only claim to have read and studied about Iran for years and to have many Iranian friends and acquaintances. Yet, if I think of the idiocies that you can read on the Western Media about Iran, I feel I can do something better, maybe useful for the readers of this blog. So, let me take a look at the current sanctions on Iran on the basis of the assumption that Iranian and Italians are very similar people in terms of ideas, temperament, and beliefs -- which I think is true on the basis of my experience.

Then, we know that story rhimes, but never exactly repeats. So, there are many similarities in the story of the sanctions against Iran and those against Italy, but also considerable differences. The main similarity is, of course, that Iranians feel unjustly punished for doing something, starting a nuclear energy program, that other countries could do in the past without anyone punishing them. But note also that the current sanctions on Iran are harsher than anything that was imposed on Italy. When vice-president Pompeo said that the purpose of the sanctions is to starve the Iranians, you get a certain feeling that the matter is deadly serious in a literal sense.

So, what's happening in Iran and what might happen in the future? As I already discussed in a previous post, so far the effect of the sanctions has been limited. But inflation is biting hard the finances of the Iranian Middle Class and the government risks to be soon in trouble in maintaining the services that so far have been provided for free: instruction, health care, and more. In the long run, the cohesion of the Iranian society could be threatened and the recent street disorders could be a symptom of something like that.

The Iranian government is currently led by a moderate, President Rouhani, who stated more than once that he doesn't want to engage in any kind of retaliation. Some Iranians would want a more forceful reaction but, in general, they seem to recognize their weakness in front of the mighty US empire. Fortunately, nobody in Iran seems to be thinking of resurrecting the defunct Parthian Empire, unlike what Italians were trying to do with the Roman Empire in the 1930s. If Iran can hold on long enough, the storm may indeed end.

But what if the sanctions had a true evil purpose in the sense of having the task of pushing Iran to do something stupid, as it was the case with Italy, long ago? Under heavy strain, Iranians could decide that their best bet is for a strong leader who would "Make Iran Great Again." And what could happen if things really go from bad to worse? Iranians could go through the same chain of misperceptions that Italy followed, bolstered by some local success, becoming convinced to be a great power. Then, if an American president wants to obliterate Iran with a nuclear strike, who or what could stop her? Then, if evil has to be, could that be the real purpose of the sanctions?

Hopefully, these extreme scenarios will never take place but one thing is clear to me: sanctions are a bad idea. They are sold to the Western public as something "humane," actually designed to help the people they target to get rid of an evil and oppressive government. It is not like that. Maybe sanctions are not as bad as carpet bombing, but they are a tool to start wars.

Report from Tehran: What is the Effect of the Sanctions?

My wife, Grazia, in a supermarket in Tehran, today. No effect of the economic sanctions is visible. The shelves are full of goods from everywhere. You can find even Coca Cola cans

For this Monday post on Cassandra's Legacy, I can offer you just a very brief report from Tehran, Iran, where I am for a meeting. I arrived here thinking that the economic sanctions were bankrupting the country. Maybe, but if they do, it seems to be taking a very long time. The streets are full of traffic, all shops are full of goods, Tehran is alive and well and the Iranians I met seem to be in good spirits, not at all dismayed by the situation, engaged in the celebrations for this year's Ashura. My colleagues tell me that the only effect of the sanctions is the difficulty they have to buy electronic equipment when they need it -- it has to come from China and it is now more expensive than before the embargo.

That's surprising, considering that the Iranian oil production has dropped from nearly 4 million barrels/day to about 1 million barrels/day after the embargo. The oil revenues for Iran must have collapsed this year -- but it may very well be that more oil is produced and exported than it is reported in the official statistics.

I am here for a meeting on the desalination of seawater and I'll report some preliminary results of a study we are performing on the extraction of lithium from the sea -- the perspectives seem to be reasonably good. If our civilization collapses, it will not be because of the lack of lithium.

That's all for this Monday. Greetings from Tehran!

Is the Empire on the Edge of the Seneca Cliff? Italian Prime Minister Conte Opens to Russia at the G7

It is rare that a province of the Empire tries to pursue an independent foreign policy but, at the last G7 meeting, the new Italian Prime Minister, Giuseppe Conte, did something like that. He stated that Russia should return to the G8 (now G7) and called for the lifting the economic sanctions against Russia.

In the past, such deeds on the part of provincial politicians didn't go unpunished by the Imperial Powers, but this time the Empire seems to be in disarray - with Emperor Trump himself seeming to pursue a policy of disengagement. Might Conte's statement be part of the start of a radical change in the Empire's structure, with the provinces becoming more independent from Washington? For sure, the Empire is not yet sliding down the unavoidable Seneca Cliff which will lead to its disgregation. But it seems that we are moving in that direction.

As a comment to Mr. Conte's declarations about Russia, I thought I could reproduce here a piece that I was planning to post on another blog of mine ("Chimeras") but which suddenly became appropriate for Cassandra's Legacy. It is the translation of a text written by Giuseppe Iannello in occasion of the centennial of the Earthquake of Messina - an Italian city on the North-Eastern tip of Sicily. The 1908 earthquake was a major disaster and the role of the Russian sailors helping the victims is still remembered nowadays in Italy.

