Russian Sanctions: Threatening but Ineffective

It is naive to think that economic sanctions can end wars. However, many important historical figures, like Woodrow Wilson (the 28th president of the United States) have believed in this misconception.

This misconception lives on, with figures like Annalena Baerbock echoing similar rhetoric.

The German Foreign Minister is outraged by the so-called elections that took place in Russia over the weekend, which resulted in Putin's reelection.

Understandably, she wants to support Ukraine. At the EU foreign ministers meeting in Brussels earlier this week, she announced the 14th package of sanctions against Russia:

At the meeting, the ministers agreed to continue economic sanctions and to introduce punishments against the Russian judiciary for their human rights violations.

However, representatives of the Russian legal system won’t feel the effect of these consequences—not unless they plan to set foot in the West. As for the economic sanctions, well, they have proven ineffective in the multipolar world we live in, where no group of states alone possesses escalatory dominance.

Agathe Demarais is an economist and senior European Council on Foreign Relations policy fellow. In her book "Backfire: How Sanctions Reshape the World Against U.S. Interests," she says that the belief in economic sanctions has not served the West well and that there has been a "sanctions overkill" in recent years.

Agathe Demarais is correct for four key reasons:

1. The world's most significant resource powerhouse is constantly finding new buyers.

Those in the West who believed that sanctions could bring the world's most extensive resource power to its knees were mistaken. Russia remains economically stable—even three years into the Ukraine war. Western sanctions had short-term effects, which were quickly offset by relocating supply chains and establishing a wartime economy. Since the beginning of the war, Russia's economy has grown faster than Germany's.

New partners: Russia has found political and economic partners in China, India and Turkey. These partners are willing to take increased risks and accept high stakes. As the past three years have shown, the non-Western world is interested in the re-emergence of a power duopoly.

2. Exclusion from the Western payment system Swift drove Russia into the arms of the Chinese.

Ten Russian and four Belarusian banks are now excluded from the Swift payment system. These institutions can no longer process international payments, including buying foreign currency or transferring assets abroad.

The EU is proud: The European Council writes on its website that any alternative to Swift would mean going back to the time "when every transaction was confirmed by telephone and fax.”

Chinese Alternative: China's CIPS payment system utilizes advanced technology and includes numerous Russian banks, ensuring uninterrupted payment flows to and from Russia.

Boom in money transfers: According to data from the Chinese central bank, the total number of transactions processed through CIPS rose 21.5 percent year-on-year to 96.7 trillion yuan ($14.02 trillion) in 2022. There was also a significant increase in money transfers in 2023.

3. Sanctions drive inflation.

Negative consequences for Europe: The oil price cap and embargo against Russia (since December 5, 2022) have not resulted in Russia's inability to sell its energy but rather a European need to increase energy imports.

In turn, the sanctions placed on Russian oil have been a primary driver of inflation in Europe (France 2023: 5.7 percent; Germany 2023: 6 percent; Spain 2023: 3.5 percent).

Because: Many of the country's biggest customers, including the United Arab Emirates and Turkey, import cheap fuel for domestic use while exporting their own, more expensive, non-embargoed oil.

Domino effect: Central banks are compelled to address rising inflation by increasing interest rates. This has an adverse effect on the real estate sector and new construction. Consequently, investments are becoming more challenging, contributing to a capital outflow from Germany.

4. Asset Seizure: A pattern without value

Seizing over €200 billion in Russian assets may impress the public. Yet, it's unlikely to deter Russian oligarchs who understand the risky legal nature of complete expropriation by Western countries. Consequently, these assets are not lost; they are merely frozen.

The counter-reaction: Other states—China, Saudi Arabia, Brazil and South Africa, might also consider seizing American and German assets abroad. Nobody in Washington, Wall Street, Frankfurt or London is interested in that. Everyone knows that confiscating assets will lead to a backlash.

Disagreement: While U.S. Treasury Secretary Janet Yellen calls for profits from Russian assets to be redirected to Ukraine, the EU is divided. While Ursula von der Leyen and Christian Lindner see such a move as a "strong signal," the plan is highly controversial among experts. It would be unprecedented, a violation of international law and carry unforeseeable consequences for the financial markets.

Payback time: The money will eventually have to be returned to Russia. A miscalculation with Russian assets would have consequences additionally, the West has a responsibility to Russian investors to ensure that their assets are not drained.

Conclusion: French sanctions expert Agathe Demarais recommends strategic equanimity, emphasizing the importance of the West acknowledging the economic repercussions of its sanctions to safeguard both its economic interests and political credibility.

Chancellor Scholz is frustrated by the passionate debates among his citizens, parliamentarians and even his own foreign minister about the war in Ukraine. Despite his previous firm stance on the Taurus cruise missiles ("This is a line that I, as chancellor, do not intend to cross"), he is once again facing questions about their delivery.

Yesterday, at the opening of the two-day "Europe 2024" conference, he dismissed the ongoing discussion in Germany as "embarrassing" and incomprehensible to those outside the country.

