0:03

The Economist Russia's

0:09

war against Ukraine sparked a

0:11

counteroffensive, not just by

0:13

Ukrainian forces defending their homeland. Together,

0:16

along with our allies, we are

0:18

right now enforcing powerful economic sanctions.

0:21

We're cutting off Russia's largest banks in

0:23

the international financial system, making Putin $630

0:25

billion war fund worthless. The

0:30

US and its Western allies came at

0:32

Russia with weapons from their economic arsenal.

0:35

They imposed sanctions targeting Vladimir Putin's

0:38

government and the oligarchs and businesses

0:40

profiting from Russia's invasion of Ukraine.

0:43

In the two years since, the

0:45

US, UK and EU have imposed

0:48

thousands of individual sanctions meant to

0:50

hurt Russia's ability to wage war.

0:53

Examples of Russian goods, from diamonds to

0:55

coal, were banned. Some

0:58

$300 billion in assets that the

1:00

Russian Central Bank held overseas were

1:02

frozen. Wealthy oligarchs

1:04

have had their private jets and yachts

1:06

seized. Tonight, the UK seizing

1:08

a nearly $50 million superyacht owned by

1:11

a Russian businessman tied to Putin. But

1:14

while the West has been united in its condemnation

1:16

of Russia, its new sanctions regime

1:18

has not been bulletproof. And

1:21

that's because much of the world

1:23

refuses to enforce Western sanctions. Armenia,

1:26

Kazakhstan and Kyrgyzstan, for example,

1:28

have all been importing more

1:30

from Europe and have mysteriously

1:32

since become major suppliers of

1:34

critical goods for Russia. Countries

1:37

across Asia not bound by the

1:39

sanctions remain a lifeline for Russia

1:41

to sell oil and receive critical

1:43

imports and financial services. But

1:46

that hasn't stopped fresh sanctions from coming.

1:49

And Biden warned today that Russia is

1:51

about to pay the price in the

1:53

form of major sanctions for the death

1:55

of Russian opposition leader Alexei Navalny. created

2:00

by the Western Economic Arsenal, Russia's

2:02

economy has proved shockingly resilient. In

2:04

fact, output appears to have grown

2:06

slightly between 2021 and 2023. So

2:11

does financial warfare work? You're

2:23

listening to Money Talks from The Economist, our

2:25

weekly podcast on the markets, the economy

2:28

and the world of business. In

2:30

Singapore, I'm Mike Bird. In

2:32

Washington DC, I'm Alice Soled. In

2:35

London, I'm Tom Lee Devlin. And

2:38

in today's show, have sanctions lost

2:41

their bite? First, we

2:43

hear how the world is a wash for sanctions

2:45

to an unprecedented scale. They

2:48

really started picking up after 9-11, 20

2:51

years ago, but since Ukraine, they've gone

2:53

into overdrive. Then, we

2:55

speak to one of the early architects

2:57

of the current US sanctions regime. They're

3:00

painful in the short and long

3:03

term, but they may not

3:05

be effective enough to change the strategic

3:07

behavior that everyone so

3:09

desperately wants to affect. Finally,

3:12

to become more effective, how will

3:15

financial warfare have to evolve? There's

3:18

been a big push by the US to

3:20

make arguments for the confiscation of

3:23

frozen Russian reserves. It's a serious amount

3:26

of money. Alice,

3:33

Tom, hello. Hello. Hi, Mike. Alice,

3:35

you are under a blanket. You look like

3:38

you're lacking everything except, you know, a hospital

3:40

bed and an oxygen mask. What

3:42

is going on? I feel to have

3:44

been struck down by some strange

3:46

virus. It might be Covid,

3:49

some sort of later iteration, or it might

3:51

be something else. But, you know, I felt

3:53

better and more cheerful to be joining you

3:55

both in the studio. But I'm still happy

3:58

to be here. Send with that. conviction.

4:03

Yes, still my general misery

4:05

obviously pales in comparison to

4:07

the very somber stuff

4:09

that we are going to be discussing today. I

4:12

understand you are about to remind us that

4:14

it's been two years since the start of

4:16

the war in Ukraine, Mike. Yes,

4:19

if you weren't aware of all

4:21

that from the news coverage this

4:23

week and with two years having

4:26

passed since the Russian invasion of

4:28

Ukraine that also means that it's

4:30

been around two years since the

4:32

US and a lot of European

4:34

countries assembled this financial warfare in

4:36

response to a boots-on-the-ground war

4:39

in Ukraine. Right, and because of

4:41

things like dollar hegemony and the

4:43

correspondent banking system the US has

4:45

by far the most power to

4:48

meet out these kinds of sanctions on

4:50

people who are doing things it does not like.

4:53

But even with all of that power

4:55

there are sort of a lot of

4:57

reasons why you should be skeptical about

4:59

how effective sanctions really are. Yeah and

5:01

to that point actually things cranked up

5:04

another notch last week in response to

5:06

the killing of Alexei Navalny. The

5:08

US slapped on a further 500 new

5:10

restrictions on Russian firms and officials.

5:12

It's also going to place export

5:15

restrictions on about a hundred new

5:17

entities that provide support to Russia.

5:19

But you know I can't help

5:21

but suspect this escalation of sanctions

5:24

is somewhat subject to the law of

5:26

diminishing returns. Yes and after two years

5:28

of the West trying to lock Russia

5:30

out of a lot of the fruits

5:33

of the global economy we can now

5:35

see a number of the ways in

5:37

which Russia is coping with

5:39

or adapting to its new economic

5:41

reality. What structures it has to

5:44

get in place to circumvent those

5:46

sanctions. What's becoming clear is

5:48

that it's getting by with a little

5:50

help from its friends or if not

5:53

friends then help from these sort of

5:55

ambivalent neutral middle countries who have something

5:57

to gain from keeping their own energy.