Here, Iannello states, correctly in my opinion, "The people of other nations, offering their help, proved to be friends to the Italians, but the Russians turned out to be brothers."

 The Russian Sailors in Messina: Beyond the Myth

 by Giuseppe Iannello - 25 Dicembre 2008

A Russian sailor from the ship "Slava" standing in front of the rubble of the Messina Earthquake of Dec 28th, 1908.

by Giuseppe Iannello - 25 Dicembre 2008


Those were days of true glory in Messina. But organization and discipline are not enough to explain the undisputed fame of saviors and heroes of the Russian sailors. 

Six days of glory. Real glory, glory able to challenge time and the judgments of the scholars in retrospect. A glory told to us by the press, but above all told by the people, by the people who saw with their eyes and heard with their ears. The Russian sailors entered the collective memory as heroes, as saviors, obscuring all the other rescuers. Why? A useless question if we ignore the narration of those six days and embark on historical and psychological analysis. Because the answer lies, in fact, in the deeds of those thousands of sailors who arrived on six ships of the Russian military fleet. 

There are many myths to dispel and "adjustments" to be made to avoid that the heroism of a people is identified with that of individual figures who, in reality, were only catalysts of needs that were born from a collective soul. We refer, for example, to generals and admirals. The command of the expedition of the Baltic Sea Fleet in the Mediterranean had been entrusted to Admiral Litvinov and he was sent to him while in the port of Augusta on request from the local authorities to provide assistance to the people of Messina. But it was not he who "decided" to move, he needed approval from his superiors, he needed an order; which would mean the loss of many hours waiting for that order. It was because his subordinates, officers, ensign, simple sailors, understood the situation and pressed to leave for the Strait of Messina. And so they did. In his memories ("The Imperial fleet of the Baltic between two wars, 1906-1914") Garald Graf, then ensign in the Admiral Makarov, the first of the Russian ships to leave, tells us, "Litvinov was not a man who knew how to make up his mind," but in the end he was persuaded. 

From the beginning, obedience and discipline do not explain the efficiency and the success of the Russian relief work. In "La terra trema" (the ground shakes) by Giorgio Boatti it is even possible to talk about an "almost inhumane discipline". It is true, during the hours of navigation from Augusta the Russians had had time to organize themselves in teams, to prepare everything that could have been necessary for them. But the same could have been done by others. The merit of the Russians is not there. And it is not in the discipline nor in the organization, it is not in the method of their remarkable action. Michail Osorgin, a compatriot of those sailors, debunks the myth of the "method". And he does so immediately, just a month after the catastrophe, in a long correspondence from Rome for his newspaper, the "Vestnik Evropy". The reputation of the Russian navy had been nearly destroyed by the defeat that it had suffered in the Japanese-Russian War. The only method that led the sailors was for Osorgin to save as many "souls" as possible, the difference with everyone else was this tremendous need to wrest as many people as possible from death. 

The organization was dictated by this need: the schedules, the shifts, everything was functional for this purpose, the sailors placed no value in themselves; people's lives came before the orders and the simple sailors were the ones convincing their superiors to reshape orders. On the other hand, it must have sounded really strange in the ears of a Russian to be praised because of the organization of their army: what to say then - says the Russian journalist - about the organization and discipline of the Germans, who were also present at the place of the disaster? 

The Russian sailors became the catalyst of all the positive energies against the resignation, the discomfort, which often turned into apathy, in a sort of indifference that was often transmitted to rescuers. On the contrary, the action of the Russians was contagious and the cadets of the Sutley, the first British military ship to arrive, perhaps a few tens of minutes before the Makarov, felt it and understood how to distinguish themselves.

No stain therefore on the work of the Russians? That of the immediate shooting of the looters, thieves caught in the act: it is interesting to note how this particular is expressed only in journalistic reports and has been judged irrelevant by the collective memory, the oral and written memory handed down by the survivors from father to son, from generation to generation. The Russians did not actually deal directly with the hunting of the looters, but they used their weapons to defend themselves and defend a population totally exposed to the evil of the profiteers or to despair. The Russians (and the English) did not take care of the defense of property - as they did not bother to bury the dead - they took care of the people whom they heard whining under the rubble and to cure the wounds of the survivors.

We discuss this story with Tatiana Ostakhova, a researcher at the University of Messina, who lets us read something from her work in progress: the letters of Russian sailors published in Russian newspapers and other articles published in the weeks immediately following the earthquake. The letters are in part those already published by the Province of Messina in 2006, which however were based on an original edition in French. They are letters all characterized by common feelings: the inability to describe the indescribable, the horror of the scenario in which they operate, the madness of the survivors and the absurdity of which every hour are witnesses. The sailors are not exalted, they do not glorify, they only narrate and at times with amazement, they also take note of the immobility of the Italian forces. The comparisons will be made by the others, the correspondents, the other rescuers and above all the people who will not forget the good received. And the news of those good deeds will run like the wind: in Naples, the first landing of the wounded by Makarov turns into a sort of apotheosis for the Russian sailors, who are acclaimed. Wherever they were recognized in the city, the Russian sailors could not escape the warm manifestations of gratitude. 

