Hit Him in the Pocketbook -- By Walter Russell Mead, The American Interest

While Putin consolidates his gains in Crimea, the West is flailing about for a way to respond beyond harsh language. If a secret briefing memo glimpsed at by UK journalists yesterday is anything to go by, we certainly shouldn’t be holding our breath for anything more substantial. A couple of juicy bullet points:

• Not support, for now, trade sanctions … or close London’s financial centre to Russians.” [...]
• “Discourage any discussions (eg at Nato) of contingency military preparations.” [...]
• Specific threats to Russia should be “contingent and used for private messaging” while public statements should “stick to generic” point.

Lovely. And predictable.

As Politico noted in an excellent piece you should read in its entirety, “Russia thinks the West is no longer a crusading alliance. Russia thinks the West is now all about the money.” Putin’s inner circle has had ample experience for the better part of two decades negotiating and gaming Western financial systems as they squirrel away their ill-gotten nest eggs. They know that if The City and Wall Street stand to lose a lot from a policy, Western leaders will be loath to enact it.

Paradoxically, however, Russia’s economy is the country’s weak spot. Specifically, Russia’s powerful oligarchs are extremely dependent on access to the Western financial system, which would make targeted sanctions particularly effective. The Wall Street Journal:

Some of us pushed so hard in 2012 for the Magnitsky Act to be passed along with normal trading relations with Russia precisely because we feared this kind of Kremlin power play. President Obama resisted the bill until it was forced on him, and then he limited the names on the sanctions list. But now he may be glad to have this foreign-policy tool.
Asset freezes and other sanctions could target the Russian elite and their financial links to the West. Call this the “Banco Delta Asia” approach, after the U.S. Treasury’s 2005 money-laundering crackdown against a small Macau bank that held accounts for North Korean companies and the ruling Kim family. Washington discovered that making the bank a pariah institution had a huge effect on Pyongyang’s ability to conduct trade.

This may not be enough to convince Putin to reverse course. There are arguments that in the short term these moves could help consolidate power around Putin by convincing the Russian oligarchs that they have nowhere else to turn. But the mere fact that Putin fought so hard against the Magnitsky Act shows that it worries him.

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