Moreover, Scholz appears to be personally angered by SPD (Social Democratic Party) parliamentary leader Rolf Mützenich's suggestion to "freeze" the conflict to speed up its resolution:

Once again, the Chancellor demonstrates his lack of communication skills. Instead of assuming a nurturing role, he prefers a stern approach– chastising rather than guiding the public.

The Chancellor must adopt role-appropriate behavior— a dignified and empathetic demeanor would serve him well. By definition, the Chancellor is the people's chief servant, not their superior.

• Billionaire Reinhold Würth warns his employees about the rise of the AfD (Alternative for Germany) via letter.

• District Administrator Wolfgang Spelthahn wants to make Düren in North Rhine-Westphalia a pioneer in the field of hydrogen.

• Has Aaron Taylor-Johnson been chosen as the successor to 007?

Straight Talk: Screw manufacturer and billionaire Reinhold Würth warns his 25,000 employees in Germany about the rise of the AfD.

For the 89-year-old, the recent protests against the AfD clearly indicate that citizens will resist changing the "fundamental political system in Germany."

Given Germany's current landscape featuring an expanding welfare state, a healthcare system comparable to Europe's standards, a high savings rate and a robust democracy, Würth poses this inquiry to his employees:

Why does the screw king from Baden-Wuerttemberg think it is nonsense to equate the rise of the AfD with the times of the Weimar Republic or even with Hitler's rise to power? The Pioneer knows, and you can read it in German here.

AfD Warning Letter written by Reinhold Würth

Düren, located on the edge of the Eifel region of North Rhine-Westphalia, was almost completely destroyed during World War II. After bombing raids in November 1944, only 13 houses remained standing in the town of 50,000. But the people of Düren rolled up their sleeves and rebuilt their city.

Wolfgang Spelthahn, the current district administrator of Düren, shares this resilience. He has a vision for his region, which was largely shaped by lignite mining in the post-war era. Spelthahn's plan for the future is hydrogen.

In the Pioneer Podcast, the district administrator of Düren explains his vision in detail:

The 10,000 people currently employed in lignite mining in the Düren district are expected to find new opportunities with the switch to hydrogen, which will be produced and consumed locally.

Listen to today’s Pioneer Podcast for more details on how Düren plans on achieving this.

High expectations: Audi and its new CEO, Gernot Döllner, are carrying the Volkswagen Group's hopes for electric vehicle sales. My colleague Claudia Scholz was on site in Ingolstadt, where Döllner presented Audi’s financial figures and unveiled the new electric SUV –the Q6 e-tron. After more than two years of delay, the first new electric model of a major product is now on the market.

Audi still generates most of its sales with combustion engines. Last year, only about ten percent of the 1.9 million cars sold were fully electric. Nevertheless, sales of electric vehicles increased by 51 percent.

Döllner emphasized that the company's goal is to sell as many electric vehicles as internal combustion vehicles by the end of the decade—and to do so profitably. Over the next few years, €29.5 billion will be invested in developing electric cars and digitalization.

Declining profitability: The operating margin fell from 12 percent to nine percent—a long way from the 14 percent target. Last year, total revenues reached about €70 billion, an increase of 13 percent. However, profits shrank to €6.3 billion due to the high prices of securing raw materials.

The bottom line: Audi CEOs change faster than the car models. It would be easier for the company and its employees if it were the other way around.

Harald Christ, formerly a longstanding member of the SPD (Social Democratic Party) and later serving as treasurer of the FDP (Free Democratic Party), now works as an investor and consultant. His most recent initiative involves organizing a benefit opera gala to express solidarity with Ukraine.

The event, which will raise funds for the #WeAreAllUkrainians initiative, will take place on April 19 at Berlin's Konzerthaus on Gendarmenmarkt. Ursula von der Leyen and the Governing Mayor of Berlin, Kai Wegner, will be in attendence.

During his visit to our media ship, the Pioneer One, Harald Christ summarized the beneficiaries of the gala as follows:

"Shaken, not Stirred”: Since 1962, the James Bond films have captivated millions and grossed billions of dollars.

Big shoes to fill: Six different actors have portrayed James Bond (including Sean Connery, Roger Moore, Pierce Brosnan and most recently Daniel Craig), each bringing their own flair to the charming agent in the stylish tuxedo. But with the role comes great responsibility, making the selection of the next James Bond a carefully considered decision.

"My name is Bond, James Bond": According to the British tabloid The Sun, Aaron Taylor-Johnson may soon have the opportunity to introduce himself on the big screen with this iconic line. An official contract for the potential 007 successor has yet to be confirmed.

Convincing the skeptics: Aaron Taylor-Johnson continues to face doubts from critics, particularly among 007 fans who feel he lacks charisma. Yet, similar doubts surrounded the previous Bond, Daniel Craig, whose selection ultimately proved successful under producer Barbara Broccoli.

Support: After his last movie, Daniel Craig shared some essential tips on The Late Late Show with James Corden - advice that Aaron Taylor-Johnson could certainly use:

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