Michail Pervuchin in his article "The Russians and the Italians", translated by Ostakhova, sums up the difference between the Russians and everyone else. The people of other nations, offering their help, proved to be friends to the Italians, but the Russians turned out to be brothers. The correspondent affirms it on the basis of the testimonies gathered and of what was read in the Neapolitan newspapers: "the others certainly helped; but the Russians have not only helped, they gave everything they had to the refugees, including their spare shirts". "In Palermo and Naples - continues Pervuchin - women and children, refugees from the destroyed cities, still show off their jackets and their sailor's jackets, the officers' jackets. There are no German or English clothes on refugees. Russian clothes, yes ". Then another testimony: "all have given, but while others gave the superfluous, the surplus, the Russians, and we saw it, they gave us what was necessary to themselves, even the last thing they had. Yes, to the last thing they had. This is what struck us ".

However, good does not always beget more good. In January, the Russian sailors were told, "thank you but your help is no longer necessary". A Russian correspondent speaks of envy in this regard, Colonel C. Delmè-Radclif, military attaché of the British Embassy in Rome, in a confidential report speaks of jealousy of the Italian authorities. The fact remains that only the Italian soldiers and a few other volunteers remained in the rubble: the gates were blocked for everyone else, including Italian civilians. The same refrain was repeated to all: there is no need for more help because the army has taken control of the whole city. The fate of many people, still alive under the rubble, was sealed.


Giuseppe Iannello

How do Empires hunt bears? The control of natural resources from ancient Rome to our times

Hunting the Russian bear is turning out to be a difficult task for the global empire.
(image from homesweethome)

You probably know the joke that starts with the question "how do economists hunt bears?" The answer is, "they don't, but they believe that if bears are paid enough, they'll hunt themselves." It is a good illustration of the awesome power of money. It doesn't work so well with bears, but, if paid enough, people will engage in all sorts of nasty and unpleasant activities, including hunting and killing other human beings.

The question about bears can be translated to another situation. You know that empires are large structures dedicated to collecting resources from the periphery and concentrating them in the center. This is, obviously, disadvantageous for the periphery. So, how do the imperial elites convince people living in the peripheries to surrender their resources to them? The answer is similar to that of the joke about economists and bears: by paying them enough.

This point needs some specification and, as it often happens, the past gives us a guide for the present. So, let's consider the case of the Roman Empire, whose cycle we know very well. The Romans had a well developed and tested method of empire building. First, they would attack and defeat a bordering kingdom. Then, they would proceed to exterminate or enslave the local elites. At this point, they would replace them with a partly or fully Romanized new elite to govern the territory, from then on called a "province."

The critical feature of the system was that it could not be managed just by brute force; it would have been too expensive. So, the Romans needed to convince the local elites to act as tax collectors for them. Not an easy task, in principle, since the local elites could have reasoned that it was more convenient for them to keep all the taxes for themselves. Occasionally, indeed, provinces revolted in order to regain their independence. For instance, the Jewish uprising that started in 66 AD in Palestine was almost successful and it shook the empire to its foundations. But, on the whole, the provinces remained remarkably quiet up to the end the Roman Empire. The bears were thoroughly tamed. 

How did the Romans manage to keep their Empire together so well and for such a long time? It was, obviously a question of control. The entities we call "states" (and their more aggressive version known as "empires") exist because the center can control the periphery. This control takes various forms, but, basically, it is the result of the financial system: money. In Roman times, the provincial elites were paid with Roman money to act as tax collectors and they could also make more Roman money in other ways, for instance by enlisting in the Roman army. With the Roman currency, they had access to all sorts of luxuries available in the Empire and, in particular, to the gigantic emporium of all goods and services that was Rome itself. It was safer for them to accept this situation rather than embarking in the difficult and risky idea of starting a war against the mighty Roman Empire. In a way, the bear was paid to hunt itself.

The system worked nicely for several centuries, as long as the Empire could coin money. As I argued in an earlier post of mine, the fall of the Roman Empire was not so much a question of loss of resources, but of loss of control. When the Romans ran out of gold and silver from their Spanish mines, they lost the capacity of creating their currency and they couldn't keep a functioning financial system. Without a financial system, they had no way to control the flow of resources from the periphery to the center. The African and Asiatic granaries that had  provided food for the Romans collapsed for lack of maintenance and, without sufficient food for its population, the Empire could not survive. If you don't pay the bear, it will eat you.

And we are back to our times: the bear is alive and well; roaring at the Eastern borders of the global empire. In the past, for a while it seemed that the bear could be convinced to hunt itself. The Russian elite seemed to be happy to be paid to have access to the luxuries that the global empire could provide and they accepted to become part of the globalized financial system. But, at some point, the bear bared its teeth and growled, refusing to be tamed.

What went wrong? One problem that we can identify if is that the Romans would make sure that the military forces of a defeated kingdom were crushed and eliminated before transforming it into a province; the bear was thoroughly defanged before being tamed. In the modern case, however, it is not so easy to defeat a nuclear bear that maintains a considerable fighting power.

