Remind me again, which country’s economy was sanctions going to devastate?

Posted by Pointman on April 1, 2022 · 14 Comments

Before the whole Russia/Ukraine bomb went off in everyone’s face, the Biden administration told the world that if Russia invaded Ukraine, then they’d impose harsh sanctions on it. That would deter Russia we were assured by all the major figures of the administration. Putin evaluated the threat, tokened the odds and after making some advance preparations, invaded anyway.

True to their word, Biden’s handlers laid down sanctions against Russia, but this wasn’t to be the usual stepladder of escalating sanctions to make Russia see the light. No siree Bob, this was to be the full bloody Monty of every sanction they could think of all dropped on Russia’s head from a great height in one go. The shock and awe version of sanctions.

In what they’re now very much beginning to regret, the US vassal states of places like Canada, Australia, Japan, South Korea, and most EU states rushed in to please their master by joining in sanctioning Russia enthusiastically. It goes without saying that distant places like Japan and Australia have huge national interests that forced them to intervene in a Russian war with the Ukraine on the other side of the world.

In tandem with this sanctioning orgy, a vicious propaganda campaign against Russia and all things Russia was launched in the West. Russian sportsmen were banned from events, Tolstoy removed from bookshelves, statues of Marx hidden from public view and even that fine opera singer Anna Netrebko was kicked out of her current gig for the mortal sin of being Russian.

The world stood back and waited for the Russian economy to implode and the ruble to become as worthless as a Confederate dollar. For sure, there was an initial impact on both when the sanctions were announced, but after a week they both stabilised for a number of reasons, not least of which was the Russians had anticipated the West’s move well in advance and had already put in place some very shrewd preparations.

After a week, the Russians were still in Ukraine rolling up the opposition army at their own leisurely pace and not even bothering to pick up calls from the WH. It started becoming obvious to all that the sanctions strategy simply wasn’t working, so in what seems to already be an ingrained reflex of the Biden administration, the solution to a patently failing strategy was to double down on it instead of having a rethink.

The way to make sanctions work was to compel all the rest of the world to join in. The two biggest countries who’d refused to condemn Russia nor implement any sanctions were China and India. A campaign of bullying against them began with open threats of dire costs and consequences if they didn’t do what the WH wanted. Usually diplomatic pressure starts with offering a carrot and then taking out the big stick if that fails, but the Biden administration prefers to do it the other way around. How to make friends and influence people.

If anything, China’s position hardened. People resent being bullied so by the time Biden eventually got around to offering China a carrot in a two hour long marathon video call, China told him to fuck off though it was nicely cloaked in diplomatic speak, a language the administration has yet to learn. India did the same so they’re now cranking up the sanctions machine against them both. I can’t see it doing much good since China is India’s biggest trading partner and Putin and China are settling into a new Cold War against the West.

Their new partner in the alliance Russia can supply the other two with all the oil and gas they need as well as other necessary things. When you consider Russia and Ukraine grow 30% of the world’s supply of wheat and 20% of its corn as well as huge quantities of fertiliser, rice and soy, sanctions won’t hurt them seriously.

Remember, that massive supply of food essentials used to flow to the West, but it’ll taper off as the long term contracts to supply expire and already Russia is indicating it won’t be renewing them. Why should they? Aligning with China and India gives them a combined market of three billion people to sell into while their enemies’ economies implode as a result. The West should be bracing themselves for the novel experience of food shortages in the near future. While I’m sure that’ll spur on a big drive for Europe to increase agricultural production, that’ll be made very difficult with the loss of all the massive amounts of fertiliser Russia used to supply.

Already, India has done a deal with Russia for a gazillion barrels of oil at a very juicy 20% discount to the spot market price.

So, what’s going to be the global effect of this major change of trade direction from Westwards to Eastwards? For starters, it’s solidified the membership of what I can only call the East Block. It now consists of Russia, China, India, Pakistan, Latin America, Central America, Africa, all of Asia except for an isolated Japan who’re desperately looking for ways to walk back its hasty jump into the sanctions club. They don’t have any domestic oil, which was the basic reason they attacked America in 1941.

The biggest losers are going to be western Europe. Inflation is officially running at 6% but the method of deriving that number was long ago fiddled with until it’s a highly dubious figure. My feeling is that it’s already significantly higher but when the tap of cheap oil, gas, minerals, food, fertiliser and other commodities from Russia gets turned off, it’ll sky rocket. As always happens with inflation, it’ll cause a recession and I think it’ll be long and hard. The EU saying they’ll eliminate their dependency on Russian energy by the end of the year is pure fantasy. End of the decade is more like it. A recent Bank of England study is projecting that Britain will have the biggest fall in living standards since the 1950s.

As for America, Canada, Australia and the rest of the merry band of sanctioneers outside Europe, the future holds a similar prospect. At end of February, America already has an official inflation rate of 8% (wink) and gas prices going through the roof mainly because of the administration devastating their own oil and gas industries to the point where the energy independence the country enjoyed two years ago has disappeared. It’s thrown them to the mercy of buying gas from abroad and unsavoury dictatorships like Venezuela. Someone has to prop up these filthy dictator’s economies, don’t they? So much for defending democracy.

Inflation degrades the buying power of a currency while at the same time prices on almost everything are rising. What’s going to exacerbate the currency devaluations is the Russians announcing they’ll only sell oil and gas for rubles to countries they consider “unfriendly countries”, which means those who imposed economic restrictions against Russia. This is a win/win move nobody anticipated. The exchange rate of the ruble shot up immediately on currency exchanges and the dollar plunged because it looks likely to knock the dollar off its golden perch of being the petro-dollar.

This would be a blow for Europe, which gets more than 40% of its natural gas imports from Russia. Also, there’s nothing to stop Russia really putting the boot in by charging those “unfriendly countries” a higher price than what they charge their East Block allies. Take it or leave it Jack, but either way that’s the way I’m pricing it just for you. They’ll take it because they don’t have any alternative. There’s even talk of the East Block setting up a brand new petro currency backed up by the oil price or even conceivably a basket of commodities like gold.

Just to add to the dollar’s woes, it’s status as the world’s reserve currency has taken a terrible blow with them freezing the Russian Central bank’s dollar deposits in America. The message taken away from that rather ill-considered move was a lot of other countries and large institutions thinking if they can do that to a huge powerful country like Russia, should I really be holding large amounts of cash or even assets in America’s financial system? The answer is obliviously no, so dollars are being quietly moved offshore to safer locations. The City of London, famed for its boast that your money is safe with us, is suffering the same steady withdrawal of funds.

How is Russia going to fare in the short and long term? The economy has certainly taken a knock but nothing on the scale of what’s currently happening in the Western block. Long term, their prospects are very good. They’re now in a huge trading block of 3 billion people and will be exclusively supplying it with as much energy and resources as it can produce. Unless America gets its energy policy out of the shambles it’s in, the ruble in its new form as a petro currency will go from strength to strength at the expense of the dollar.