President Joe Biden delivered a speech in response to the brutal invasion of Ukraine by Russian forces, outlining the sanctions that he was imposing on Russia.
They include:
– Limiting Russia’s ability to do business in dollars or euros. He said the Ruble is the weakest it has ever been. The Russian Stock Market has plunged by about 50%.
– Trillions in Russian assets cut off
– Blocking four major banks from conducting business between Russia and the rest of the world.
– Russian assets frozen
– Russian elites are individually sanctioned, cut off from banking and western goods
– Cut Russia off from at least half of its high tech imports
Biden has fallen short of cutting them off from SWIFT, the financial network that allows financial transactions to flow between banks. Apparently, this was not agreed to by all of the NATO partners. Perhaps this is a harbinger of disagreements to come.
I can’t say I am expert enough to know how badly Russia will be hurt by the sanctions. Given that the GNP of Russia is about $4 Trillion and some of the measures affect trillion-dollar assets, it should be substantial. With a world united against Russia, they could quickly be cast back 50 years in economic terms.
But the world is not united. In fact, China appears to be (at least pretending to be) on the side of Russia. So money can flow through China, circumventing a great portion of the sanctions. Russia can get the same quality of high tech goods from China as the U.S. does. The Russian elites who have been targeted probably already have their problem solved.
In my view, Biden has dramatically underestimated Putin and is in no way prepared for what is next.
Europe as a Bargaining Chip
Sources say that Italy imports 90% of its oil and gas from Russia. Many European countries are in the same boat, albeit not quite as exposed. Unfortunately, oil and gas can rise in price rapidly from even a minor shortage, much less the massive one that would occur if Russia decides to cut them off.
And this is what Putin is counting on. Once he achieves what he feels is a stable position, he can throw the switch, cut off oil and gas to Europe, and then negotiate his way out of the rest of the sanctions. Europe is scared out of its wits, other supplies will take time to develop. In the meantime, Europe will be a cold and frightened place.
It is a safe bet. Putin is not subject to elections, protests or the cries of suffering or starving people. He can hold out a long time.
Europe. Just. Can’t.