Vladimir Putin seems to have made a misjudgment and the costs are catastrophically high.
High in terms of lives, misery, and destruction. Destruction of property, prosperity and if there is to be even the slightest glimmer of a silver lining to come out of his horrific offensive against Ukraine, one hopes it will be his self destruction.
His calculation appears to have been a rapid and relatively bloodless coup in a handful of days, as his own puppet was installed in Kyiv while a paralyzed and divided west wrung its hands working out what to do next. By the time they had figured out their move it would all be over, and besides, he had squirreled away a war chest large to see him through the inevitable perfunctory sanctions.
He misjudged the voracity with which the heroic citizens of Ukraine would defend their homes and homeland, and he misjudged how his actions would rapidly unify most of the world against him.
The military response has played out as would have been expected. Condemnation, but inaction. The fear of the big players on the international stage to directly face the Russian war machine on the battlefield has been seen off, for now by the ranks of bristling nuclear weapons pointing at their designated targets, and the possibility that he might just be unhinged enough to order their dispatch, has had the deterrent effect they were always intended to have.
The economic war however has been total, brutal, merciless, and most surprisingly rapid, and virtually unanimous.
In the less than two weeks since the invasion, as The Islander closed for press, every major corporation worth the name has cut ties or ceased trading. The assets of the Russian state have been seized wherever they have been identified. Superyachts, houses, private planes all impounded. Travel bans on individuals and airlines are near total.
Foreign exchange bans have isolated the Ruble and rendered it all but valueless and paralyzed Russia’s potential to shore up its economy by swapping out its foreign reserves to artificially inflate the value of its under-fire currency.
In real terms this had led to precipitous falls in the value of the ruble and the Russian stock markets as trading was suspended. The central bank was forced to double the interest rate as it ran out of other tools. Shortages of cash have fired the starting pistol on bank runs. The inability to trade has led to unemployment rising, shortages in the shops and the value of savings nose diving. Russians at all levels are being hit hard, albeit in different ways.
As we closed for press, the first few countries were ceasing importing Russian oil and gas, with no doubt others to follow. This is the backbone of the economy. All this in a fortnight.
There is a cost though. Sanctions are forcing up the cost of energy in the west too to unprecedented levels, with more to come. Economies still ravaged by the debt piled up to see them through the Covid shutdowns will have to find yet more in the coffers to help those for whom ends simply won’t meet if inflation is fueled by this war, and these sanctions play out as expected.
With the world becoming more interconnected economically with each passing decade this kind of total, global economic warfare has become more effective, but make no mistake, there are going to be piles of casualties on both sides.
Just like stone castles in the middle ages proved to be nothing more than expensive vanity projects that could be rendered useless by a siege without a shot being fired, so an economy can be decimated from afar even if the protagonists would not dare place a single soldier’s boot print across another’s border.
Perhaps Putin is so isolated in his ivory tower that he can choose to ignore the suffering of his own people at the mercy of an economic blitzkrieg, and with the daily atrocities by his hand mounting daily, he must be stopped quickly.
Perhaps sanctions alone will not be enough to stop him soon enough, but they are inflicting heavy damage on both sides that will last for years. We can only hope that Russia Runs out of the will, and financial ammunition to fight this economic war before the rest of the world does, for the sake of everyone.
By Phil D. Coffers – The Islander Economics Correspondent