Sanctions Aren't Enough to Stop Putin, and He Knows It

The European Union wants to tighten sanctions on Russia again, as renewed fighting in eastern Ukraine causes heavy casualties and raises fears that Russian-backed separatists will seize control of more territory.

The EU, in a statement issued today, said it saw "evidence of continued and growing support given to the separatists by Russia, which underlines Russia's responsibility" for the bloodshed. On Jan. 29, EU foreign ministers are expected to consider widening a list of Russians and separatist leaders facing visa bans and asset freezes.

No question, the situation is dire. Thirty people died and more than 100 were injured in the strategic port city of Mariupol in a Jan. 24 rocket attack that international observers said was launched from separatist-held territory. Insurgent supporters of Russian President Vladimir Putin have stepped up attacks along a more than 100-mile-long front, including places such as Mariupol that until now had largely been spared from fighting. The Ukrainian government says thousands of Russian troops and tanks are rolling into the country, and the Organization for Security and Co-operation in Europe says the separatists are preventing its observers from monitoring the border.

Alas, the sanctions being considered by the EU are unlikely to change any of this.

"If you really want to have an effect on the economy in Russia, you would need to ramp up sanctions dramatically, and nobody is prepared to do that," says Carsten Nickel, senior vice president of Teneo Intelligence in Berlin.

The EU is Russia's biggest trading partner, and Europe Inc. is already feeling the pinch as sanctions imposed last summer curbed exports to Russia and helped tip the Russian economy into recession. Getting all 28 EU nations to agree on much tougher sanctions would be extremely difficult, especially considering Europe's current economic difficulties. Indeed, the newly elected government in Greeceobjected today to the sanctions plan set for discussion on Jan. 29, saying it hadn't been consulted. That could throw a wrench into the works, since the plan would require a unanimous EU vote. (The U.S. doesn't face this dilemma; also, it doesn't do much trade with Russia.)

Putin knows all this. In fact, the current offensive in eastern Ukraine seems tailored to exploit the situation. If the separatists consolidate their positions now, they could then agree to a cease-fire allowing them to keep the territory they've gained. Under that scenario, the fighting would taper off by springtime. By mid-summer, when the EU and U.S. have to decide whether to renew the most onerous sanctions now in place against Russia, things would have been fairly calm for a few months—making it easier to argue that sanctions should be loosened or lifted. "Strategically, this is very smart," Nickel says.

The other dilemma for the West is that sanctions may have helped Putin more than they've hurt him, letting him position himself as a martyr and giving him a convenient scapegoat for Russia's worsening economy. That's the opinion of Mikhail Khodorkovsky, the former oil company chief who spent a decade in prison after challenging Putin's authority. In a Jan. 16 speech in Lithuania, Khodorkovsky saidKremlin propaganda had persuaded most Russians that Western sanctions were an unfair attack on their nation.

"We can confidently say that the sanctions have played their positive role," he said. However, maintaining long-term sanctions in their current form "looks questionable. " 

Matlack is a Paris correspondent for Bloomberg Businessweek.