But, the main factor that kept the Russian bear alive and angry may be a much more fundamental one. The global empire - just as the Roman Empire, long ago, - needs a fully functional financial system if it is to keep expanding. When the Roman financial system collapsed, the empire collapsed, too. Now, the global financial system doesn't look in good health, to say the least and a new financial collapse, after the one of 2008, may be just around the corner. In these conditions, it is hard to think that the bear can be paid to hunt itself.  That must have been understood even in the capitals of the global empire. So, we are seeing a belated attempt to kill the bear by strangling it - destroying it using economic sanctions. Considering, however, that Russia controls mineral resources that are vital for the empire, choking the bear to death (even assuming that it were possible) may not be the best strategy, really.




________________________________________

A version of the bear joke, but with elephants (h/t Marie Odile)

• MATHEMATICIANS hunt elephants by going to Africa, throwing out everything that is not an elephant, and catching one of whatever is left.
• EXPERIENCED MATHEMATICIANS will attempt to prove the existence of at least one unique elephant before proceeding to step 1 as a subordinate exercise.
• PROFESSORS OF MATHEMATICS will prove the existence of at least one unique elephant and then leave the detection and capture of an actual elephant as an exercise for their graduate students.
• COMPUTER SCIENTISTS hunt elephants by exercising Algorithm A: 1. Go to Africa. 2. Start at the Cape of Good Hope. 3. Work northward in an orderly manner, traversing the continent alternately east and west. 4. During each traverse pass, a. Catch each animal seen. b. Compare each animal caught to a known elephant. c. Stop when a match is detected.
• EXPERIENCED COMPUTER PROGRAMMERS modify Algorithm A by placing a known elephant in Cairo to ensure that the algorithm will terminate.
• ASSEMBLY LANGUAGE PROGRAMMERS prefer to execute Algorithm A on their hands and knees.
• HARDWARE ENGINEERS hunt elephants by going to Africa, catching gray animals at random, and stopping when any one of them weighs within plus or minus 15 percent of any previously observed elephant.
• ECONOMISTS don't hunt elephants, but they believe that if elephants are paid enough, they will hunt themselves.
• STATISTICIANS hunt the first animal they see N times and call it an elephant.
• CONSULTANTS don't hunt elephants, and many have never hunted anything at all, but they can be hired by the hour to advise those people who do.
• OPERATIONS RESEARCH CONSULTANTS can also measure the correlation of hat size and bullet color to the efficiency of elephant-hunting strategies, if someone else will only identify the elephants.
• POLITICIANS don't hunt elephants, but they will share the elephants you catch with the people who voted for them.
• LAWYERS don't hunt elephants, but they do follow the herds around arguing about who owns the droppings.
• SOFTWARE LAWYERS will claim that they own an entire herd based on the look and feel of one dropping.
• VICE PRESIDENTS OF ENGINEERING, RESEARCH, AND DEVELOPMENT try hard to hunt elephants, but their staffs are designed to prevent it. When the vice president does get to hunt elephants, the staff will try to ensure that all possible elephants are completely prehunted before the vice president sees them. If the vice president does happen to see a elephant, the staff will: (1) compliment the vice president's keen eyesight and (2) enlarge itself to prevent any recurrence.
• SENIOR MANAGERS set broad elephant-hunting policy based on the assumption that elephants are just like field mice, but with deeper voices.
• QUALITY ASSURANCE INSPECTORS ignore the elephants and look for mistakes the other hunters made when they were packing the jeep.
• SALES PEOPLE don't hunt elephants, but spend their time selling elephants they haven't caught, for delivery two days before the season opens.
• SOFTWARE SALES PEOPLE ship the first thing they catch and write up an invoice for an elephant.
• HARDWARE SALES PEOPLE catch rabbits, paint them gray, and sell them as desktop elephants.

The West and Russia: a tit for tat game, part II

 By Tatiana Yugay 

In this post, Tatiana Yugay, Professor at the Moscow State University of Economics, Russia gives us some background to the recent events relative to the crisis in Ukraine. Image © Collage: Voice of Russia

I wrote earlier on about the first level of sanctions against Russia imposed on individual businessmen. At present, “All Quiet on the Western Front” (Im Westen nichts Neues) but it seems to be a brief lull before the storm (note by UB: this sentence was written a few days ago and it seems to have been prophetic). The main geopolitical actors are staying in full alert anticipating further steps of each other. After a certain agitation caused by launching of the first sanctions tool kit, the West is watching Russia's reaction (a disappointing one) and making guesswork about Putin's next move. Now it is more or less clear that the West and the Ukraine have accepted Crimea’s integration with Russia. It seems that they are going to continue with sanctions only in case of a Russian invasion of mainland Ukraine, which is highly improbable.

Second sanctions' level: Trying hard to avoid the boomerang effect

The main reason behind the pause taken by the West is the understanding that after undertaking clearly political individual sanctions the law of consequences demands more comprehensive economic sanctions to be imposed on the most sensible sectors of the Russian economy. The conflict of mighty economic interests serves as a watershed between the U.S. and the EU, which separates them in the form of no less than the Atlantic Ocean.