6:00

economic and financial channels with

6:02

Russia open. Ambivalent neutral middle

6:04

countries would be a great name for our band.

6:07

Ambivalent neutral milk hotel. That would

6:09

be a terrible tribute act. Well,

6:12

I play the guitar, so any musical talents

6:14

from the two of you? I have been

6:16

known to sing in my life.

6:19

I think if I sang an episode, the living

6:21

would envy the dead. But

6:23

getting back on track slightly, to

6:26

help us understand the sprawling world of

6:28

sanctions, I wanted to speak with Kerri-Ann

6:30

Richmond-Jones. She's the Economist's international economics correspondent,

6:33

and she's been covering this story for

6:35

us. Kerri-Ann, welcome to Money Talks. Thanks

6:38

for having me. So could you get us

6:40

up to speed on what's the latest state

6:42

of affairs when it comes to the West's

6:44

economic sanctions? Because obviously in the

6:46

last few years, especially in relation to Russia

6:49

and the invasion of Ukraine, there's been a

6:51

massive expansion in the use of these tools.

6:53

Yeah, absolutely. The US is the dominant

6:55

sanctions power. It presides over

6:58

the global trade system, it presides over

7:00

the global financial system through the dollar.

7:02

So theoretically, that gives us economic warfare,

7:04

this deadly punch that no other country

7:06

has. And that's enabled it to

7:08

impose a barrage of restrictions. And

7:11

they really started picking up after 9-11, 20 years

7:13

ago. But since

7:15

Ukraine, they've gone into overdrive.

7:17

So American firms can't

7:19

sell anything that the Russian

7:21

army could repurpose. And that ranges right from

7:23

drones, but also all the way through to

7:25

ball bearings. There are import restrictions

7:28

on commodities, such as the $60 barrel

7:30

oil price cap imposed on Russian oil

7:32

by Europe and America. That's meant to

7:34

weaken hostile powers by reducing the revenue

7:37

that their governments get. There are bans

7:39

on doing business with Iranian and Russian

7:41

governments. But it's not just isolated to

7:43

Russia and Iran. So in the

7:45

Middle East, everyone from the Israeli settlers in the

7:47

West Bank are into sanctions all the

7:49

way to the Houthi rebels in the Red

7:52

Sea. We're seeing an increase in sanctions on

7:54

Chinese military firms, even South

7:56

American drug cartels are under more

7:58

sanctions now. than they

8:00

were two years ago. America's first port

8:02

of call for dealing with all of them

8:05

is sanctions. The consequences of breaching these sanctions

8:07

for firms all around the world can

8:09

be really severe. They range from fines to

8:11

jail time if you're in the US.

8:13

So the world isn't just made up

8:16

of countries implementing sanctions and the country

8:18

targeted. You've been looking at these middle

8:20

power countries with growing influence around the

8:23

world that are neither implementing nor subject

8:25

to the sanctions. Can you explain which

8:27

countries these are and what role they're

8:29

playing, why they're important here? Third

8:32

countries are the countries

8:34

that impose neither American nor European sanctions

8:36

and they're also not in the sanctions

8:38

themselves. Some people also call

8:41

them neutral countries, non-aligned countries, which refers

8:43

to a movement that 120 of them

8:45

are members of. That includes

8:47

Brazil, India, and it's a growing problem

8:50

because in 1990 they produced 15% of GDP. Now in 2022 they produce 38% of

8:52

global GDP. These

8:58

countries tend to decline to participate in

9:00

the West's economic war. Brazil,

9:02

India, and Mexico all bowed out

9:04

soon after Russia invaded Ukraine.

9:07

But the problem is that they're still keyed into

9:09

the West's systems. All of their

9:11

banks rely on dollar transaction systems, dollar

9:13

clearing houses. If you want to bank

9:15

in dollars in India and transact dollars

9:18

to maybe Indonesia, the chances are that

9:20

it's going to touch an American bank

9:22

at some point. And the problem

9:24

is that America really struggles to reach

9:26

these firms in the same way that it

9:28

would discipline the firms on its shores. So countries

9:30

that are not party to the West's price cap

9:32

on oil are willing to pay more than $60 a

9:35

barrel. Brazil, China, and India have

9:37

all bought more stuff, not less

9:39

since the war in Ukraine began.

9:41

So that's really thwarting America's efforts

9:43

to reduce Russia's government

9:45

revenue. Many of the country's

9:47

biggest customers, including the UAE and Turkey, import

9:50

cheap fuel for domestic use at

9:52

the same time as exporting their own more

9:55

expensive non-embargode oil. And in

9:57

2022, China, India, Singapore, Turkey, and the United

9:59

States, the UAE altogether

10:01

imported $50 billion more oil from

10:03

Russia than in 2021. Meanwhile,

10:06

the value of the EU's oil imports from

10:08

these countries increased by $20 billion. So

10:11

it's very clear where that flow is going. Yeah,

10:14

importing cheap oil and exporting more expensive oil sounds

10:16

like a pretty good gig if you can get

10:18

it. There's a general sense from your

10:20

reporting that things seem to be getting worse

10:22

on this front and that it's becoming more

10:25

difficult because of precisely these trends

10:27

to execute these sanctions. Is

10:30

it simply a sense that there are more

10:32

sanctions than ever, so we're seeing a natural

10:34

increase in circumvention, or is it something more

10:36

than that? It is a bit of that,

10:38

and that's a real dilemma for America's policymakers, right?

