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Ukraine: IAI expert, sanctions are a heavy blow to Moscow

Russia, for now, avoids collapse thanks to high energy prices

27 June, 16:07
(by Stefano Giantin) (ANSA) - BELGRADE, JUN 27 - "There is no doubt that the US-EU-UK sanctions and other Asian allies of the US have hit Russia hard. GDP is facing a sharp drop, inflation is rising, and Russia's productive capacity is severely hampered. These effects will be felt in the medium to long term, undermining the Russian economy's chances for sustained growth." Riccardo Alcaro, research coordinator and director of the Global Actors Program at the International Affairs Institute (IAI), explained his analysis in an interview with ANSA, answering a question about the results of Western sanctions against Moscow.

However, "the Russian government," Alcaro underlined, "still benefits from hydrocarbon sales and high energy prices, which compensate for reduced volumes. For the time being, Russia has avoided collapse. Still, since its export capacities will slow down and its income from hydrocarbon exports is now much more dependent on price than volumes, the whole scenario is highly volatile and structurally unstable." "No one ever expected that sanctions could stop Russia in Ukraine or even lead Moscow to reverse course," the analyst then pointed out, "but sanctions certainly reduce Russia's ability to sustain the war effort. That is why Putin is playing fast and hard, raising the cost of sanctions for energy-importing countries. The hope is that EU countries will not cave in, given the high energy costs and the risk of rationing next winter. In short, it is an adamant game in which Russia is ready to risk it all. We will see if the EU and the US can sustain the pressure by putting measures to mitigate the effects of cutting exports, particularly gas." The situation is also volatile on sending military aid to Kyiv, with Moscow's growing anger over Western arms and the Kaliningrad issue, with increasing fears of escalation, perhaps involving third countries in the war. "I think that military support for Ukraine," Alcaro answered on this issue, "is the essential condition to prevent Russia from consolidating the territorial acquisitions it has made so far and from being able at a later date to renew its attack on Kyiv. Of course, there is no guarantee that the Euro-American weapons are decisive. Still, there is a guarantee that without them, Putin would come to control, directly or otherwise, part of Ukraine and thus heavily influence the Kyiv government." The risk of escalation is ineradicable but, for now, seems manageable. In Lithuania, the question is to determine what kind of reaction Russia might have and what kind of response Nato would be willing to put in place. Since this is an issue concerning the transportation of Russian goods into Russian territory (Kaliningrad), there is a chance for flexibility.

Still, on the other hand, it also means accepting that Russia would exploit the geography of Kaliningrad to deploy military assets with which to threaten the Baltic area more closely and thus consequently Nato." This is "quite a dilemma," the analyst added.

Meanwhile, winter is approaching, and concerns are growing across the EU about oil and gas supplies. Is Europe prepared for a possible total cut in Russian gas supplies? And what to expect in the coming months? "I don't think Europe is ready, but I also see the ongoing debate," Alcaro replied. "The critical issue - he continued - is to prepare in time in terms of security of supply and political communication. Gas is a crucial issue because it is a more difficult commodity to replace, despite being less important than oil in revenue for the Russian government.

On the one hand, there does not seem to be enough alternative gas to replace Russian gas, and the export infrastructure is rigid (especially pipelines). Therefore, Russia could not sell gas to others that it will not sell to the EU, with a severe loss in revenue and sustainability of the extraction infrastructure." There is, however, a way to follow urgently: the EU "must put coordination mechanisms for alternative gas supplies to Russian gas and solidarity systems that ensure that other member states meet the primary needs of member states. It must also coordinate a contingency plan in case of rationing." What is the worst-case scenario? "In the worst-case scenario," Alcaro underlined, "there is a scenario of inflation, recession, gas rationing, and disruption of industrial activities. But I would like to emphasize that this scenario is now independent of sanctions. It is something Russia will push for regardless because Moscow now sees itself in an all-out war with the US-EU." (ANSA).

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