Despite its early bluster, the Kremlin may be increasingly ready to consider a compromise with the West that would lift economic sanctions on the Russian economy.

A visitor at the Import Substitution International Specialized Exhibition at the Crocus Expo International Exhibition Center in Krasnogorsk, Russia. Poster reads: "No! I choose only products made in Russia!" Photo: RIA Novosti/Maksim Blinov

Now that Europe has once again prolonged economic sanctions against the Russian economy on July 1, it’s worth asking whether these measures are really having any impact. The answer, it appears, is not so simple. Any attempt to provide a definitive “yes” or “no” to that question will be useless at best and totally unrelated to reality in the worst-case scenario.

That is why, when Russian or European politicians make statements about sanctions, their impact in certain areas of the economy, and international security, it is important to analyze not just the text of their utterances, but also their context and subtext that underlie official speeches. 

A recent statement by Sergey Ivanov, the chief of staff of the presidential administration, in which he said that it would be better for Russia if sanctions were not lifted since the nation had already passed the lowest point and the restrictions served as an incentive for the diversification of the Russian economy, provides a unique perspective on the Kremlin’s current thinking.

Experts believe Sergey Ivanov to be second only to Russian President Vladimir Putin when it comes to making influential decisions about Russia's future. Ivanov has been part of the national leadership for over 16 years, so he has definitely mastered the art of using his rare interactions with the media to send important messages. And many Western politicians and diplomats have learned to interpret these messages.

So what exactly did Ivanov want to tell the world? The first and most important thing is that he admitted that sanctions really hurt the national economy. However, not all representatives of the ruling elite understand the dangerous effects that sanctions may have on Russia's future. Some still think that so far sanctions have not dealt any serious damage.

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Nevertheless, Russia’s GDP tanked in 2015, and the deteriorating quality of life set the social and economic indicators of Russians' welfare some 10 years back.

Moreover, the problem with Western sanctions is that they jeopardize the future of the Russian economy because they force the government to operate in damage control mode. The national economy will require several decades of sustainable growth for Russia to become a real player in the modern multipolar political and economic system.

Crises and stagnation set back the movement towards this goal and retain the possibility of Russia's marginalization, especially due to the rapid growth of the Asia-Pacific region.

Secondly, sanctions became a powerful external factor that put the issue of reforms back on the Kremlin's agenda. The government and the parliament had cast aside the very concept of reforms for more than 10 years.

Now the painful reforms have started, albeit their implementation is happening slowly. The changes involve the tightening of monetary policy and efforts on curbing inflation, reforming state corporations, privatization of the overgrown state sector, creation of a favorable business climate, and the fight against corruption in the executive and judicial branches.

Thirdly, sanctions garnered a lot of support in Russia. Russian agrarians were strongly opposed to Russia joining the World Trade Organization (WTO), but it still happened in 2012. Now they benefit the most from the food embargo.

The supporters of keeping counter-sanctions in place also include enterprises of the high-tech sector, which are participating in import substitution programs aimed at the creation of Russia's own "critical technologies."

Fourthly, sanctions have a lot of opponents, including virtually all Russian consumers who are suffering from the consequences of counter-sanctions, such as higher food prices and a decline in the variety of goods and services.

In just several years, the number of Russians living below the poverty level, that is with income below the official living wage, increased from 11.2 percent in 2014 to almost 13.4 percent of the total population in 2015. The Kremlin cannot ignore the problem and do nothing to reverse this negative tendency. The response should be comprehensive, and the lifting of sanctions is an integral part of it.

Thus, the text of Ivanov's statement indicates that the Kremlin's current assessment of the Russian-European and Russian-American relations is becoming more realistic.

Just three months ago Moscow had the following message for the West: you introduced the sanctions, so it is up to you to remove them. Russian diplomats persisted in portraying sanctions as "a declaration of war on Russia" meant to destroy its economy and orchestrate a coup.

Now this rhetoric is gone. Russia no longer turns a blind eye to the limited goals pursued by the Western countries in their prolongation of economic and personal sanctions. Therefore, there is room for negotiation that could lay the foundation for future contacts.

The context for Ivanov's statement was provided by the extensive St. Petersburg International Economic Forum that was held on June 16-18, 2016. The Forum was clearly a success, since it showed that Russia has not become an international pariah.

Not a single important issue of European politics can be resolved without Moscow. Leaders of major international organizations and Western countries that came to St. Petersburg publicly voiced their discontent with sanctions and offered conditions for their removal.

It would be rude of Russia to ignore all their efforts, so the interview of the chief of staff of the presidential administration is the Kremlin's response to the ideas put forth by Russia’s Western partners.

The subtext of Ivanov's statement appears to contain the message that Russia is ready to discuss the mutual removal of sanctions as part of its dialogue with the West. Moscow is gradually abandoning its former stance that the discussion of sanctions would be a sign of weakness.

By claiming that sanctions are damaging, but that Russians will manage regardless, the second most influential person in the country indicated that the Kremlin was open for discussion - otherwise it would have been pointless to raise the matter at such a high-profile interview. All parties to the conflict need to put the current crisis behind them while keeping their dignity before their allies and own citizens.

Then, Russian diplomacy will be able to proclaim that the country suffered from sanctions, but managed to pull through. The U.S. and its European allies will get to inform their citizens that sanctions were a success and proved efficient in the context of the Ukrainian crisis. In this case, Washington and Brussels can present any positive dynamics in Ukraine as successful implementation of the Minsk Protocol signed in February 2015.

One of the oldest definitions of diplomacy describes it as the art of finding compromise among conflicting interests. Ivanov's interview of June 18 is an important diplomatic step towards the resolution of the conflict between Russia and its Western neighbors that resulted from the Ukraine crisis.

The opinion of the author may not necessarily reflect the position of Russia Direct or its staff.