10:40

Because the more that you restrict

10:43

third countries, the more they're also

10:45

encouraging them to circumvent. But I think there's

10:47

also more going on. A lot

10:49

of it is simply that two years post-Ukraine

10:52

countries have had the chance to set up

10:54

systems to circumvent, so it's actually getting easier.

10:57

So a lot of third countries are now

10:59

participating in ruble and yuan-based payment systems, efforts

11:02

by Russia and China to build dollar alternatives.

11:05

Indonesia is participating in trials for

11:07

China's international digital currency. We've

11:09

seen a huge uptick in the amount of countries that

11:11

are distributing merkarts, which is

11:13

meant to be Russia's alternative to Visa

11:16

and Mastercard, and it's run by the central

11:19

bank. Exports from the EU to Russia have

11:21

collapsed, but places like Armenia, Kazakhstan, and

11:23

Kyrgyzstan have been importing much more

11:25

from Europe and have mysteriously become

11:28

important suppliers of critical goods to

11:30

Russia. Last year we

11:32

saw Central Asia's logistics industry expand by more

11:34

than a fifth. So presumably

11:36

the sort of sanctions-making policymakers in Washington

11:39

and Brussels and London aren't just planning

11:41

on taking all of this lying down.

11:43

Are they getting tougher on the rule

11:46

breakers? What steps are they taking to

11:48

try and address this circumvention? They

11:51

are definitely getting tougher. So Russia's sanctions

11:53

are almost incomprehensible in their scope, but

11:55

now we're seeing a different kind of

11:57

sanctions. We're seeing a lot of second-year

11:59

sanctions. Coming out of the White

12:01

House. The By the made an

12:04

announcement in December last year that

12:06

he was willing to targets foreign

12:08

financial institutions said banks in Indonesia

12:10

or India that has been soliciting

12:12

the transactions that mean those weapons

12:14

can get from. China. So Russia.

12:16

Does a really big threats. So far we

12:18

haven't see any banks on the list that

12:20

we may well in future months The question

12:22

them will be how the governments of these

12:24

countries really take. That is the sense that

12:26

they could. Cooperate with America. but if

12:29

they don't all that these sanctions will

12:31

do is encourage them father and the

12:33

arms of Russia and China. The.

12:35

Seals a lot like one of those subjects that

12:37

with and be coming back See again and again

12:39

Korean Thank you very much Twenty years. Thank.

12:42

You so much for having me! So. That's

12:44

the lay of the land now,

12:46

so understand other for more about

12:48

how policymakers in the U S

12:50

might be viewing the relative success

12:52

of their sanctions endeavors. I spoke

12:54

to one Sarah say he's a

12:56

former counterterrorism official who held a

12:58

number of positions with Us. government

13:00

is no chief strategy officer A

13:02

cake to integrity a risk advisory

13:04

services from. On

13:11

Welcome to Money Talks Thank you

13:13

Mike. I'm happy to be with

13:15

you. So you were among other

13:17

things, the Assistant Secretary to the

13:19

Treasury for Terrorist financing the first

13:21

person in that role back in

13:23

two thousand and four when the

13:25

Us was among other things looking

13:27

for Saddam Hussein's assets in the

13:29

immediate aftermath of the Iraq War.

13:31

Tell us a little bit about

13:33

such job which was newly created

13:35

when heated. Who. Mike What happened

13:37

after Nine Eleven was a mandate

13:39

to the Us Treasury Department to

13:42

use it's authorities. It's information is

13:44

suasion around the world to make

13:46

it harder, costlier, and riskier for

13:48

America's enemies to. Raise. And

13:50

move money around the world first and

13:52

foremost with Al Qaeda and terrorist groups,

13:54

but very quickly moving to other. Nefarious.

13:57

Actors: Rogue regimes, proliferators,

14:00

And over time, that work expanded

14:03

to looking at how nation

14:05

states and non-state networks

14:07

were trying to leverage

14:10

the financial system and evade those

14:12

sanctions. And how have things in

14:14

this sanctions world in the sort

14:16

of approach to trying to identify

14:18

and interrupt financing for America's enemies,

14:20

how has it changed since then?

14:23

The sanctions themselves have grown more

14:25

complicated in both their nature and

14:28

scope. So more things

14:30

are sanctioned, more activities fall

14:32

under the purview of sanctions, and

14:35

more types of sanctions are implicated.

14:38

Sectoral sanctions, debt and equity, services,

14:41

export controls that are much more

14:43

exquisite in their type. And

14:46

so you just have a degree of complexity. And

14:48

of course, you've got more major

14:51

targets that are now subject to

14:53

sanctions, major economies like Russia, G20

14:55

economy, major sectors like

14:57

oil and energy, and a

14:59

whole range of actors to include

15:02

facilitators that form part of networks

15:04

that attempt to circumvent sanctions

15:07

and to work around the measures

15:09

that the US and Europe and

15:12

others are putting in place. So

15:14

you mentioned state actors, and specifically

15:16

Russia there. How does

15:18

it differ in thinking about these

15:20

sanctions regimes when you're focusing on

15:22

an individual or a non-state group

15:25

versus when you're focusing on an

15:27

entire country? What you had in

15:29

the 1990s and then

15:31

post 2001 was really a focus

15:33

on the use of targeted

15:36

sanctions on individuals, first and foremost

15:38

leaders, regime leaders, but then also

15:40

criminal leaders, terrorist leaders. And

15:43

so that's challenging in enforcement because

15:45

many times those individuals and entities don't have

15:48

bank accounts in the United States. They're

15:50

not shopping in London. Then they're

15:52

trying to hide their hand. That's

15:55

different from trying to affect

15:58

a national economy. that

16:00

has complicated sectors,

16:03

complicated interrelations and

16:05

dependencies with other economies. And

16:08

I think what's really interesting about

16:10

the current environment is you

16:13

have this admixture of sanctions

16:15

that are trying to go

16:17

after state entities, revenue, and

16:19

connectivity in the Russia context,

16:21

in the Venezuela context, in the Iranian

16:23

context. But it's

16:26

often through the targeting of individual

16:28

entities, companies, banks, brokers,

16:30

that you have the effectuation

16:33

of those sanctions regimes.

