U.S. is losing high-stakes sanctions war w/Russia

When Russia invaded Ukraine, President Biden threatened “sanctions from hell.”  His goal was to destroy Russia’s ability to carry on a war effort by wrecking its economy.

This didn’t seem far-fetched.  Russia ranked only 11th among industrial nations in terms of output.  It alternated with Ukraine in ranking as the poorest and most corrupt nation in Europe.  Its government and its companies were considered bureaucratic and inefficient.

If the United States had been able to rally the world behind its effort, it might have succeeded.  But it failed.  The sanctions effort was limited to the USA and its core allies.

The sanctions damaged the Russian economy, maybe permanently, but for now Russia still has both the means and the will to continue the war.

Far from wrecking Russia, the sanctions war is wrecking the economies of Europe.  U.S. demands are pushing allies and bystander nations into the arms of China and Russia.  Sanctions are hurting the American people as well as the Russian people.

Two sayings come to mind:

  • If you strike at a king, you must kill him.
  • That which does not kill me makes me stronger.

Al Jazeera reported that the sanctions included freezing nearly half of Russia’s financial reserves, expelling several of the country’s largest banks from the SWIFT payments system, prohibiting Russian ships and planes from entering their ports and airspace, introducing export restrictions for certain advanced technologies, and placing an embargo on Russian oil and coal.

The BBC reported that the US barred Russia from making debt payments using foreign currency held in US banks.  The UK has excluded key Russian banks from the UK financial system, frozen the assets of all Russian banks, barred Russian firms from borrowing money and placed limits on deposits Russians can make at UK banks.

The BBC reported that Western nations have announced these sanctions:

From December, the EU and the Group of Seven (US, Canada, UK, France, Germany, Italy, Japan) also want to cap the price countries pay for Russian oil.  They are telling importers of Russian crude oil that western insurers will not cover oil shipments if they pay more than the cap.

The BBC also reported that the US, EU, UK and other countries have sanctioned more than 1,000 Russian individuals and businesses – including so-called oligarchs.  These are wealthy business leaders who are thought to be close to the Kremlin, such as former Chelsea FC owner Roman Abramovich.

Simultaneously, more than 1,200 foreign companies have either suspended or curtailed their operations in Russia since the start of the conflict in Ukraine, according to a database from Yale University’s Chief Executive Leadership Institute.  Among the big names on that list are brands such as Apple, McDonald’s, IKEA, Visa, and MasterCard.

The new supply restrictions have not only caused inflation to climb into the double digits, but also undercut Russian manufacturers by depriving them of imported components that are critical to assembling their final products.  Russia’s car production, for instance, plummeted by a stunning 61.8 percent during the first six months of this year, according to Al Jazeera.

The Russian economy is suffering, but hasn’t collapsed, Le Monde reported.  Back in March the IMF forecast an 8.5 percent contraction.  The World Bank is now talking about a 4 percent drop in GDP — hardly an economy ‘on track to be cut in half’, as President Joe Biden predicted in Warsaw in late March.

The price of raw materials is rising, which benefits Russia, an exporter of raw materials, and hurts nations that depend on raw materials imports.  These include the European nations, Japan and South Korea, and the Global South.

Russia may not have a high GDP and it may not be a top manufacturing nation, but it is rich in things the rest of the world needs—food, fuel, fiber and metals.

Russia’s income from oil and gas has increased, despite the sanctions.  Scarcities have driven prices up and it is finding new markets in Asia.  Unlike the USA, Russia enjoys a trade surplus. 

Russia has created a way to bypass the SWIFT system and price its products in rubles instead of dollars.  If Russia avoids defeat in the sanctions wars, its new system will be an alternative for countries that fear Western economic sanctions themselves.

Entrepreneurial Russians are selling copy-cat versions of the well-known Western brands no longer available.

Maybe the sanctions war will be the spark to make Russian businesses modernize and raise their level of technology.  Such things have happened before.

Europeans are suffering more than Russians from the sanctions war.   They are waking up to the fact that European prosperity depended on cheap Russian oil and gas, and no substitute is readily available.

There is a shortage of fuel for the winter.  Europeans are collecting firewood and lining up to buy coal-burning stoves.  In Hungary, there is a market for Mongolian yurts because they are easy to heat.

Reuters reported that one in four German chemical industry companies and 17 percent of Germany auto industry companies are cutting production or shutting down entirely because of energy costs.  