As for the U.S., sanctioning is their favorite game. At present, the U.S. has been imposing at least 24 different sanction regimes on different countries from the Balkans to Zimbabwe. Moreover, last week Washington gave a strong warning to China not to escalate territorial tensions in the Asia-Pacific region if it doesn’t want to face American retaliation. In his statement, a US official used sanctions on Russia over Crimea’s accession as an example. However, politicians and analysts express strong doubts about sanctions' efficiency. Even a rather hawkish Paul Pillar writes in his post “More Sanctioning Madness”: “The sanctions habit has persisted because imposing sanctions is a primitive, easy way to “do something” about difficult problems on which there is an urge to do something. It is a gesture. Congress needs to decide whether gestures are more important than making progress in getting out of the current crisis”.

In fact, there are very limited trade relations between Russia and the USA and therefore economic sanctions can't cause much harm to the Russian economy. According to the Federal Customs Service, Russia's trade turnover with the U.S. in 2013 was less than $28 billion, or 3.8% of Russia's foreign trade. Russian exports to the US accounted for $11.2 billion while imports were $16.5 bn, so the balance is more favorable for the U.S. than for Russia. 
 

Last week, NATO and NASA created a rather comic duo by declaring demonstratively that they want to sanction Russia, too. The fact is that Russia has very limited relations with both organizations. NASA posted on its Twitter and Facebook accounts a statement announcing the suspension of cooperation with Russia. NASA’s status on Facebook stated: “Given Russia's ongoing violation of Ukraine's sovereignty and territorial integrity, NASA is suspending the majority of its ongoing engagements with the Russian Federation.” I was rather surprised by this bold declaration and even thought that NASA'a accounts had been hacked. Ironically, exactly at this same period NASA’s astronaut Steven Swanson has been staying at the International Space Station together with two Russian astronauts Aleksandr Skvortsov and Oleg Artemyev. It isn't very reasonable to turn a US citizen into a hostage of the Ukranian crisis. I tried to imagine possible ways out of this awkward situation. I could think of only two opportunities: Swanson could be deported from the station to extra vehicular activity (EVA) or, quite the contrary, would be granted Russian citizenship. Luckily for the US astronaut, his chiefs had specified a little bit later that they wouldn't suspend the ISS cooperation. As Deputy Prime Minister Dmitriy Rogozin wrote in his tweet, “NASA suspends cooperation with Roscosmos (Russian Federal Space Agency) with the exception of work on the ISS. Yet, apart from the ISS we didn't cooperate with NASA in any other way”. As a matter of fact, NASA's pompous declaration appeared to be much ado about nothing. George Abbey, former director of the Johnson Space Center, said in his interview to “Russia Today” that “the United States right now are totally dependent on our Russian partners. When we stopped flying the space shuttle, we did away with our access to take humans to space and we rely completely upon Russia. Russia does a very good job flying our crewmen up to the space station, so if that were to end, the US human flight program would not really be implemented in any fashion until 2017 or much later”. 
 
OK, what about NATO's demarche? Maybe it represents a real threat to Russia's national security? Actually, the only field where NATO and Russia have been fruitfully cooperating is Afghanistan. However, as I wrote in my previous post, NATO had already declared that it had unilaterally suspended all cooperation with Russia on drug trafficking. This display of political muscles takes place precisely at the time when NATO is preparing to conclude the withdrawal of the last 50 thousand troops from Afghanistan. The infamous retreat of NATO's forces will take place this summer and the Command of International Forces will be badly in need of Russia's assistance, namely, in providing transit services for troops withdrawal. At that, NATO hurried to precise that it didn't mean suspending the cooperation on Afghanistan.

On April 1st, the NATO issued a communiqué where it declared that it would restrict the access for Russian diplomats in its headquarters. A very good April Fool's joke, indeed! And what if Russia retaliates by forbidding access to the "northern corridor" for the transit of NATO's troops through its territory?! In this case, the international troops would be forced to march through Pakistan, which is much more dangerous because of the activity of the Pakistani Taliban in the country's northern provinces. Big groups of vehicles carrying military personnel and cargo could become an easy target for ambushes, terrorist and mine attacks. Thus, uncontested withdrawal of troops through Pakistan would be fraught with greater losses of manpower and military equipment.

Unlike their NASA's and NATO's colleagues, Russian officials seem to be maintaining a more mature position. Russia's Roscosmos space agency is not preparing to retaliate against NASA in connection with the latter's imposition of sanctions. Deputy head of Roskosmos Denis Lyskov said, "All the projects that have significance for Roscosmos are running in international format in the first place. NASA sanctions do not apply to them," he reiterated. The International Space Station is not a bilateral program, although the USA and Russia are among the key participants. "Suspending work within the framework of this program would result in serious consequences for everybody," Lyskov said.

Russian Foreign Ministry Lavrov regards NATO's decision to limit the access for Russian diplomats to its headquarters in Brussels as reflecting the persistent "Cold War" mentality among the alliance's officials. "We noted that information about the move was posted on the main page of NATO's official website. It looks like access by Russian diplomats to the NATO office is the North Atlantic alliance's number one problem," the Russian Foreign Ministry said in a statement.