16:36

What should we be looking at

16:38

to determine whether sanctions are working

16:40

or not? What are the measures

16:42

of effectiveness? What would show them

16:44

to be effective or

16:46

ineffective? Well, this is the trillion dollar

16:48

question when it comes to sanctions. Even

16:51

when we ask this question, we

16:53

ask this in the maximalist form, which is

16:55

to say, are sanctions

16:58

working to affect

17:00

the maximalist intent

17:02

of the policy? In the case of Russia,

17:04

the question is, are

17:07

the sanctions deterring Russia from further

17:09

aggression? Are they

17:11

able to weaken Russian military might?

17:14

But it's also, we have to

17:16

ask ourselves, is that what the sanctions are intended to

17:18

do? And if they are, then you can look at

17:20

several things. In the case

17:22

of Russia, in particular, a major

17:25

goal of the sanctions is to decrease

17:27

the revenue that the Kremlin has

17:29

in order to wage war. Oil

17:31

revenue in 2023 was down for Russia by 23%, 25%. Second,

17:37

looking at whether or

17:39

not the target is

17:42

able to access the things that they are

17:45

presumably being denied. Are

17:47

they getting access to certain types

17:49

of technologies? And some of

17:51

that can be studied, some of it is anecdotal,

17:53

but that's very important. And then

17:56

finally, I think there's a qualitative dimension to

17:58

this. Is

18:00

this hurting? The. Target

18:02

psychologically and operationally.

18:06

It's. Often the case of those that are

18:08

subject to sanctions. Are. Desperate to

18:10

be taken off sanctions was why

18:13

because they are actually affected, their

18:15

actually impeding their ability to operate

18:17

and to do business and may

18:19

not be and maximise form. But

18:22

they are at a minimum a tool

18:24

of harassment. And en masse

18:26

was form. Disabling. To

18:29

a bank. A company.

18:32

A rich oligarch and even

18:34

and economy to operate the

18:36

way that they want efficiently

18:38

in a and open and

18:40

notorious way. And. So often

18:42

you can see how hard a

18:44

country or an individual or an

18:46

entity is trying to get off

18:48

the list. In my mind is

18:50

an indicator as to how well those sanctions

18:53

are operating. So if we

18:55

take some of those things in

18:57

together, what would your current assessment

18:59

be of how the sanctions on

19:02

Russia are functioning? Those measures in

19:04

todo. Are not changing

19:06

Russia's behavior? In. Terms

19:08

Of Aggression in Ukraine:

19:11

Treatment of dissidents.

19:14

Or. Other. Activities.

19:16

That these kinds of sanctions would

19:18

be intended to of fact. And.

19:21

So on that level you'd have to

19:23

say the sanctions are working quickly. A

19:25

nice. To. Change in

19:27

maximalist form. The behavior of

19:29

the Kremlin, Geopolitically.

19:32

A geo economically. Often.

19:34

Sanctions are judged by the question

19:36

of the day. One effect. As.

19:39

Opposed to the day three Hundred and

19:41

Sixty Five effect Which has to say.

19:43

There. Is. A. Longevity

19:46

and a continuum. To.

19:48

The application of sanctions and the

19:50

enforcement of sanctions and the evasion

19:53

of sanctions. And I think

19:55

in the long term. Assuming that

19:57

sanctions. Can. be enforced

19:59

and assuming that there aren't

20:01

too many backdoors created. Long-term,

20:04

this is not healthy for an

20:07

economy under this kind of sanctions

20:09

pressure, even if they're able

20:11

to work around, and even if they're able

20:14

to create shadow fleets. My

20:16

answer is they work, they're effective,

20:18

they're painful in the short

20:20

and long-term, but they may not

20:22

be effective enough to change the

20:24

strategic behavior that everyone

20:26

so desperately wants to affect.

20:29

Juan, that's all absolutely fascinating. Thank you very

20:31

much for joining us. No problem,

20:33

Michael. Thank you for having me. So,

20:40

Alice, Tom, my overall sense from what

20:42

we've heard so far is that this

20:44

is really a question of what we

20:47

realistically hope sanctions can or should be

20:50

achieving. What Juan was saying about the

20:52

maximalist view is the one that I

20:54

think gets taken quite often. If sanctions

20:56

are so effective, why is Putin able

20:59

to wage the war at all? That

21:02

seems to some extent like a

21:04

pretty unfair high bar, which perhaps

21:06

nobody should have thought was possible.

