Lift Western Sanctions Now to Humiliate Putin

BERLIN (Bloomberg News) —

As Russia’s economic crisis deepens, hurting trading partners from Germany to Tajikistan, many will say Westerns sanctions have succeeded. It’s a classic stone soup — or, in the Russian tradition, axe cereal — story.

In this folktale, a wayfarer, usually a soldier, tricks a stingy host by saying he knows how to make a meal out of some inedible object, a stone or an axe. He starts boiling the thing in a pot, asks for one necessary ingredient, then another — potatoes, carrots, a bit of meat, some salt — until the host ends up sharing all she had in the house and eats the soup with relish. (In the Russian version, it’s cereal, so not that many ingredients are required.) Economically, Western sanctions are the stone in the soup that is the Russian crisis.

Unconditionally lifting them now would probably be the best way to humiliate Russian President Vladimir Putin and undermine his standing at home.

The sanctions were first introduced in March, after Russia annexed Crimea, but they only got serious in July, after someone — apparently Russia-backed rebels — accidentally shot down a passenger airliner over eastern Ukraine. Their effect was to cut off Russia’s state-owned companies from Western debt markets. By extension, all Russian borrowers became toxic to Western lenders. Even this, however, did not cause any major turmoil in Russia: It is a commodities-based economy, and with oil fetching more than $100 per barrel, the state companies and the financial authorities could attend to any and all refinancing needs without outside help.

Then, in mid-September, oil fell below $100. That was the main ingredient in the soup: The Putin regime has forgotten how to live with low oil prices. Money got short, and the ruble tanked. One could argue that there would have been no meal without the stone, i.e. without the sanctions, but in reality it would probably just be slightly thinner gruel: Russia would still have suffered an economic decline because of its structural problems, oppressive business climate and disinvestment following the Crimea invasion, which convinced many business people, Russian and foreign alike, of Putin’s aggressive unpredictability. Russia’s record capital flight this year started right after Crimea, well before effective sanctions were introduced.

Politically, however, the sanctions helped Putin enormously: They made it possible for him to argue that the West is out to get Russia and that, to survive as a country, it needs to fight back. According to Pew Research, from July 2013 to July 2014, the percentage of Russians with a positive attitude toward the United States fell to 23 percent from 51 percent, the steepest such drop in at least 15 years. According to Russian pollsters at Levada Center, in November 2014, 50 percent of Russians didn’t care what the West thought of their country, compared with 40 percent in 2007. And, of course, Putin’s approval soared above 80 percent: He embodied the conviction of 77 percent of Russians that the country needs to follow a non-Western path to succeed.

Now, the security of Putin’s regime rests solely on Russians’ patience with economic hardship. Anti-Putin and pro-government intellectuals with whom I talked in Moscow last week were split in their predictions: The former argued the anti-Western, ultra-patriotic mood is just a thin patina that inflation would scrape off within months, while the latter cited Russians’ passive willingness, during previous crises, to go without salaries for months on end. They all agreed, however, that Western sanctions have worked to build, not destroy, that all-important patience, creating a siege mentality and a kind of Stockholm syndrome even in those who have had no love for Putin.

Michael McFaul, the former U.S. ambassador to Moscow, tweeted as the ruble crashed: “If Putin withdrew his support for proxies in eastern Ukraine, then West would lift some sanctions & Russian economic crisis would slow.”

Putin, however, would undermine his biggest remaining asset — that anti-Western siege mentality — if he did as McFaul suggests, and as many in the West would like him to do. He cannot back down publicly, he cannot give up Crimea and he cannot stop meddling in Ukraine, though the economic crisis will probably force him to resort to cheaper methods of doing so than all-out war. Desisting would mean more than a loss of face — it would amount to giving up his identity.

So the best thing the West could do now would be to lift the sanctions unconditionally. A Western leader, perhaps German Chancellor Angela Merkel or even President Barack Obama, could go on [media] to say, “We stand with the Russian people in its hour of need. We support Russia, we want it to be strong and prosperous, and we have no intention to push it around.”

That would leave Putin … faced with a weakening economy that rejects his management methods and a population increasingly wondering why it needs Putin and what he stands for anymore.

That, however, is another fairy tale. Obama will soon sign legislation calling for tougher sanctions, giving Putin more ammunition in his intensifying fight for power, and also feeding more radical nationalist elements that consider even Putin too weak in defending Russian interests. Western leaders lack the imagination to deal with the Putin problem creatively, and they are loath to admit mistakes. They will keep adding stones to the soup.

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