In the best traditions of political farce, US senators Dan Coats and Mark Kirk sent a letter to FIFA requesting the international governing organization for soccer to strip Russia from its right to host the World Cup in 2018 and also ban it from this year's edition of the event which will be hosted by Brazil. FIFA Secretary General Jerome Valcke explained US lawmakers in his response letter that FIFA rules and regulations do not apply to a "entities outside the pyramidal structure of the game of football". He added that individual teams could not be banned from a competition because of actions by their parent states.

Deputy Foreign Minister Sergey Ryabkov, commenting on US, NATO's and NASA'sfeverish activity to threaten Russia with sanctions, gave them a very helpful recommendation. “What can we advise our American colleagues to do? Spend more time outdoors, do some yoga, have healthy food, probably, watch more comedy series on TV. That would be better than working yourselves and others up, knowing that the train has already departed and that no tantrums, crying and hysterics can help”.

Meanwhile, the American public gives little support to USA's engagement in Ukraine. According to a new Reason-Rupe poll, 58 percent of the 1,003 respondents said they do not want America to be involved in the crisis whatsoever–not economic sanctions, not military action. This may be indicative of weariness about adding a new chapter to America's legacy of international entanglements. Only eight percent of respondents considered sending military troops and assets to be the right course of action for America; and only thirty-one percent think the U.S. should continue imposing economic sanctions on Russia. "If Russia attempts to invade additional parts of Ukraine, would you favor or oppose [sending US troops to Ukraine]?" non-interventionist sentiments remained high. Sixty-two percent of people polled would still be opposed to sending military aid and weapons. Though, when asked a similar question about stricter sanctions, 61 percent said they would approve.

The discord in the European communal home

Obama's tour was dedicated to rally the international community in order to isolate Russia, but the European leaders are reluctant to punish themselves together with Russia. It isn't at all surprising since, unlike the U.S., the European Union has developed very strong economic ties with Russia. The EU trade turnover with Russia stands at almost $410 billion euros, or nearly 15 times more than the Russia-US trade turnover. According to the Eurostat, Russia is the EU's third most important trading partner, behind the USA and China and accounts for 7 percent of imports and 12 percent of exports of the EU. The introduction of sanctions may lead to a considerable financial losses for the EU while the region is slowly coming out from the Great Recession.

On the aftermath of the EU summit on March 20th and 21st, European Commission President Jose Manuel Barroso told that the European Union has not yet made a decision on possible practical trade and economic sanctions against Russia. He said the European Commission (EC) was considering all economic sectors, but had not reached an agreement on the specific economic measures against Russia; and the timeframe for the coordination of these measures had not been specified. Many European countries opposed trade war with Russia during the EU summit on March 20th and 21st. "Escalating the conflict around Ukraine would have catastrophic consequences both for the parties to the conflict and Europeans", Belgian Prime Minister Elio Di Rupo said.

There isn't even accord among the EU's main stakeholders. Angela Merkel, the Chancellor of Germany, made strong political statements, threatening Russia with "massive political and economic damage". At the same time Merkel also believes that the West “has not reached a stage that requires the imposition of economic sanctions” against Russia, as advocated by US President Barack Obama. “And I hope we will be able to avoid it,” she said. Germany is very much involved in economic relations with Russia with trade turnover about 76 billion euros in 2013. The imposition of sanctions has been strongly opposed by German businesses. More than 6,000 German firms and over 300,000 jobs are dependent on Russian partners with the overall investment volume of 20 billion euros. In addition, Germany heavily relies on Russian energy with around 35 percent of its natural gas imports coming from Russia.

The discord between the EU members is based on their unwillingless to hit Russia's sector of economy which is more connected with their own economy. Thus, Britain and France have exchanged unpleasantries over the fact that Paris was not strict enough in regard to Moscow as it had not refused to sale helicopter carriers to Russia. In its turn, London was unable to show the French an example and freeze multibillion assets of Russian businessmen.

A hint made by French FM Laurent Fabius that Paris may give up the contract for building Mistral-class amphibious assault ships for Russia as part of the western countries' economic sanctions against the Russia, caused a strong discontent in France. Apart from damaging 600 workers occupied in the manufacturing, the collapse of the deal can negatively affect the financial soundness of DCNS (Direction des Constructions Navales). According to Le Figaro, Moscow has already paid 1.2 billion euros to Paris, or more than a half of the contract sum. If breach of contract is also included in the economic sanctions package against Russia, France will have to pay the break fee. Russian Deputy Defense Minister Yury Borisov said, "Of course, Russia will defend its right to the end in accordance with the agreements concluded and will demand repayment of all damages we could sustain in the case that the Mistral contract is broken off".

The best kept secret about these Mistrals is in the fact that ahead of concluding the contract in 2011, there were hot debates in the Russian defense sphere about appropriateness of commissioning these vessels abroad whereas the national defense industry was quite capable to build aircraft carriers on its own. The Russian United Shipbuilding Corporation (USC) has already noticed that it would finish building the ships in case of cancellation of the contract, taking into account that the USC had already received the most part of the technical documentation on the "Mistral" from the French shipbuilder. French President Francois Hollande hurried to declare that France will continue implementing the contract on supplying the two Mistral vessels to Russia. France is complying with the conditions of the agreement signed, the parties are not at a stage of dissolving the contract and it is hoped that this will be avoid. This little story with happy end illustrates how the boomerang effect works.

