Putin Forgot, We Take the Money.
But the U.S. is forgetting what happens next.
Vladimir Putin spent the years after 2014 building what he thought was an impregnable defense against western sanctions. By 2022 this treasure chest amounted to around $620 billion, which would have allowed Russia to live without exports or access to western financial markets for a long time, leaving him free to embark on adventures such as invading Ukraine. But the money was stashed in accounts with western central banks, such as the New York Fed and the Bundesbank, which alone holds $90 billion. This was a very big mistake, as the U.S. and allies have frozen the money, or at least all they could get their hands on. (Clearly, Putin did not pay enough attention when the U.S. and E.U. froze $9 billion in Afghanistan government reserves, leaving a few million Afghans to starve.) As energy analyst Christof Ruehl pointed out in a highly informative podcast discussion today with BNE Intellinews, this means that Russia will have to rely on oil and gas exports to earn any hard currency. In theory, this should be OK for Putin, given the high price of oil. But because of sanctions on insurance, shipping, bank transactions, etc., it is not that easy for Russia to export oil, which, according to Ruehl, is already selling at 20% discount. For the same reason, Putin will not be able to get much advantage from high raw-material prices but be forced to sell as much as he can wherever he can for knock-down prices. He may try a gambler's throw and cut off all gas supplies to Europe right now, but that would certainly amp up western support for Ukraine, and the war would go on, doubtless with Putin drawing increasing attention to his arsenal of nuclear weapons.
That all sounds like victory for the sanctioneers, who have always dreamed of totally choking a targeted economy, just as Britain did to Germany in the World War 1 blockade, and the U.S. has more recently attempted with Saddam's Iraq and the Ayatollahs' Iran. The Germans fought on, coming close to victory in March 1918, while the regime was able to blame food shortages (mostly caused by its own mismanagement) on the blockade and further alleviate them by occupying Ukraine (!) following the 1917 Brest Litovsk treaty with Bolshevik Russia. The Iranian regime, despite widespread suffering among its subjects, has survived unscathed and now appears to be on the brink of settling a new deal with the U.S., which is eager to replace Russian oil on the world market.
Whatever happens, life is going to get very hard indeed for the vast majority of Russians and even if the Ukraine war ends tomorrow, sanctions will remain in some form. (They always do, ask the Afghans.) In the present atmosphere of raging Russophobia, few in the west will care about that. But there is an ominous precedent in the case of another assiduously strangled economy: Saddam Hussein's Iraq. In the 1990s, the U.S. and allies worked hard to choke the Iraqi economy. Even necessary chemicals for water purification were banned. There was a U.N. "Oil for Food" program which did provide a tenuous lifeline. In 1998, Denis Halliday, the U.N. official coordinating this program, resigned in protest at the policy that caused "four thousand to five thousand children to die unnecessarily every month." Furthermore, he said, sanctions were biting into the fabric of Iraqi society in less visible but nonetheless devastating ways. An entire generation of young people had grown up in isolation from the outside world. These young Iraqis were intolerant, he said, of their leader's excessive moderation, and were turning increasingly to religion. "What should be of concern is the possibility of more fundamentalist Islamic thinking developing," he said. "It is not well understood as a possible spin-off of the sanctions regime. We are pushing people to take extreme positions." The groundwork for ISIS had been laid.
But at least ISIS never got its hands on several thousand nuclear warheads.