opinion | How the West is stifling Putin’s economy

Russia’s military failure in Ukraine has defied almost everyone’s expectations. The first defeat came at the gates of Kyiv. Then came the file Incredibly shrinking blitzkriegas attempts to encircle Ukrainian forces in the supposedly more favorable area in the east turned into slow motion The battle of attrition.

What’s important about this second setback for Russia is that it reacts with another big surprise: the remarkable – and in some ways bewildering – effectiveness, at least so far, of Western economic sanctions against the Putin regime, and sanctions that work unexpectedly. road.

Once the war began there was a great deal of talk of applying economic pressure against the invading country. Most of this focused on ways to cut off Russian exports, particularly its sales of oil and natural gas. However, unfortunately, there was shamefully little purposeful movement on that front. The Biden administration has Prohibited imports of Russian oil, but that will have little effect unless other countries follow suit. And Europe, in particular, has not yet done so banned on Russian oil, not to mention doing anything substantial to wean itself off dependence on Russian gas.

As a result, Russian exports have stopped, and the country appears to be heading towards Standard trade surplus. Did Vladimir Putin win the economic war?

No, he loses it. This growing surplus is a sign of weakness rather than strength — it largely reflects a decline in Russian imports, which even state-backed analysts say is hinder its economy. In fact, Russia makes a lot of money selling oil and gas, but finds it difficult to use that money to buy the things it needs, including key components used to produce tanks and other military equipment.

Why is Russia apparently having so much trouble buying things? Part of the answer is that many of the world’s democracies have it Prohibited sales Russia has a variety of goods – weapons, of course, but also industrial components that can, directly or indirectly, be used to produce weapons.

However, this cannot be the full story, because it appears that Russia has lost access to imports even from countries without sanctions. Matt Klein from the blog overtaking It is estimated that exports from the allied democracies to Russia in March were 53 percent below normal levels (initial indications are that they fell further in April). But exports from neutral or pro-Russian countries, including China, fell almost as much – 45 percent.

Some of this may be, as Klein did I suggestedIt reflects the fear, even in non-allied nations, of “being on the wrong side of sanctions”. Imagine yourself as the CEO of a Chinese company that relies on components produced in South Korea, Japan, or the United States. If you made sales to Russia that might be seen as aiding Putin’s war effort, wouldn’t you worry about facing sanctions yourself?

Imposing sanctions Russian financial systemIt may also, such as freezing central bank reserves and excluding some major private banks from international payment systems, reduce imports. Hard currency may be flowing into Russia, but using that currency to buy things abroad is becoming difficult. You can’t conduct modern business with suitcases full of $100 bills.

Now, it is possible, and even likely, that over time Russia will find alternative solutions to Western sanctions. But time is something Putin doesn’t seem to have.

As I said, the war in Ukraine appears to have turned into a battle of attrition, and this is not one that Putin seems likely to win: Russia has suffered. Heavy equipment losses That he won’t be able to replace anytime soon, while Ukraine receives significant equipment flows from the West. This war may be over, not in Putin’s favour, before Russia finds ways to get around Western sanctions.

One Final Point: The Impact of Sanctions on Russia provides a graphic, albeit harrowing, presentation of a point economists often try to make but rarely manage to get past: imports, not exports, are the point of international trade.

that is, the benefits of trade should not be measured by the jobs and incomes which arise in the export industries; These workers, after all, could do something else. The gains come from trade, rather, from the useful goods and services other countries provide to your citizens. Managing a trade surplus is not a “win”; If anything, it means that you give the world more than you get, and receive nothing but wrath in return.

Yes, I know that in practice there are caveats and intricacies to these statements. Trade surpluses can sometimes help boost a weak economy, and while imports make a nation richer, they may. Displacement and poverty some workers. But what is happening to Russia illustrates their basic truth. Russia’s trade surplus is a sign of weakness, not strength. Its exports are (unfortunately) holding up well despite its pariah status, but its economy is crippled by cutting off imports.

This, in turn, means that Putin is losing the economic war as well as the military one.

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