West struggles for winning formula on Russian sanctions

West struggles for winning formula on Russian sanctions
# 03 May 2014 00:02 (UTC +04:00)

Baku-APA. Western states used targeted sanctions to isolate Libya's Muammar Gaddafi and push Iran into nuclear negotiations. Using similar tactics against President Vladimir Putin's Russia is a challenge on an entirely different scale, APA reports quoting Reuters.

Not only is the volume of Russian money in the international system much greater than anything tied to Gaddafi or Tehran but the sophistication with which it is moved, held and sometimes hidden is also much greater.

Some of the Western bankers, money managers and oil traders who help keep that money moving are unconvinced sanctions will have a truly significant effect.

There is also a question about political will in the European Union, which relies on Russia for a third of its energy needs, to go further.

U.S. experts traveled to Brussels this week and held what one U.S. official called "exceptionally tense" meetings with representatives from EU and some non-EU nations.

The Americans expressed concern that the Europeans would not be able to agree tougher trade, energy and financial sanctions, said the official, speaking on condition of anonymity.

The sanctions "are having an impact economically but they are not changing behavior, that's the paradox and that's why we need to tighten the squeeze", the official said.

As pro-Russia militants seize more public buildings in Ukraine's turbulent east and violence escalates, President Barack Obama and Germany's Angela Merkel met in Washington and agreed that further measures would be taken if Moscow continued to destabilize its neighbor ahead of elections on May 25.

But Obama acknowledged that some of the 28 EU member states would be more vulnerable to such sanctions than others. "Not every country is going to be in exactly the same place," he told a White House news conference with Merkel.

In turn, Merkel said that if required "we will move to a third stage of sanctions. I will underline this is not necessarily what we want."

Existing sanctions have largely targeted individuals and, while there has been an outflow of capital from Russia, there is little evidence that the measures are forcing Putin to rethink.

Russian buyers have pulled back on new New York real estate deals while Russian banks and firms are turning to Asia to borrow money as Western lenders shy away.

But there are no signs of any effect on London's superheated property market, where oligarchs like to park their money.

"The Russian economy is globally integrated in ways that Iran or Libya never were," says Nigel Inkster, former Deputy chief of Britain's Secret Intelligence Service (MI6) and now with London's International Institute for Strategic Studies. "It will be much harder to apply sanctions."

Washington has long used its banking muscle to force financial institutions to help it freeze out its enemies. After the September 11, 2001 attacks, it was able to damage Al Qaeda.

The threat of depriving Swiss banks of U.S. licenses forced Switzerland to open up its secretive banking sector.

During the 2011 Libya war, Western states were able to target the front companies and individuals Gaddafi was using to both sell Libya's crude oil and buy refined fuel to supply his army. At the same time, they helped the opposition find buyers for oil from rebel-held Libya.

After Washington sanctioned Gaddafi, the U.S. government seized about $39 billion of his assets in a single weekend, one former U.S. Treasury official recalled.

With Iran, the U.S. Treasury and others added a steady flow of new targets to sanction in order to block off routes Tehran created to try and continue trading.