Sanctions and the cost of living

The people of Portugal are struggling with a cost of living crisis that shows no sign of abating any time soon despite – and perhaps because of - sanctions imposed by the West on Russia in response to its war in Ukraine.

Dr Uwe Werblow (pictured below), now retired and living in the Algarve, served for decades as a senior official with the European Commission Directorate-General for Development. He questions whether sanctions are of any use in forcing ​a​ country to behave better. More on that in a moment.

Inflation in Portugal settled at 8.2% in February, slightly down for the fourth consecutive month, but the cost of foodstuffs has increased by 21.5% since the same time last year. House prices had risen by 18.7%, the highest in three decades. Rents have significantly increased too, but wages have not.

Government data shows that more than half of the working population earn ​less​ than €1,000 a month. The minimum wage is €760. It is little wonder that thousands of protesters have been taking to the streets of Lisbon to demand an end to letting the poor get poorer in what is one of the poorest countries in Western Europe.

The current crisis started with the COVID pandemic and was later fuelled by energy price hikes as a result of the war in Ukraine. The crisis has now spread to all commodities, especially food, throughout the European Union and far beyond. It’s reckoned to be the worst cost of living crisis in 50 years.

The rising costs are the most pressing worry for 93% of Europeans, according to a recent European Parliament Eurobarometer survey. In Greece, 100% of respondents said they were worried. In Cyprus the figure was 99%, followed by 98% in Italy and the same in Portugal. These worries are felt regardless of gender or age, as well as educational or socio-professional backgrounds.

The second biggest issue to surface from the survey was that 82% of respondents worried about ​the threat of poverty and social exclusion. Global warming and the danger of the Ukraine war spreading across Europe were equal worries, but only in third place with 81%.

Only a third of Europeans expressed satisfaction with what their national government was doing to tackle the rising cost of living, while about 45% of respondents said they were already having difficulty managing bills on their personal income.

However, not everyone is losing out. Energy companies, pharmaceutical corporations, big tech and multinationals operating in the food and luxury sectors have all been raking in billions of euros in profits, say politicians in the European Parliament.

The fossil fuel industry has turned the war in Ukraine into a​n ​opportunity for extra profits. The Shell, TotalEnergies, Eni and Repsol companies reportedly made €78 billion in profits up to September last year.

“The fossil fuel industry has avoided having to foot the bill of an energy crisis of its own making,” according to Corporate Europe Observatory (CEO), a research and campaign group working to expose and challenge the privileged access and influence enjoyed by corporations and their lobby supporters in EU policy making. It was the spike in energy prices that followed the invasion of Ukraine and Western sanctions on Russia, coming o​n​ top of post-COVID difficulties, “that cascaded into a full-scale cost of living crisis,” says the group.

Restrictions introduced during the COVID pandemic impacted heavily on incomes and living costs everywhere. Compared with many other countries, the Portuguese government did remarkably well in handling the pandemic, but the cost of living crisis is a very different matter, largely outside the government’s ability to control.

Russia is severely harming - or even crippling - economies by limiting energy and essential food supplies, as well as fertilisers, metals and other important exports from Ukraine and the Soviet Union itself.

In the Algarve, Dr Uwe Werblow was forthright in his opinion about the impact of sanctions. “My main question is: are western sanctions against Russia more harmful for our own economies and people than for Russia?”

He continued: “Sanctions as a means to discipline trouble- making countries and regimes instead of going to war was developed by Woodrow Wilson, 28th President of the United States, in 1910.
Looking at a number of recent cases, I have the impression that the “economic war” hardly works in our globalised world. The Cuban regime has survived 50 years. Obama stopped the sanctions and looked for alternative measures. Iran, since Trump reinstated the sanctions in 2018, has increased GNP by four times in 2022. Russia makes more money with oil and gas than ever before. The new clients India and China and others are very happy!

“As a result, I see plenty of opportunities and trade partners to help weaken and undermine sanctions.... the creation of new alliances to create even more trouble.... and, very often, a weakening of our own western economy.”