21:08

If you're taking the more reasonable

21:10

modest approach, that the sanctions can still

21:12

be used to grade the economic capabilities

21:15

of an opponent, whether that's a terrorist

21:17

group or whether it's the Russian state,

21:19

this sort of death by a thousand

21:21

cuts approach, then you have to concede

21:23

that there'll always be a sort of

21:26

whack-a-mole going on. These loopholes will pop

21:28

up, people will try and close them,

21:30

the sanctions will go on. The question

21:32

that naturally stems from that, I think,

21:34

is whether the sanctions, as they're currently

21:37

employed, even meet that more modest

21:39

goal. Yeah, I agree. I liked

21:41

his point on the slightly more subtle goals

21:43

of sanctions. Obviously, they haven't stopped the war,

21:45

but that doesn't mean that there is no

21:47

purpose to them. I did think

21:49

that the sort of point he made at the end there

21:51

where he was saying, obviously, it's unhealthy

21:53

and very frustrating for a country to

21:56

be under these kinds of sanctions,

21:58

assuming that they are enforced. The

22:00

him that there are not enough back

22:02

to get around them I guess he

22:04

called the thirty Assume these things in

22:06

this specific example. We've heard about all

22:08

kinds of stuff that tools through Stovall

22:10

media or wherever that rushers still managing

22:12

to engage with the global economy and

22:14

I guess to get the question you

22:16

posed all sanctions even with you more

22:18

modest gold I feel pretty certain that

22:21

we can say that Russia which that

22:23

it would not subject to the senses.

22:25

That said it does seem to have

22:27

quite a losses couple of rounds. One.

22:29

Thing that striking to me is

22:31

that two years ago there was

22:33

this outpouring of condemnation from west

22:35

and businesses, but actually a whole

22:37

lot of them are still reported

22:39

to be operating in rush hour

22:41

and to be clear, that's not

22:44

a legal. These industries are subject

22:46

to sanctions and some of these

22:48

firms to say that days scale

22:50

back their operations and they're reducing

22:52

the amount they're investing, but they

22:54

still helping to prop up Russia's

22:56

economy and the still paying taxes

22:58

to the regime. That are

23:00

we say. It's not an easy

23:02

issue. These firms have an obligation

23:04

to maximize shareholder value is paid.

23:07

Leave. Their assets, They might just

23:09

simply be handed over to Pitons,

23:11

Cronies, and some of these companies

23:13

that drugmakers are providing something that

23:15

is. Vital to the Russian

23:17

paypal. but I guess regardless of

23:19

how you feel about the morality

23:22

of this is certainly another explanation

23:24

for why Russia has held up

23:26

so well economically despite. The. West's

23:28

efforts around this. Next

23:30

we'll hear how sanctions are changing.

23:33

But. Says he wants to tell you that

23:35

this episode of Money Talks is free to

23:38

listen see but to join his every week

23:40

you will need to be a subscriber. Is

23:43

that we currently have a sale on

23:45

which has been extended to Sunday. The

23:48

Seventy Two Bombs. That means you to

23:50

take out an annual subscription to Economist

23:52

Podcasts, plus a half price which is

23:54

less than two dollars. Fifty Two pounds,

23:56

fifty a month. To. Sign up.

23:58

Go to a chemist. Com crash

24:01

on costs plus. Was. Just

24:03

Search Economists podcast. So

24:05

we've all got our thoughts on what's

24:07

been going wrong with the recent wave

24:09

of sanctions, but to find out how

24:11

they've evolved from where we can be

24:14

headed Next, I wanted to talk to

24:16

Nyc Moulder. He's a professor at Cornell

24:18

University and the author of a book,

24:20

the Economic Weapon about the Rise of

24:22

sanctions as a tool of war. Nick.

24:29

While consists of. Very. Nice to

24:31

be on mobile cosmic. So sanctions, as

24:33

we know them today, first rose to

24:35

prominence in the twentieth century between the

24:38

two World wars, and for anyone who's

24:40

been in a coma for last nine

24:42

years or so, they'll be very disappointed

24:44

to hear that they weren't a total

24:46

success in preventing the second mobile, but

24:49

being slightly less cynical. What are the

24:51

sorts of things that we'd say had

24:53

worked from the sanctions in that period,

24:55

and what didn't work. Sanctions.

24:57

Were thought to be a kind of

24:59

silver bullet in the early twentieth century

25:02

and hopefully they could substitute more entirely

25:04

in the long run. Mouth That did

25:06

actually works pretty well in the twenties.

25:08

so there are a number of now

25:10

is quip obscure forgotten little wars in

25:12

the Balkans in the nineteen twenties that

25:14

were stopped actually the sexes threats. One

25:16

of my favorite ones is called the

25:18

war of the Stray Dog which was

25:20

of border conflict between Greece and Bulgaria

25:22

that started with the border guard who

25:24

let his dog of the least cross

25:26

the border and. It of provoking exchange of

25:28

gunfire that escalated and was really going to

25:30

result in a salon warps with them. In

25:33

the League of Nations threatened to you sanctions

25:35

against Greece the Greek government very quickly realized

25:37

of this is not actually something we want

25:39

to do and sanctioned next Health. So

25:43

bringing things to present day, my

25:45

colleague Carrion has been looking at

25:47

the reality than lot of middle

25:50

Powers as sort of growing group

25:52

of lousy middle income countries outside

25:54

the Western world are providing opportunities

25:56

to sort. Of blunt, the effects

25:58

of sanctions is. The parallel for

26:00

this in the sort of historical work that

26:03

you've done. Definitely. Countries that

26:05

were under economic pressure historically have

26:07

looked to Neutrals to find ways

26:09

out for sauce. If she were

26:11

a neutral country, a major economic

26:13

war in a globalized economy, then

26:15

never British to really big games

26:17

and I think that that's what

26:19

we see Sunday and the problem

26:21

is is anything bigger. It's because

26:23

at the time when this was

26:25

done with were Wonderbra in Europe

26:27

for example, you can just another

26:30

and Sweden Switzerland have acted as

26:32

conduits for German trade. But today.