EU primary aluminum output has been cut in half.  All nine of the EU’s zinc smelters have shut down or cut production, which has been replaced by aluminum imports from China, Kazakhstan, Turkey and Russia.  Replacing an aluminum smelter costs about 400 million euros ($394 million), so restarting is unlikely under current conditions.

The world’s largest chemical group BASF questioned whether there was a business case for new plants in Europe.  Reuters reported the company has also warned it would have to shut production at its main Ludwigshafen site – Germany’s single-biggest industrial power consumer – if gas supplies fall below half of its needs.

Some companies have said they intend to relocate production to Vietnam, North Africa or even the United States.   Le Monde reported that 60 German companies, including Lufthansa, Aldi, Fresenius and Siemens, are considering relocating some of their production to Oklahoma, whose governor has talked up its competitive advantages to investors. 

The Europeans who are doing it to themselves.  They are hurting themselves in order to hurt Russia, and failing to hurt Russia much.

As I mentioned, the European Union and Group of Seven tried to set a maximum amount they would pay for Russian oil and gas.  Russia responded that they’d have to pay the market price, or do without.

The Saudis were offended.  They thought the U.S. had agreed that the OPEC nations should have the power to set oil and gas prices.  They abandoned their 40-year alliance with the U.S. and joined Russia and other oil-producing nations to set limits to oil production and keep the price up.

The oil and gas shortage does great harm not only to Europe, but to poor nations who depend on oil imports and also food imports.  Diesel oil is needed to make most kinds of fertilizer, and diesel shortages are causing food shortages.

Meanwhile the U.S. government is trying to pressure the rest of the world into joining it in the sanctions war.  It says whoever is not for us is against us

In contrast, the Russians and Chinese are content with neutrality.  It says whoever is not against them is for them.  Unsurprisingly, their  side’s diplomacy is more effective.  Turkey, Saudi Arabia, Iran, Pakistan and India are all being drawn into a Russian-Chinese economic bloc.  

People in the Global South – innocent bystanders who depend on imports for food and fuel – will be hurt the worst.  

Even we in the United States are experiencing unusual price increases of food, gasoline and other necessities.  President Biden has tried to hold down sanctions-related price increases by releasing oil from the Strategic Petroleum Reserve, but there’s a limit to how much oil there is to release.

If things go on as they are, we the American people can expect a recession, maybe not as bad as the one in Europe, but bad enough.

I’m in favor of a truce in the economic war, but I don’t think one is likely anytime soon and it would not repair the damage already done – not just the damage to U.S. power and influence, but to the lives and well-being of millions of people all over the world.

LINKS

Do sanctions really hurt the Russian economy? by for Al Jazeera.

What are the sanctions on Russia and are they hurting its economy? by BBC News.

How has the Russian economy withstood the effects of sanctions? by Romain Geoffroy and Assman Maad for Le Monde

The Russia-Ukraine Conflict and Sanctions: An Assessment of the Economic and Political Impacts by Garish Luthra for the Observer Research Foundation, Mumbai.

Energy crisis chips away at Europe’s industrial might by Clara Denina and Sarah Mcfarlane for Reuters.

Switzerland Warns of Big Gas Cut If Caught in A Crunch by Alex Kimani for OilPrice.

Europe Braces for a Winter Without Russian Gas by Liz Alderman and Patricia Cohen for The New York Times.

Europe’s Self-Destruction by Patrick Lawrence for ScheerPost.

Can Europe afford to turn a blind eye to evidence of a US role in pipeline blasts? by Jonathan Cook for Mint Press News.

Russia, India, China, Iran: the Quad that Really Matters by Pepe Escobar for The Burning Platform.

Angry Turks and Talking Turkey About Ukraine by Larry Johnson for Son of the New American Revolution.

The Global South’s Revolt Against Biden’s Russia Policy by Ted Galen Carpenter for the Cato Institute.

The Global South Is Starving by Bruno Roth for EU Reporter.

IMF warns of ‘wave of debt crises’ coming to Global South, with war, interest rate hikes, overvalued dollar by Ben Norton for Multipolista.

Extended Ukrainian grain deal offers temporary relief to food crisis by Dorian Burkholder for SWI swissinfo.ch.

Washington Keeps Alienating Its Policy Partners by Ted Galen Carpenter for the Cato Institute.

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One Response to “U.S. is losing high-stakes sanctions war w/Russia”

  1. U.S. is losing high-stakes sanctions war w/Russia — Phil Ebersole’s Blog | Vermont Folk Troth Says:

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