Punishing Putin: A Comprehensive Analysis of Sanctions and the Global Effort to Deter Russia
In the latest episode of Enterprising Investor, hosted by Mike Wahlberg, Stephanie Baker, a senior writer at Bloomberg and author of Punishing Putin: Inside the Global War to Bring Down Russia, delves deep into her book’s exploration of the West's multifaceted strategy to weaken Russia through economic sanctions and other measures. This detailed discussion offers listeners an insightful look into the complexities and challenges of sanctioning one of the world's most resilient nations.
1. Introduction to Punishing Putin
Stephanie Baker provides an overview of her book, emphasizing that it transcends a simple chronological account of sanctions against Russia. Instead, it presents a "very entertaining but long-form work of journalism" that reads like a detective novel (00:00), a sentiment echoed by notable figures like Bill Browder and Nassim Taleb. Baker highlights the unprecedented nature of the geopolitical shift initiated by Putin’s full-scale invasion of Ukraine in February 2022, marking the end of three decades of Russia's economic integration with the West.
2. The Anatomy of Sanctions on Russian Oligarchs
Baker discusses the strategic targeting of Russia’s oligarchs—wealthy individuals closely tied to Putin. Initially aimed at exerting pressure on the Kremlin, these sanctions involved freezing assets and imposing travel bans on these elites (03:23).
Key Insights:
- Intended Impact: The goal was to destabilize Putin’s support base by restricting the financial and personal freedoms of his inner circle.
- Unintended Consequences: Instead of creating instability, sanctions often "drove some of these guys back to Russia" (07:16), increasing their dependence on the Kremlin and fostering anti-Western sentiment.
Baker notes that while the sanctions were "totally legitimate" and targeted key sectors like critical minerals, their execution faced challenges. Notably, some oligarchs, such as Gazprom’s head Alex Miller, remained untargeted to avoid disrupting essential energy supplies (03:23).
3. Seizing Russia’s Central Bank Assets
A groundbreaking move discussed by Baker was the immobilization of Russia’s Central Bank reserves in the West, amounting to $300 billion (08:32). This unprecedented action aimed to restrict Russia's ability to finance its war efforts.
Challenges Highlighted:
- International Coordination: While the US acted swiftly, Europe faced hurdles, particularly due to divisions within the EU, notably from Hungary (11:18).
- Legal and Logistical Issues: The enormity of the funds raised concerns about potential global market fallout and the legal complexities of asset seizure.
Ultimately, Baker suggests that utilizing these reserves for Ukraine’s reconstruction remains a contentious but necessary step, albeit delayed by legal and political obstacles (08:32).
4. Coordinating Sanctions Across Jurisdictions
Effective sanction implementation requires seamless coordination among various jurisdictions, which proved to be a significant hurdle.
Challenges Discussed:
- Divergent Legal Systems: The US, EU, and UK operate under different legal frameworks, complicating unified action (13:05).
- Institutional Capacities: The US had prior experience with sanction enforcement, unlike the EU and UK, which were ramping up their regimes from scratch (13:24).
Baker emphasizes that policy coordination remained remarkable despite these differences, but operational challenges persisted, leading to a "whack-a-mole" scenario in enforcement efforts (14:30).
5. Asset Seizures and Legal Battles: The Amadea Yacht Case
One of the most illustrative examples Baker offers is the seizure of the Amadea superyacht. The US government attempted to claim ownership by alleging sanctions evasion by a sanctioned oligarch using shell companies (15:07).
Key Points:
- Legal Complexities: Proving actual control behind shell entities is arduous, leading to prolonged legal disputes.
- European Challenges: Unlike the US, Europe struggled with less developed sanctions and forfeiture laws, making asset seizures more difficult.
This case underscores the intricate challenges in dismantling the financial footholds of Russia’s elite.
6. Oligarchs’ Responses to Sanctions
The oligarchs exhibited varied reactions to sanctions, ranging from legal battles to public dissent.
Examples:
- Michal Friedman: A private equity firm leader in London, Friedman challenged UK sanctions through the legal system. Despite making "qualified criticisms" of the war, he successfully battled the sanctions but eventually fled to Russia and other regions (17:25).
- Oleg Tinkov: An entrepreneur likened to Russia’s Richard Branson, Tinkov openly criticized Putin on social media. After enduring significant financial losses and asset seizures, he eventually had his sanctions lifted, albeit after a protracted process (17:25).
Baker argues that these cases reveal the limitations and delays in the current sanction frameworks, suggesting missed opportunities to leverage sanctions as tools for encouraging dissent within the Russian elite (20:07).
7. Limiting Russia’s Oil and Gas Revenues
Controlling Russia’s energy exports is pivotal in weakening its war-financing capabilities.
