Carlos Barria / Courtesy Reuters People stand in heavy rain near Shanghai's financial district, August 18, 2014.

Pointless Punishment

How the Sanctions on Russia Will Hurt Asia

The Obama administration has responded to increasing Russian aggression by stepping up its own efforts to inflict economic pain on Moscow and isolate it diplomatically. The United States and the European Union announced a new round of sanctions on July 29 that bar a number of Russian banks from U.S. and European capital markets, deny Russian energy companies sophisticated oil development technologies, and expand restrictions on Russian defense technology.

Even worse for Moscow, the new measures make it harder for Russian companies to raise medium- and long-term financing in Western markets, and extract oil from the Arctic and new deep water and shale reserves. They also hurt the Russian economy by increasing investor anxiety, which is likely to accelerate capital flight and cause foreign bankers to cut back on loans to Russia.

After announcing the latest sanctions, U.S. diplomats traveled to China, Japan, Singapore, and South Korea to urge their Asian partners to support efforts to tighten the economic vice on Russia.

From a Ukraine-centric perspective, this makes good sense. A U.S.-EU-Asian sanctions regime could inflict serious damage on the Russian economy. The EU is Russia’s largest trading partner. And Russia’s trade with China, Japan, and South Korea amounts to about 45 percent of total Russian-EU trade. In addition, access to U.S., European, and Asian markets and currencies is necessary for Russian economic growth.

Yet Russian President Vladimir Putin seems unlikely to back down. In fact, the conflict has only escalated, most recently, with Russia

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