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Putin: U.S. Trying To Punish Russia Will Actually Benefit Russian Democracy

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Russia’s economy is hurting at this point, the result of an increasing amount of sanctions from the United States and Europe over its actions in Ukraine. But Russian president Vladimir Putin’s response to the latest round of sanctions, announced Friday, shows just how hard he’s working to convince the Russian people to reject reality in favor of whatever he says it is.

President Barack Obama on Thursday previewed the fact that new measures would be coming against Russia, saying in a statement that the U.S. would “deepen and broaden sanctions in Russia’s financial, energy, and defense sectors.” Obama’s statement came a day after the European Union agreed to further restrict their economic ties with Russia as well. The sanctions would “increase Russia’s political isolation as well as the economic costs to Russia,” Obama promised, “especially in areas of importance to President Putin and those close to him.”

None of this has appeared to faze Putin, however, in remarks he gave after a meeting of the Shanghai Cooperation Organization on Friday. According to Russia Today, Putin said that “there is always an alternative” if a country or company “does not want to work with Russia.” He added that the sanctions meant “there are some things that are negative, but if we consider the problem in its totality, there is more positive than negative,” arguing that sanctions open up opportunities for Russia’s manufacturers.

The fact that the European Union was also increasing sanctions was also a good thing, as “the less our officials and corporate executives travel abroad and deal with current
affairs instead, the better,” Putin said. “The same applies to State Duma deputies who should speak to their voters more often,” he continued, using the term for members of Russia’s parliament.

Putin’s flip attitude belied the fact that new sanctions that the U.S. Treasury detailed on Friday live up to Obama’s threat, cutting off American citizens and companies from investing in Russia’s burgeoning natural gas and off-shore oil industry. Specifically, Americans are prohibited from “the provision, exportation, or reexportation, directly or indirectly, of goods, services (except for financial services), or technology in support of exploration or production for deepwater, Arctic offshore, or shale projects that have the potential to produce oil in the Russian Federation, or in maritime area claimed by the Russian Federation.” The amounts to a total ban on any activity at all related to Russia’s attempts to modernize and expand its ability to increase its oil and natural gas industry.

This can’t be good news for investors in Russia’s state-owned Gazprom, who were already reeling from a 41 percent drop in profits in the first quarter. Gazprom says that the fall is mostly due to the debt that Ukraine owes the company after talks to settle on a price for the gas Russia sells its neighbor stalled in June. And last month, the Guardian explained that higher interest rates in place to prop up the ruble are making it more expensive to pay debts, leaving Russian consumers forced to reign in spending, which in turn is providing another drag on the economy.

New sanctions were also placed on Sberbank, Russia’s largest bank by assets, and piling on to restrictions from earlier this summer on VTB Bank, Gazprombank, Bank of Moscow, VEB and Russian Agriculture Bank. The plan is, according to Reuters, to “tighten the restriction for all six financial institutions by barring U.S. persons, meaning individuals and companies, from dealing in their new debt with a maturity of more than 30 days.” While not as harsh as the rumored banning of Russia from the SWIFT financial transfer system, it’s still a major increase on the sanctions against Moscow.

The result hasn’t been good for the Russian economy at all. “The International Monetary Fund, which has said Russia is already in recession, expects Russia to grow by 0.2% this year,” the Guardian went on. “This is actually worse than it sounds. Russia is still a developing economy, with 18 million people below the poverty line (13% of the population). Putin, who is looking to run for president in 2018, wants Russia to grow like China, with its 7.5% growth rate, not France, which is flatlining.”

But it seems that Russia’s response so far has been to shrug and laugh off the West’s attempts to sanction them, though decided less so than the first round, when one Russian official said “In the U.S. I care about Tupac Shakur, Jackson Pollack, and Allen Ginsberg. I don’t need a visa to enjoy their works.” There have been a few attempts to place counter-sanctions on the West in response, including a ban on most food imports from the West. While the impact on European farmers has been severe enough to cause the E.U. to step in, overall the counter-sanctions haven’t had the same economic impact as those the West has placed on Moscow.

As Quartz also has noted, the threat of “asymmetric sanctions” that Russian prime minister Dimitri Medvedev promised in retaliation seem less focused on punishing the West, and more focused on Russians to buy Russian goods. “A Putin aide said Moscow will target non-agricultural items on which Europeans ‘are more dependent on Russia than Russia on them,'” Quartz wrote, which includes an import on European and American clothes and used cars. “But, contrary to the Kremlin’s rhetoric, those sectors are barely consequential to the West: Last year, the European Union only sold about $6 billion in clothes to Russia, according to official figures, and used cars are not even a line item in EU statistics.”

The contrast between Russia’s response and White House press secretary Josh Earnest’s description on Thursday when asked about the effect that sanctions have had so far is striking. “There are clear metrics by which we can evaluate the success of the sanctions regime that’s been put in place,” Earnest said. “We have seen the Russian Central Bank expend significant sums of money to try to prop up their currency. We have seen significant private capital flight from Russia; no longer do private investors consider Russia to be such a prime area for investment. We have seen international organizations downgrade their economic projections for Russia based principally on the further economic isolation of the country. So there’s a lot of ways to evaluate the impact that the sanctions are having.”

Despite the effect that the sanctions are having on the Russian economy, the United States says that it still hasn’t seen a response from Moscow that would justify pulling its punches. On Wednesday, Ukrainian president Petro Poroshenko said that the ceasefire between his government and Russian-backed separatists in the east of his country was holding and 70 percent of Russian troops that had crossed into Ukraine had retreat. In response, State Department deputy spokesperson Marie Harf said that it was still being confirmed whether that was the case. “It would be a good tiny first step,” she said.

Putin, for his part, is feigning confusion over why sanctions would still be levied following the ceasefire, even though it was the presence of Russian troops crossing into Ukraine that triggered them. “I can’t understand what these next sanction steps are about,” he said on Friday of the “quite odd” move from the European Union. “I have this seditious thought on my mind, that Ukraine itself is not a subject of interest, rather it is simply being used as a tool to undermine international relations,” Putin continued, even as his government continues to stifle the families of Russian soldiers killed in Ukraine.