Monday, February 28, 2022

The West's Sanctions Barrage Severs Russia’s Economy from Much of the World

I'm fairly blown away by how monstrous these economic sanctions are. Putin had squirreled away $650 billion in gold reserves, of which he can't even get his hands now. 

It's also fascinating that Russia's oil industry was largely spared from the sanctions barrage, explicitly because Western Europe is so dependent on Russian supplies. This is the killer weakness among the Western democracies, extreme vulnerability interdependence: The abject reliance on the world's worst authoritarian regimes (including Saudi Arabia, etc.) for their energy supplies.

This is conflict oil and should be completely repudiated by Western societies. In the U.S., that would mean the stupid Biden administration would have roll back its green energy agenda, deregulate, restore pipeline projects, allow drilling and production on federal lands, etc., and then just leave freakin' energy markets alone to boost supplies of oil, natural gas, and whatever else we need.


At the Wall Street Journal, "The country has been all-but-unplugged from a global system that powered its yearslong transition from a closed society":

Western nations dropped economic sanctions of historic scale on Russia that are hobbling its financial system and effectively reversing 30 years of post-Cold War engagement.

The economic moves by the U.S. and Europe, in response to the invasion of Ukraine, reverberated Monday through Russia’s economy, which was largely cut off from much of the West, and hindered the ability of Russia’s central bank to manage the country’s financial system and mitigate the damage.

Western banks and businesses added to the governments’ actions by halting operations in Russia and sales to Russian companies. Many cited the risks of potentially violating sanctions. More broadly, businesses prize stability, and invasions create chaos.

In just days, Russia has been all-but-unplugged from a global system that powered its transition from a closed, government-controlled economy to a more modern one that yielded Western goods, foreign travel and a middle-class lifestyle.

“Today, Russia’s financial system and economy are facing a totally abnormal situation,” the usually reserved Bank of Russia Gov. Elvira Nabiullina, dressed in black, said Monday.

The impact hit Russian stock, bond and currency markets. Its central bank shut the stock market, avoiding an expected selloff, and raised benchmark interest rates to 20% from 9.5%, to make holding the ruble more attractive and cushion its expected fall.

The ruble fell to 108.014 to the U.S. dollar from 83 on Friday—a drop of more than 20% and its worst one-day decline since Sept. 3, 1998. Shares of several large Russian companies traded in London and they fell as well. Sberbank, the country’s largest lender, was down 74%. The bank was sanctioned by Western nations. The country’s energy giants also got hit, with Gazprom falling almost 53% and Rosneft declining 42%. The central bank said the Russian stock market would remain closed Tuesday.

Russia imposed capital controls, blocking residents from sending money to foreign bank accounts and restricting payments on offshore debt. On the streets, Russians on Monday lined up at ATMs to take out cash.

The speed and breadth of the sanctions overwhelmed years of preparation by Russia after the 2014 sanctions. In a strategy dubbed Fortress Russia, the country built up more than $600 billion in foreign reserves, bought gold and pivoted some exports to China. Closing off Russia’s access to those reserves undercut the strategy, a fact acknowledged by Ms. Nabiullina, the central bank chief.

Timothy Ash, an emerging-market strategist at BlueBay Asset Management, wrote in a note to clients Monday: “From Fortress Russia to Rubble Russia in a week.”

The latest round of sanctions are likely to cause a sizable contraction for Russia’s economy this year, and could prompt bank runs and higher interest rates as the Russian ruble depreciates, according to the Institute for International Finance, a Washington-based global association of financial firms, Elina Ribakova, deputy chief economist at the IIF, said Monday she expected sanctions to bring about a contraction of at least 10% in Russia’s gross domestic product along with double-digit inflation.

“The pressure on the Russian economy is just tremendous,” said Janis Kluge, an expert on the Russian economy at the German Institute for International and Security Affairs. “And it’s going to get even more dramatic over the next weeks and months.”

Even before Russian President Vladimir Putin’s decision to invade Ukraine, Russia’s central bank had difficulty bringing inflation under control. In January, the inflation rate stood at 8.7%, more than double the central bank’s target, despite a series of interest rate increases that began last March.

Boris Titov, Mr. Putin’s business ombudsman, criticized the central bank’s rate increase Monday, saying in an Instagram post that it chose to “further strangle” Russian businesses that are already “at the front-line” of sanctions...

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