Not only the big European economies express their concern but also the smaller ones. Latvia has so far voiced the biggest concern over sanctions against Russia, as the adverse effect would hit it the hardest compared to all the EU member states. The country could lose up to 10 percent of its GDP, as the action against Russia could have a big adverse effect, according to the country’s Prime Minister Laimdota Straujuma. Latvia also said that the EU should compensate any countries hurt by sanctions against Russia.

A boomerang never misses to hit back

The European leaders are seeking how to punish Russia and at the same time not to hit their own economies. In fact, Russia shouldn't work very hard in order to retaliate against its European counterparts. As a prominent US trader Jim Sinclair ironically said, slapping of sanctions on Russia is tantamount to shooting oneself in the foot. On a more serious tune, Euro MP Pino Arlacchi admitted, “The EU sanctions against Russia would cripple the European economy instead. The position of the European Union should be different from the US position. Europe should not insist on the extension of sanctions. These sanctions are unwise. In fact, they are directed against us".

The most vulnerable point in the EU-Russian relations is Europe's energy security. Russia is currently the world’s largest crude producer and ­second-largest gas producer. In 2012, the European Union’s bill for Russian oil and gas amounted to $156.5 billion, says the International Trade Centre’s Trade Map. European members of the Paris-based International Energy Agency imported 32% of their raw crude oil, fuels and gas-based industrial feedstocks from Russia that same year. According to the U.S. Energy Department in Washington, collectively, the EU, Turkey, Norway, Switzerland and the Balkan countries got 30% of the natural gas they burned from Russia last year. The EU as a whole accounts for about one-third of Russia’s exports, 40 percent of which pass through Ukraine.

The picture bellow clearly shows the dependence of individual EU countries on Russian gas, varying from zero in case of the UK and to 100% (Finland, Lituania, Latviya, Estonia). In the case of Italy, which depends for 90 percent on imports for its gas needs; 29% of the supplies come from Russia, which is the biggest.

I'm not a fan of The Economist's biased attitude towards Russia but as an economist I'm fond of maps, tables and charts etc. So I highly recommend to read an article with an eloquent title “Reducing Europe’s dependence on Russian gas is possible—but it will take time, money and sustained political will“. The author studies the case of high indebtedness of Ukraine to Russia's energy company Gazprom. “Ukraine already owes Gazprom $1.7 billion, according to Mr Miller. If Ukraine continues failing to pay its bills—and without outside help, it can't pay—Gazprom can cut it off. Such a dispute need not, in principle, have any effect on the gas that flows through Ukraine to other countries farther west. But if Gazprom reduces the flow of gas to reflect the fact that Ukraine no longer has a right to its 28bcm, and Ukraine takes some of that gas anyway, or if Gazprom shuts down the pipelines going through Ukraine completely, Europe’s supplies get hit. Europe gets 24% of its gas from Russia, and half of that—80bcm a year—passes through Ukraine”.

I'd like to admit that The Economist doesn't consider EU sanctions or Russia's retaliation but only a possibility of suspending gas supplies to Ukraine. The article examins different opportunities, such as gas sharing among the EU consumers, Norwegian exports, American shale gas, imports of LNG from the Middle East and even... Russian supplies via the Nord Stream. Finally, The Economist makes a rather ambivalent conclusion, “Though making a real dent in Europe’s reliance on Russian gas will take political will, money and the best part of a decade, merely moving in that direction will shift the balance of power, because it will signal a fundamental truth: in the end, the Kremlin needs its European customers at least as much as they need Russian imports”.

According to US-based financial research company Sanford C. Bernstein & Co, Europe will have to spend up to $215 billion through investments if it decides to stop buying Russian natural gas. The company considered "various scenarios of Europe refusing Russian gas supplies but none of them seem attractive" and arrived at conclusion that "the cure is worse than the illness".

Danny Vinik reasonably writes in “New Republic”, “the EU can impose its own sanctions against Russian individuals and entities. They will carry much more force than anything the U.S. does, because the EU does more than $400 billion of trade with Russia each year. This is a double-edged sword, though. For instance, if the EU prohibits Eurozone businesses from purchasing Russian natural gas and oil, it would significantly impact the Kremlin’s finances. But it would also leave the Eurozone nations without a vital energy supply, increasing the price of gas and oil and potentially leading to shortages. That's made countries like Germany hesitant to support sanctions".

An American cure from the Russian gas addiction

When I first heard an interview by Giulietto Chiesa, (http://youtu.be/GxeLAAyue_k) who said that all the Ukranian crisis was inspired by the U.S. in order to sell shale gas to Europe, I decided that the whole idea was a little bit exaggerated. Being a follower of Ugo Bardi's blog, I know that the American shale revolution is well over. You can imagine my surprise when Obama in his Hague speech declared the shale gas as a panacea from Europe's dependence on Russian gas. I asked Ugo to comment on this sensational statement. As I expected, he called the American idea to sell gas to Europe a mad one and advised me to read Gail Tverberg's articles. In her article “The Absurdity of US Natural Gas Exports”, Tverberg gives a comprehensive analysis explaining why America's gas crusade to Europe is ill-intentioned not only against Russia but Europe, as well.

