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The Kremlin Is Forcing Europe to Undermine Its Own Sanctions

by Philip Pilkington
14 July 2022 10:30 AM

A few days ago, I wrote a piece for UnHerd noting that last weekend, to little fanfare, Western sanctions against Russia started to collapse. What’s more, they started to collapse due to a clever intervention on the Kremlin’s part. The Russians said they would not be able to deliver much-needed natural gas to Europe in sufficient quantities unless the Canadians released a gas turbine that was being repaired there, and which is required to ensure the Nord Stream 1 pipeline is functional.

If Europe is unable to fill up its gas reserves this summer, the continent – and that includes Britain – will face crippling energy shortages this winter. It is difficult to overstate how bad this could be. For one, many people will freeze – especially in colder countries and regions. But in addition, whole economies will grind to a halt. That will mean less stuff is produced and distributed – and when less stuff is produced and distributed, but people still have money to spend, you get inflation.

Well actually it means extremely high inflation – or possibly even hyperinflation. Currently, inflation is running just north of 8% in Europe and 9% in the UK. We all know how painful this is. But I think that these numbers understate the impact on consumers. For the past few months, I have been missing my old personal budgeting targets by around 20%, despite having had the same amount of money budgeted as I did last year and buying the same things.

Now imagine what it would feel like if you doubled or even tripled that. Twenty to thirty per cent inflation is easily possible if European factories have to shut down, and energy prices go skyward. How would you like to see two-three times the decline in living standards you are already seeing? Now what if I told you that these living standards would take years to claw back? Could you live with this, just so that our leaders can posture ineffectively on Ukraine?

Okay, now factor in the lower, but still possible risk of hyperinflation. If prices started to spiral in this situation and the euro completely collapsed, society would fall apart. People would go hungry. Savings would be wiped out. Serious riots would break out. Governments would fall – possibly violently. Ask someone who has lived through a hyperinflation what it feels like. They will tell you that it is not simply uncomfortable; it is downright terrifying.

That should give you some idea of the risks. It should also alert you to how concerning it is that our leaders have led us to a place where we’re even contemplating the possibility.

Back to the Kremlin’s strategy to undermine sanctions. Early on, the Europeans realised they could not live without Russian energy imports, so they opened loopholes in the sanctions to allow them to continue importing. What they did not anticipate is that the process of distributing Russian energy might require parts that are made in the West. Since they did not think of this, they did not provide a carve out for these parts.

The Russians clearly noticed. They waited until summer when we need to refill our gas tanks, and they slowly choked off the supply. Then they pointed to the Nord Stream 1 pipeline and its lack of gas turbine, and shrugged their shoulders. The message was clear: if you want the gas, you’re going to have to violate the sanctions that you came up with only a few weeks ago.

Our leaders may not be the brightest bulbs, but they’re not completely crazy. So, they signed off on sending the turbine. The Russians then responded that the paperwork was a mess, and they could not guarantee the pipeline would restart supplying gas in time. Expect more legalistic back and forth.

It is clear what’s going on here: the Russians are using the issue to undermine Western sanctions. There are a few dimensions here. The first is legalistic. The West enacted the sanctions as law. Then when the gas turbine was requested, our leaders subtly undermined those laws. This creates a legal mess and makes the sanctions hard to enforce, due to the law itself becoming increasingly unclear.

The second dimension is symbolic. Laws are only credible when they are strictly followed. Think of the law against cannabis in the U.K. On the books, cannabis is a Class B drug with a maximum penalty of five years imprisonment for simple possession. Yet most major cities stink of cannabis. Why? Because the law is not enforced and so it is not taken seriously. Are the sanction laws credible after the turbine debacle? Not really. If I were a businessman that wanted to trade with Russia, I would now be talking to my lawyers about carve-outs.

The third dimension is fatigue. Defending sanctions that are damaging ourselves (while doing little to damage our adversary) takes a lot of energy. Not to put too fine a point on it, it requires a lot of lying. Telling really big lies is exhausting, even for politicians. It quickly becomes an embarrassment at elite dinner parties, for example. Now try defending these same sanctions while chatter builds as to whether you’ll even enforce them. At a certain point, you just have to throw in the towel.

All this would be funny if it weren’t so serious. Clearly our leaders have made some massive miscalculations to end up here. Historians and those who study international relations will be examining these for years to come. But right now, we have bigger problems. We need to keep the lights on this winter.

Will we? Hopefully, depending on how vindictive the Russians are feeling. That is now out of our control. Let us please never get to this point again.

Philip Pilkington is a macroeconomist and investment professional. You can subscribe to his Substack newsletter here.

Tags: EuropeGasRussia

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