26:34

We has dozens of countries actually that

26:36

are performing this function for Russia, Us

26:38

and we simply have three times as

26:40

many states where there's way more sovereign

26:42

states in the world today. So that

26:44

means that even if you have a

26:46

pretty small economy like say, Kyrgyzstan, you

26:48

could still make quite a difference in

26:50

aggregate is there are several countries doing

26:52

that of the same time and it

26:54

the old shoes to become conduits and

26:56

routes for a trade diversions done. It

26:58

could add up to a pretty significant

27:00

economic relief and I think that's what

27:02

we've really seen that. With Russian and Us

27:04

two years. Right? And I think

27:06

a lot of policymakers have been disappointed

27:09

that the sanctions against Russia haven't made

27:11

more in the difference and partly because

27:13

of that has been a post by

27:15

some to get further. including the idea

27:17

of expropriating Russian assets held abroad or

27:19

even just being come on, those assets.

27:21

What? He make it that. Some.

27:23

The last few months has been

27:25

a big push by the Us

27:27

to make arguments with the confiscation

27:30

Us frozen Russian reserves. Most of

27:32

those are held in the European

27:34

Union and actually particularly in Belgium

27:36

and France which together hold about

27:38

two hundred and ten billion Euros

27:40

To that's on the order of

27:42

two hundred and forty two hundred

27:44

fifty billion dollars to serious amount

27:46

of money, and this has to

27:48

be coordinated by that she seven,

27:50

and the Europeans have been much

27:52

more reluctant to engage. In and I

27:54

think that this. is tied to

27:56

a much broader question which is western

27:59

support for ukraine The

28:01

US hasn't actually made clear moves

28:03

until the end of last year

28:05

to push for confiscation. And now, of course,

28:07

the political situation is much tenser, entering an

28:10

election year. The Republicans are holding up Ukraine

28:12

aid. So I think you have to understand

28:14

it against the backdrop of that increasing anxiety

28:16

that there might not be an easy

28:19

road towards securing more funding for Ukraine in

28:21

the long run. And this

28:24

is also where the Europeans are a bit more reluctant because they

28:26

have, of course, just approved a large package

28:28

for the next three years. So they're

28:30

under less pressure to do so. I

28:33

would still, at the moment, support the

28:35

option that's been put forward by the

28:38

EU itself, which is to

28:40

skim off the profits that are

28:42

accruing to the frozen Russian assets, and

28:45

then give those to Ukraine every single year. And

28:48

I think the best way to think about it is just in

28:50

a sort of personal finance way. Would

28:52

you rather get one big lump sum

28:54

when you face an uncertain financial future,

28:56

or would you prefer to have a

28:58

steady stream of payments for many, many

29:01

years into the future? And I think given

29:03

the uncertainty, it's in Ukraine's best interest

29:05

in the long run too, that

29:07

they get a permanent boost to the funding and

29:09

treat these frozen assets as their own sovereign wealth

29:11

fund, so to speak. They can spend the income

29:13

and use it to supplement their budget every year.

29:15

But they shouldn't touch the principle because as long

29:17

as you don't do that, you keep getting all

29:20

this income. Now, Brad Sasser, the Council on Foreign

29:22

Relations has done some really good calculations over the

29:24

last five years. You've done a lot of research

29:26

on the current interest rates of 5% on a

29:28

stock of about $200 billion. You should at least

29:30

be able to get $10 billion a year. So

29:33

on the surface of it, it sounds like

29:35

there's a pretty good strategy. You freeze Russian

29:37

assets, you use the interest from those assets

29:39

in order to finance part of Ukraine's defense.

29:42

But there's no precedent for this. Could there be any

29:44

sort of backlash? There's been a

29:46

lot of concern over the effect it would

29:48

have on the dollar and also the euro

29:51

as reserve currencies. I actually think that's probably

29:53

a bit overstated. Those Currencies

29:55

will continue to be attractive or moderately attractive

29:57

in the case of the Euro. As

30:00

reserve currencies regardless of what happens. But

30:03

what I do think is it is

30:05

a great blow to western claims to

30:07

be playing by the rules because there

30:09

aren't x C rules at the moment

30:12

that allow this in a very clear

30:14

can were at least there hasn't been

30:16

any case of is happening and of

30:19

course it's you make this a precedent

30:21

that for aggressive war or invasion of

30:23

other countries stirred countries have the rights

30:26

to expropriate the assets of the aggressors.

30:28

That could of course be. Applied and

30:30

of sorts of cases. So this is

30:32

a thought experiment. Imagine what would have

30:35

happened in two thousand and three when

30:37

coldest of the willing invade Iraq which

30:39

is not a legal boards and then

30:41

in the and China had said okay

30:44

well we're taking all the the property

30:46

of Western countries within our territory as

30:48

punishment for Western aggression against Iraqi sovereignty.

30:50

Not that's a sect of the same

30:53

kind of principle. None of that happened

30:55

because there's no Western sovereign assets, but

30:57

you already starting to see that Russia

30:59

as treating. West of Prize

31:01

Investments as responsible for Western government

31:04

action, South's I think as we

31:06

continue with the source of measures

31:08

were real, said risk of blurring

31:10

the sinks in between public and

31:12

private properties. And that has really

31:14

big implications in Asia. As it's

31:16

not just because Asia has some

31:19

of the world's largest foreign exchange

31:21

stockpiles, really large net overseas assets,

31:23

right? Almost all of it is

31:25

private. But if we started to

31:27

treat. Chinese. Investments abroad as

31:29

somehow tied to that the Chinese government. There's

31:31

a really real risk that it's i'm from

31:33

China will say okay, box your president has

31:36

been in. Our economy is also tied to

31:38

your governments and will treated as such. So

31:40

I think this is really supercell to go

31:42

down. And that's not really clear. Once you

31:44

get on, its where it stops. Okay,

31:46

So we usually discuss sanctions

31:48

and these policies as a

31:50

form of financial weaponry. It's

31:52

but teasing as possible to

31:54

slip this around other ways

31:56

to incentivize countries to work

31:58

with sanctions is a carrot

32:00

rather than a steak. Anything

32:02

more than just the threat

32:04

of punishment for the people

32:06

violating them. Yeah. I I think

32:09

so soaks. How do you get

32:11

those countries on board and what

32:13

can you offer them that they

32:15

need are they want in return

32:17

for them complying and ceasing trade

32:19

or reducing significantly trade with Russia.