Gail Tverberg writes, “Another issue is that with shale gas, we are the high cost producer. There is a lot of natural gas production around the world, particularly in the Middle East, that is cheaper. If we add our high cost of shale gas to the high cost of shipping LNG long-distance across the Atlantic or Pacific, we will most definitely be the high cost producer. Other producers with lower costs (even local shale gas producers) can undercut our prices. So at best those shipping LNG overseas are likely to make mediocre profits. And there would seem to be great temptation to stir up trouble, to encourage Europe to buy our natural gas exports, rather than Russia’s. Of course, our ability to provide this natural gas is not entirely clear. It makes a good story, with lots of “ifs” involved: “If we can really extract this natural gas. If the price can really go up and stay up. If you can wait long enough.” The story makes the US look more rich and powerful than it really is. We can even pretend to offer help to Ukraine”.

Third sanctions' level: the credibility of the Iranian model

At the beginning of sanctions' hysteria, there was much talk about applicability of Iranian type of sanctions against Russia. The Iranian sanctions regime had three components. First, it included prohibitions on oil, tanker fleets, and the insurance industry, which grounded the Iranian oil trade to a halt and cost the country many billions of dollars in export revenue. Second, banking sanctions cut off Iran from the international banking system, making it virtually impossible for the country to engage in any form of international commerce. And third, Obama invoked the U.S. International Emergency Economic Powers Act (IEEPA), which allowed him to block Iranian assets subject to U.S. jurisdiction (such as those belonging to the Iranian Revolutionary Guard Corps and its various commercial and logistical affiliates) and made it illegal for U.S. citizens to do business with designated persons or companies.

The US hawks were citing US success which forced Iranian President Hassan Rouhani to start talks with the U.S. on the Iranian nuclear problem. The reality was quite different, not Rouhani but Obama himself called him on September 27, 2013, after the 68th UN General Assembly meeting on Syria where he failed to promote military intervention to Syria. In the best traditions of the US propaganda, his call to Rouhani was declared as a big strategic victory of the US sanctions' policy. However, more sober researchers question the efficiency of the Iranian model. Andrew Cockburn said, “The Joint Plan of Action agreed to last fall between Iran and the so-called P5-plus-1 negotiating team — the five permanent members of the U.N. Security Council and Germany — stipulated that Iran would not continue to enrich uranium to levels above 5%, implicitly recognizing that Tehran can enrich uranium. All those years of throttling the Iranian economy, impeding even shipments of food and medicine, for this?”

Lee S. Wolosky in his article “How to Sanction Russia: And Why Obama's Current Strategy Won't Work” reluctantly admits, ”the sanctions against Russia would be missing two components that made the ones on Iran work: energy and banking. Energy accounts for 70 percent of Russia’s annual exports, so energy sanctions could, in principle, be a meaningful tool for rebuking Russia. But much of Russia’s oil and natural gas (unlike Iran’s) goes significantly to Europe, and Europeans have not been willing or eager to change that quickly. And without adequate preparation, such sanctions could cause a shock to world oil markets that could undermine the global economic recovery”. In his interview to Dimitri K. Simes at The National Interest, Sergey Glazyev, an adviser on Ukraine to President Putin estimated the possible consequences of Iranian type sanctions.

“If we assume that they would adopt sanctions against Russia similar to those against Iran, according to our calculations, this would cost the EU 1 trillion euro. The sanctions would disproportionately affect the Baltic republics: for example, the potential losses for Estonia are estimated at the size of Estonia’s annual GDP; Latvia and Lithuania would incur losses the size of half of their annual respective GDPs; Germany would incur a loss of 200 billion euro”.

Among all crazy suggestions which has been overflooding these days the Western mass media, I really liked only one reasonable idea. Juan C. Zarate calls to “a broader effort that marginalizes illicit and suspect financial behavior — not just those activities tied to the invasion of Ukraine. This should be a conduct-based campaign that moves banks and companies to reconsider doing business and investing in Russia... Such a campaign would entail aggressive investigations of illicit financial activity of Russian interests globally — tied to concerns about money laundering, corruption, tax evasion and links to Russian organized crime”. Why do I appreciate this proposition? Mainly, because it coincides with Putin's struggle against offshores and corruption. If the international community would take part in this fight, then illegal businesses would really feel that they won't find refuge in safe havens under US and UK jurisdiction and return in Russia. Such kind of sanctions would turn into a real benefit for Russia.

At the time being, Europe resorts to toothless political bites which are intended to rise its own self-esteem but, instead, exposes it in a rather unflattering light. Recently, the Council of Europe (PACE) passed a resolution that puts all the blame for the Ukrainian crisis on Moscow and also deprived the Russian delegation of voting rights and the right to participate in the governing bodies of the Assembly til the end of the year.

Observers can notice that currently Russia has been restraining from backbites. Meantime, Russia has a broad scope of more efficient means of retaliation...

TheWest and Russia: a tit for tat game. Part1.

(To be continued)