Sanctions regime against Russia completely fails – Stanford researcher Ferguson

The sanctions imposed against Russia for its war against Ukraine have proven ineffective, and in the absence of an adequate response from Europe, the scenario of Russia's victory now looks more likely than its collapse, although it is also associated with numerous casualties among the Russian military, believes Niall Ferguson, a senior researcher at the Hoover Institution at Stanford University.

He said at the 20th annual YES conference, recently organized by the Pinchuk Foundation in Kyiv, that at the beginning of the war they had been told economic sanctions would bring the Russian economy to its knees. He recalled that the Wall Street Journal had promised an 8 on the Richter scale but added that he had never believed it. He stated that the sanctions regime had been a complete failure, partly because no one on either side of the Atlantic had been serious about cutting off supplies.

Ferguson added that it is necessary to recognize that the United States is no longer helping Ukraine, because some people still do not realize this reality.

The researcher stated that the supplies and financial assistance had stopped and that everything coming from the United States from that point on had to be paid for. He added that this meant the war was now Europe’s war.

He emphasized that Russia will not lose the war in Ukraine if it is supported by China, because China is the largest manufacturing power in the world and already surpasses the United States and, by a significant margin, Europe.

Ferguson expressed the opinion that even without China, Europe, with its current defense spending, finds it difficult to confront Russia, because Russia's military spending is almost the same as that of the EU and the UK, if measured by purchasing power parity (PPP).

These facts should sober us all who want Ukraine to win, said the senior fellow at Stanford University's Hoover Institution.

He believes that Russia has not only not suffered from sanctions, but, on the contrary, has been stimulated economically by the war, and this is almost a textbook example of how the war economy works. In support of his words, he cited the increase in the volume of production in Russia of drones, tanks, short-range air defense systems, artillery - and all this compared to a base that was much higher than that of Ukraine and Europe.

According to Ferguson, evidence of overheating and decline in other, non-military sectors of the Russian economy is inherent in the war economy, but does not indicate the proximity of its collapse. For example, in residential real estate, there is an increase in non-performing loans, but anyone who thinks that this will lead to an economic crisis is smoking some very strong substance, the researcher said.

He added that Russia’s military spending has roughly doubled during the war and is now over 7% of GDP, but its budget deficit is 2.4% of GDP and its debt is only 14% of GDP, putting it in a fiscally stronger position than almost every EU member state. According to Ferguson, a third of its revenue comes from oil and gas, which continue to be sold on world markets despite all kinds of sanctions, inflation is at 8.7%, but real wages have increased by 22% since the start of the war, disposable income is up 48%, retail sales are up 28%, unemployment is non-existent and consumer sentiment is at an all-time high.

The researcher accused European states of great hypocrisy because they continue to export their products to Russia, but through third countries, such as Kyrgyzstan.

In support of his words, he cited changes in United States policy with the election of President Donald Trump, the leadership of populist parties in the United Kingdom and France, and the proximity to the leadership in Germany.

The researcher also pointed to serious debt problems in almost all European economies, with the exception of Germany, which are exacerbated by rising long-term interest rates. The researcher of the Hoover Institution at Stanford University said that most G7 members were now violating Adam Ferguson's law, which states that if a country spends more on interest payments than on defense, it will soon face problems with its foreign policy.

He added to his pessimistic picture that Ukraine depends on the support of democracies, which are unstable, while Putin relies on the support of autocracies, which was confirmed in recent meetings in China.

Ferguson stressed that the key point he wanted to make in the discussion was that Europe needed to be able to compensate for the change in US policy because it had potentially huge resources. He noted that if one looked at the scale of the EU’s COVID assistance programs, they far exceeded what had been provided to Ukraine in terms of assistance so far. He added that it was absurd and crazy that Europe’s defense spending was equivalent to Russia’s spending on the PPP, given how much larger the EU economy was.

He welcomed the fact that over the past year, not least under pressure from President Trump, Europeans have committed to significantly increasing their defense budgets, but noted that the bad news is that these increased resources are not being transformed into the equipment that Ukraine urgently needs now.