32:21

So this involves compromise and it's

32:23

a carrot and stick kind of

32:25

things. but it seems me really

32:27

important and you can't just rely

32:29

on the threat of punishment and

32:31

at some point the was reading

32:33

something about okay what can we

32:35

positive be offer these countries as

32:37

well. So I think we can

32:39

learn something from to In which is

32:42

the China has acquired most of it's

32:44

influence by the precision of goods and

32:46

money, not by depriving other countries of

32:48

resources the other stuff of the west

32:50

can do I think is to tie

32:52

this much more. Two other calls and

32:55

it wants to work on debt relief

32:57

fried for in Definitely with Reds going

32:59

up a big global south set prices

33:01

and then finally I think doing something

33:03

which only the global north could do

33:05

which is to provide real aid in.

33:08

Climate Change mitigation and of noble

33:10

energy transitions and I think to

33:12

Streets of. Nyc.

33:16

Thank you very much for making the time to talk to

33:18

us! My Pleasure Mike! They're very much for a real. So.

33:25

Alice Tom after everything you've heard, do

33:27

you think sanctions are a tool that

33:29

just needs a little bit of sharpening

33:32

or their bets are off? Retired back

33:34

to the policy tool shed altogether I

33:36

sort of assailant saying the suffix helpful.

33:39

Eight days off and time in which

33:41

sanctions really were a success at not

33:43

chest depleting countries where need saw providing

33:46

to terrorists in the future but actually

33:48

stopping a war I lost a sample

33:50

of the worth the stray dogs. It

33:53

did make me wonder whether. he

33:55

day because sanctions also commonplace now

33:57

and so did everyone knows that

33:59

if you start a conflict that America

34:01

doesn't think that you should be, you'll sort

34:04

of definitely be subject to sanctions probably pretty

34:06

quickly, whether you wouldn't even get to the

34:08

point that Greece and Bulgaria got to in

34:10

that conflict where they had escaped things to

34:13

the point that it might become a full

34:15

scale war and then the threat of these

34:17

sanctions talks them down. I wonder whether now

34:20

you just never would even get to the

34:22

escalation point. As in they

34:24

probably do work as a deterrent now

34:26

because they are so commonly sort of

34:29

understood and widely applied. And

34:31

I do think that as a result, even

34:33

if it's becoming potentially harder to enforce and

34:35

harder to sort of police loopholes that people

34:37

use to get around sanctions, maybe again, because

34:39

people have become sort of more familiar with

34:41

them as a tool, I'm certain there still

34:44

is some sort of residual value in using

34:46

them and the fact that they exist. And

34:48

I think that, you know, with the way

34:50

the world is changing, it used to be

34:52

that sort of America could basically impose these

34:54

things unilaterally. And that certainly is not the

34:57

case anymore and definitely not with the case

34:59

in Russia. So there are

35:01

definitely things that could be done to sort of

35:03

make them more effective, like building a sort of

35:05

better network of countries that are willing to enforce

35:07

these kinds of measures. So yeah, I think probably

35:10

they should be sharpened, but I definitely wouldn't been

35:12

then. Yeah, I agree with that.

35:14

I don't think the message here is that

35:16

they should be retired completely. I mean, this

35:18

goes back to what Juan was saying

35:20

earlier, but even if sanctions haven't crippled Putin's

35:23

regime, that doesn't mean they haven't been a

35:25

sensible thing to do to raise the cost

35:27

of its actions. And also, I just think

35:30

it would feel odd for the West to

35:32

continue trading as usual with Russia and pretending

35:34

that nothing's going on. But I

35:37

think we are seeing that sanctions

35:39

are simply not a substitute for

35:41

the most important form of support

35:43

that the West needs to give to Ukraine, which

35:45

is more aid and more military

35:48

support. Yeah, I think all

35:50

of this conversation just underlines the

35:52

reality that the world we live

35:54

in has changed a lot. I

35:56

was thinking about this relative

35:58

to the sanctions. on Iraq

36:00

that were quite a big talking point when we

36:03

were kids, the ones that were put in place

36:05

during and after the Gulf War and which

36:07

continued on for a long time. The consensus

36:10

with those wasn't just that they worked but

36:12

that they worked so well that they were

36:14

enormously economically damaging and there was you know

36:16

huge concern over the impact that they had

36:18

on the civilian population and they

36:20

did seriously disrupt Iraq's ability to

36:22

rearm with especially dangerous weapons and

36:25

I think that's broadly a consensus

36:27

but since that period since about

36:29

1990 the G7

36:31

has gone from something like 46% of

36:33

global GDP adjusted

36:35

for purchasing power to about

36:37

30% today but naturally these

36:40

tools used by that sort of

36:42

group of countries are likely to

36:44

become considerably less effective over time

36:46

unless you can bring in a

36:49

much larger and broader group of

36:51

participants. You can't do sanctions on

36:53

the high-tech things without the participation

36:55

of a lot of countries in

36:57

East Asia. The banking and financial

36:59

systems of dozens of other countries

37:01

are inordinately larger than they were back

37:03

then and I think to that one

37:06

of the concerning things that you hear

37:08

a lot from people in a lot

37:10

of different countries in the part of

37:12

the world I live in is that

37:14

the Western world, America in particular, makes

37:16

demands and doesn't offer anything in return.

