Cut Russia’s Power Line

Over the past several months, Russia has been escalating its belligerent behavior towards its European neighbors. Russian-backed separatists have been shelling Ukrainian military positions, Russian bombers have increased their encroachment within the airspace over numerous European countries, and Russian hackers have even breached the White House’s computers and read the president’s emails.

As tensions continue to rise, Western powers are getting ready to impose a new round of sanctions to target Russia’s energy and financial sectors should Russian-backed insurgents seize more Ukrainian territory. However, the Russian economy is starting to show signs of equilibrium while the Ukrainian economy is suffering more and more.

Western sanctions along with sliding oil prices helped, for a while, to slow investment in Russia and slide its economy into a recession. In 2014, Russia suffered $150 billion in net capital outflow and Russia’s central bank is forecasting a loss of $100 billion this year. While Russia’s central bank sees sanctions staying well into 2018, Russian officials are not worried over new sanction threats, stating that the worst of Russia’s economic worries is over.

Are they right? Most likely.

Even though Russia’s central bank expects a 3.2 percent contraction of the Russian economy, Russia’s inflation rate has dropped by 1.1 percent from its April high of 16.9 percent. The central bank recently reduced its main interest rate and the ruble’s exchange rate has risen to approximately 54 to the dollar.

In contrast, the conflict between the Ukraine and Russian-backed separatists has wreaked havoc on Ukraine’s economy. The International Monetary Fund recently predicted that the Ukrainian economy would shrink by 9 percent and inflation will likely hit 46 percent. Industrial output has been slashed and their gross domestic product has been exponentially diminished. The production of steel, which is one of Ukraine’s largest exports, has dropped by 28 percent since the beginning of the year due to threats of rebel attacks, despite a ceasefire deal.

While the Ukrainian government is begging creditors to accept cuts in the value of their bond holdings, Russia is announcing a new strategic alliance between its state-owned gas company, Gazprom, and Royal Dutch Shell. This recent alliance is another in a long line of deals designed to increase Russia’s energy monopoly throughout Europe. The deal will include asset swaps, expansion into new European markets, and the establishment of a third process line at the liquefied natural gas plant on Sakhalin island.

This deal was also a crushing blow to the Ukrainian government considering Shell’s decision, last year, to suspend talks over shale gas exploration in eastern Ukraine. Additionally, Russia is planning to build a pipeline under the Black Sea to bypass Ukraine, which is a key export route for European gas.

Gazprom is under United States sanctions due to Russia’s actions in the Ukraine, but the European Union does not have similar sanctions against the energy giant. Furthermore, the continued growth of Russia’s energy influence throughout Europe will make it unlikely that we will ever see European sanctions over their belligerent behaviors.

Russia has utilized the manipulation of gas supplies to get its way in Europe several times in the past. In 2006, Russia reduced supplies to Ukraine leading to shortages in countries throughout Europe, including Italy and France. In 2009, Russia cut off gas flow through the Ukraine, which led to a complete shutdown of gas supplies to Southeastern Europe.

Western sanctions have shown their effects on the Russian economy, so a greater commitment is required by European nations. In addition to providing greater assistance to Ukraine, the U.S. needs to institute harsher energy sanctions. It is time for the EU to start engaging in energy sanctions and stop providing Russia control over the energy needs of the continent. Staving off further Russian aggression will only work if European powers stop providing them with continued means of control.