Western Europe and the United States are currently waging economic war on Russia. Russia, for its part, is currently waging regular war on Ukraine, which is reliably a faster way to kill the most people, but the scope of the economic warfare against Russia is noteworthy. The U.S. and E.U. (and other allied nations) are not merely trying to punish Russia with sanctions; they are actively blowing up its economy.
This is a fluid and fast-moving situation, and I am not that smart (if you’d like to learn more google “Adam Tooze”), so I will not attempt to get into great detail, but the basic idea is that Russia’s financial institutions, including its central bank, have been locked out of the “plumbing” of the global financial system. Russia has had years to prepare for crippling sanctions by building up reserves of gold and U.S. dollars and Euros and Chinese renminbi, but by going after Russia’s central bank, the current economic punishments aim to prevent anyone from buying those reserves, rendering them almost useless. The Economist says “it is likely that the majority of its holdings of securities, bank deposits and other instruments, regardless of the currency they are denominated in, are held in accounts with financial institutions or in jurisdictions that will enforce Western sanctions,” and so “some, or even much, of Russia’s national war chest can be frozen.” The Russian stock market has been closed. Shipping firms like Maersk are pulling out of Russia entirely. Airspace across Europe is closed to Russian airlines, and the companies they lease their planes from are trying to figure out how to get them back. Even the Swiss are freezing Russian assets. The French minister of the economy openly said the goal was to “provoke the collapse of the Russian economy.”
The logic of economic sanctions is that they allow you to punish a country without going to war with it, which is largely why they have become “Washington’s go-to foreign policy tool.” But there is one pipeline-sized loophole in this campaign to destroy the Russian economy. Europe—and especially Germany, Western Europe’s Main Character—is utterly dependent on Russia for fossil fuels, and the sanctions regime is intentionally designed to protect that market. “Our sanctions are not designed to cause any disruption to the current flow of energy from Russia to the world,” U.S. deputy national security adviser Daleep Singh said last week.
U.S. commentators frequently note Russia’s economic weakness, because its economy is small and very dependent on one sector, but that sector remains lucrative. Russia provides Europe with 40 percent of its natural gas. Its central bank’s record-high account surplus is thanks mainly to demand for its gas. On Monday, as the West attempted to destroy the Russian economy, Jason Corcoran reported that “Gazprom's transit of gas via Ukraine remains at a maximum level while war rages.” The gas continues to flow. The U.S. and Europe are intentionally causing a currency crisis in Russia and destabilizing its economy while also dutifully protecting the national industry that gives its elite their power.
One flaw with U.S.-led sanctions as foreign policy is that they are basically never lifted, and every other country on Earth knows this. Furthermore, the idea that imposing widespread destitution will make the people of a nation turn against their regime has thus far failed, categorically, over many decades, in Iran and Cuba. There’s little reason to expect it to succeed in Russia, where, even if the masses do come to despise Putin, there is truly not much they can do about him so long as he controls the security state. If, after invading Ukraine, Russia is an (even more) isolated and (even more) impoverished pariah state with a thriving fossil fuel industry and a small elite still largely shielded from the worst consequences of that economic ruin, it is hard to imagine Putin’s grip on power loosening very much. Twenty years ago, perhaps, the oligarchs might’ve removed him. Now, they remove themselves to other countries, where their money has always been welcome, or he sends them to prison.
Which is not to say sanctions are not justified, against Russia now or against other countries in other contexts—just that they are unlikely to stop this invasion or bring about the quick removal of the man who ordered it. The good news, though, is that the best way to defeat Vladimir Putin and the Russian government, without provoking a hot war with a nuclear power, would be to take a series of actions that would, in the long term, strongly benefit nearly everyone else in the world. And the forces aligned against Russia are already setting the groundwork for these actions.
The (new) German government’s decision to boost defense spending by 100 billion Euros, and its belated decision to cancel a (fully built) pipeline that would send liquid natural gas from Russia to Germany without passing through Ukraine, were surprising both because of Germany’s long history of open engagement with the Russian government and their dependence on Russian fossil fuels. The military spending has gotten most of the attention, as it is the most dramatic break with longstanding German policy. But so long as an open shooting war between Russia and NATO remains something that everyone involved wishes to avoid, that kind of money could be put to even more effective “national security” use. If we wish to reduce the power of oligarchic petrostates—and, just this once, “we” do—the West should consider eliminating oligarchs and quitting petroleum.