37:19

It's all stick and no carrot whether

37:21

that's on sanctions or any number of

37:23

other things, trade, the environment, that doesn't

37:25

mean the West can't do anything but

37:27

it does really raise the importance of

37:29

reaching out to countries that don't have

37:31

the same approach and don't have the

37:33

same instincts. We do probably need to

37:35

think a lot more about how you

37:37

bring along a broader group of countries

37:39

to an agreement on these issues. It

37:42

will as an aside be very very

37:44

interesting to see the developments in the

37:47

next few weeks and months on what

37:49

Nick mentioned there the prospect of using

37:51

expropriation of Russian asset income to fund

37:53

Ukrainian military spending which I think is

37:55

a sort of very neat way of

37:58

tying this thread back together. of saying

38:00

let's find a version of sanctions that

38:03

might work and let's use the money

38:05

that that actually produces to fund the

38:07

actual material side that really matters here

38:09

as Tom mentioned. Yeah I thought it

38:11

was interesting what Nick was saying about how some

38:13

of the things that the West might want to

38:15

do with Russia assets like selling them off or

38:18

using the income to fund Ukraine, that if it

38:20

does that now it might not sort of be

38:22

playing by the rules and I can help but

38:24

think well maybe the rules will be

38:26

slightly updated after this to try and make those

38:28

things possible. Yeah this feels like one of those

38:30

situations where the sort of pages of the rulebook

38:32

are being, you know, there's a lot of wet

38:35

ink on them at the time when the sanctions

38:37

are actually brought in. Right. I think

38:39

that's about all we've got time for except for

38:41

our stats of the week. Who would like

38:43

to go first? I'll go. My set of

38:45

the week is 15,500 and that is the

38:47

number of golf courses that

38:53

exist in America which is a huge

38:55

number. The thing that I thought was

38:57

so interesting about this is that it

38:59

is in fact more than the number of

39:02

outlets that McDonald's has. There are

39:04

about 13,500 McDonald's outlets in the US and

39:06

15,500 golf courses which I found completely baffling.

39:12

Who do Americans love golf more than

39:15

they love big macs? I guess a

39:18

McDonald's is more efficient right? It's like if

39:20

I'm a good McDonald's I can get like

39:22

thousands of people through there an hour which

39:25

I'm not a golfer personally but that sounds rubbish

39:27

on a golf course. Well

39:30

my stat of the week is 6.6 billion

39:34

dollars Australian dollars specifically and

39:36

that is the additional

39:38

contribution to my home

39:41

country's first quarter GDP

39:44

flowing from the fact that 2024 is

39:46

a leap year and therefore has

39:48

an extra day in February. This

39:50

comes from a new research note

39:52

from KPMG which reckons that the

39:55

bonus GDP will be enough for

39:57

the country to just avoid a

39:59

technical session. So Australia

40:02

being the lucky country once again. A

40:04

modest proposal. Why don't we do one

40:06

every year? And then we'll have loads

40:08

of GDP. We should have a leap

40:10

day in every month every year. Or

40:13

any time we fear a recession. You

40:15

call leap year. Yeah, please don't email in

40:18

to tell me why that's not true.

40:20

I know why it's not true. To save

40:22

yourself a very tedious exchange. I know that

40:24

that is not correct. Surely this is

40:26

not actually a way to avoid recession. Leap

40:28

year adjusted GDP figures maybe will be that actually.

40:32

It feels a lot like leap year adjusting is

40:34

something they should be doing anyway. So

40:39

my start of the week is 17th

40:42

or potentially 6th

40:44

if you're being very charitable. This

40:47

is based on the news that

40:49

the UK is trying to court

40:51

Sheen, the Chinese e-commerce giant to

40:53

list in London. For those who've

40:55

been listening to podcasts for a

40:57

while and paying any attention to

41:00

the UK, the UK stock market

41:02

has not done amazingly well. London

41:04

listings have not been amazingly popular.

41:06

So if Sheen listed based on

41:09

its one time $100 billion valuation,

41:11

it would be the sixth largest

41:13

company listed on the LLC by

41:15

my calculation. Or if it

41:18

listed on its slightly more realistic reported

41:20

$45 billion valuation, a

41:22

couple of publications have suggested that that's

41:24

roughly the level that shares are being

41:26

sold for in private. Then it would

41:28

be the 17th largest. Yeah, I'm not

41:31

sure where it would rank in the US, but

41:33

it would be a lot lower than that because

41:35

the UK just does not have as many valuable

41:37

companies as it wants used to. See, this is

41:39

another argument for Australia having a leap day every

41:41

month because if you saved up all of that

41:44

money, you could buy Sheen by the end of

41:46

the year. This is

41:48

not how any of this works. It's

41:50

free money. There's no such thing as a

41:52

free leap day. And

41:55

with that, I think all there is

41:57

left is to thank Fonz or else

42:00

and Nick Mulder for joining us. And

42:02

thank you for listening to Money Talks. You

42:05

can always write to us at

42:07

podcasts at economist.com. Today's

42:09

show was produced by Dan Asher, Marie

42:11

Keyworth and Kevin Caners. Our

42:14

sound engineer is Ting Li Lim. And

42:16

the executive producer is Hannah Marino. I'm

42:19

Mike Bird. I'm Alice Forwood. I'm

42:21

Tom Lee Devlin. And this

42:23

is The Economist.