Efforts and Outcomes:
- Initial Reluctance: Europe’s dependence on Russian energy delayed aggressive measures (20:30).
- Price Cap Implementation: Aimed to limit Russian oil revenues by capping prices and denying Western services for sales above $60 per barrel. This strategy temporarily "depressed Russia's oil revenues" but faced enforcement challenges as Russia adapted by creating a shadow fleet and tapping new markets like India (20:30).
- Current Scenario: Although oil prices have somewhat stabilized, Russia remains poised to earn significant revenues, posing ongoing challenges (24:04).
Baker emphasizes that stricter enforcement and possible lowering of the price cap could further "slow Russia's revenues" and enhance the effectiveness of sanctions (20:30).
8. Impact of Sanctions on the Russian Economy and Population
The sanctions have had a profound but mixed impact on Russia’s economy and its citizens.
Economic Indicators:
- Inflation Surge: Inflation in Russia soared to 9%, driven by expensive imports and war-related spending (24:13).
- Interest Rate Hikes: The Russian central bank raised rates to 19% to combat inflation, creating friction with the Kremlin’s expenditure plans.
- Labor Shortages: Severe shortages in defense factories and the military highlight broader economic strains (24:13).
Baker points out that while Russia maintains a semblance of economic growth by increasing defense spending, the long-term sustainability is questionable due to depleted reserves and mounting internal pressures (24:13).
9. The Ongoing Struggle to Undermine Putin
Despite efforts, Putin has managed to sustain his military campaigns by reallocating resources and leveraging international loopholes.
Current Strategies:
- Economic Warfare: Washington's threats to sanction banks facilitating military trade have started to "spook" Chinese banks, creating a domino effect that affects Russia’s access to global financial systems (24:13).
- Shadow Markets: Russia’s pivot to non-Western markets and the establishment of alternate shipping routes demonstrate resilience but also highlight vulnerabilities in sanction enforcement (20:30).
Baker underscores the importance of consistent and unified enforcement to prevent Russia from circumventing sanctions through strategic alliances and financial maneuvering (26:57).
10. Foreign Policy Outlook: Trump vs. Harris
When discussing future foreign policy directions, Baker contrasts potential approaches under different administrations.
Harris:
- Baker anticipates continuity, noting that "she would be much the same" with economic advisors experienced in sanctions (27:06).
Trump:
- Presents uncertainty, highlighting Trump's ambiguous stance on Ukraine’s support and his desire for a swift end to the war, potentially jeopardizing sustained aid (27:06). Concerns include the risk of a ceasefire deal that might favor Putin’s regrouping efforts.
Baker cautions that Trump's policies could offer "breathing room" for Putin, undermining long-term efforts to destabilize his regime (27:06).
11. Advice to Her Younger Self
In a reflective moment, Baker shares personal insights from her early journalism days:
Advice Given:
- "Follow the money": Emphasizing the importance of tracking financial flows to understand underlying power structures (29:00).
- Big Picture Perspective: Encouraging a broader view of Russia’s economic privatization and the corruption entwined within (29:00).
This advice underscores the critical role of financial analysis in uncovering and combating systemic corruption and authoritarian resilience.
Conclusion
Stephanie Baker’s Punishing Putin offers a nuanced examination of the West’s strategic use of sanctions to counteract Russian aggression. While significant strides have been made in targeting the Kremlin’s economic stronghold, persistent challenges in enforcement, international coordination, and the adaptability of Russia’s financial networks continue to impede the effectiveness of these measures. Baker’s insights reveal that while sanctions have undoubtedly strained Russia's economy, the path to meaningful regime change remains fraught with complexities and requires sustained, cohesive global efforts.
Notable Quotes:
-
Stephanie Baker on Sanctions: “If you look at sanctions not as a vehicle for regime change, but as a way of slowing the Russian economy down and undermining Putin's ability to finance the war.” (07:16)
-
Mike Wahlberg on Oligarch Responses: “They have kind of driven them back into the arms of Mother Russia.” (07:29)
-
Stephanie Baker on Foreign Policy: “What's the real concern in Ukraine is that you don't want to give Putin a ceasefire because he's just going to come back.” (27:06)
Timestamps Reference:
- [00:00] Introduction and Book Overview
- [03:23] Sanctions on Oligarchs
- [07:16] Effectiveness of Sanctions
- [08:32] Seizing Central Bank Assets
- [11:18] Europe's Legal Challenges
- [13:05] Coordination Across Jurisdictions
- [15:07] Amadea Yacht Case
- [17:25] Oligarchs’ Responses
- [20:07] Enforcement of Oil Price Cap
- [24:13] Impact on Russian Economy
- [26:57] Future of Sanctions and Policy
- [27:06] Trump vs. Harris Foreign Policy
- [29:00] Advice to Younger Self