The invasion of Ukraine by a nation dependent on fossil fuel sales should be an obvious impetus for the entire rest of the globe to accelerate its transition away from fossil fuel reliance and to crack down on international oligarchy. To some extent, these moves are already underway. Joe Biden last night joined a chorus of Western leaders announcing plans to go directly after the wealth and assets of Russian oligarchs. Gas-dependent Europe is, by and large, doing more than the United States to transition to clean energy. But this crisis is a prime opportunity to think bigger on both fronts.
The speed with which Germany realigned its entire security posture, overturning decades of official policy in a weekend, is instructive. Germany may not be able to end its reliance on Russian natural gas overnight, but it will also not be able to deploy a new fleet of F-35 aircraft overnight. A continent-spanning clean energy grid is the sort of project that is typically described as something that “won’t cover all of Europe anytime soon.” But that is mainly due to politics, cost, and coordination difficulties. If war can spur unprecedented investments in new fighters and missiles and unprecedented coordination between multiple nations, there’s no reason it can’t also spur “national security” investments in mass electrification, a continental power grid, and a rapid transition to renewables. Studies I’ve read say Europe can achieve fully renewable power generation by 2040 or 2050 with massive multi-billion Euro investments. As Tim Barker said the other day, about military Keynesianism, “international conflict—as received and reframed by domestic coalitions—is often the only force capable of breaking through otherwise solid opposition to fiscal expansion for other purposes.”
The international plutocrat class will resist applying that fiscal expansion to a multinational clean energy program, which is all the more reason to go after their wealth. Political leaders in Europe and North America have made freezing or capturing Russian oligarch assets a cheap applause line, but proposals like Boris Johnson’s public register for secret property ownership should be welcomed by the left; opportunistic politicians are paving the way for a robust international crackdown on the billionaire class as a whole. Sanctions policies made it difficult to be an oligarch in Russia, and they now attempt to make it difficult to be one from Russia. But Russia’s elite have been able to purchase citizenship abroad and hide their assets wherever they like. True change might happen if it becomes difficult to be an “oligarch” from anywhere.
This is a coherent platform for left-of-center parties across the globe: a law-and-order crackdown on international kleptocracy, and mass electrification and renewable energy to weaken the repressive and despotic petrostates. It is not a quick fix (though confiscatory wealth taxes ought to work quickly enough), and it is perhaps not as viscerally satisfying to our bloodthirsty pundit class as more fighters and missiles. But in the medium term the “solution” to the “problem” of Russian aggression is not trying to surgically crash their economy while protecting ours (an impossible tightrope to walk so long as high-income nations fail to quit fossil fuels). It may be impossible now to use Apple Pay to ride the Moscow Metro—it may even be impossible, temporarily, for particular Russian-born billionaires to anonymously purchase London pieds-à-terre—but it is still very easy to take the money you made selling natural gas to Berlin and ask a lawyer in New York to explain how to hide it it in South Dakota. The only sensible Russia policy is to make it unprofitable to be the sort of state it is. This approach would also have the side benefit of improving the sorts of states all of us reside in, and perhaps even of saving human civilization. Defeating Russia, by necessity, requires defeating fossil capital.
Some contrarian-minded guys have convinced themselves that the U.S. should take this opportunity to do more fracking, but this is not just immoral, it’s quite stupid. As David Dayen pointed out, America’s shale industry likes high prices and constrained supply and is thus uninterested in increasing capacity. And additional investments in fracking, like other extraction methods, will take large investments of both time and money. Speeding the deployment of renewable energy globally will also, obviously, take large investments of both time and money. Acknowledging constraints, political and relativistic, on available time and money, it makes more sense to spend each on the option that doesn’t lock in even more catastrophic global temperature rises.
One quibble, comparing sanctions now on Russia, vs Iran or Cuba, is that practically the entire world had joined this sanctions against Russia (minus China notably and some others), whereas Cuba and Iran still had some partners that continue to trade with them. I think this nearly united front against Russia could lead to different results. But I'm no economist and I do not wish suffering on the Russian people. And while I'm sure a large percentage support putin's actions, ideologically or due to state control of information, im also sure a larger percentage than we can see oppose them.