The economic war with Russia

The discovery of Russian atrocities in the Ukrainian town of Bucha “has horrified the world anew”, said Bloomberg. And there’s been no delay in Western economic retaliation. The US, EU and G7 are “coordinating on a fresh round of sanctions” – including a US ban on investment in Russia, and an EU ban on coal imports. A concurrent crackdown on individuals is reported to include Vladimir Putin’s daughters. That will probably enrage the Russian president, but he may be relieved on two counts. First, Russian gas – a vital fuel for several European countries – is not on the EU list. Secondly, the US had held off imposing “secondary sanctions” affecting organisations and people in countries not subject to its jurisdiction. These would close “the loopholes” Russia uses to trade with third-party countries. But they’re controversial because of the possible impact on US allies. “If Germany continues buying oil and gas from Russia, for example, it could find itself on the wrong side of US sanctions.”

The rouble weakened against the dollar on news of the penalties. But actually, it’s been doing rather well of late, said Patricia Cohen in The New York Times. Having lost “nearly half its value”, it has “clawed its way back” almost to “where it was before the invasion”. Putin, after all, “has economic weapons of his own” – as he reminded the world last week, when he demanded that 48 “unfriendly” states “violate their own sanctions” by paying for natural gas in roubles. Russia might also look forward to increased oil revenues, said The Economist. With its “Urals crude” trading at a discount of $31 a barrel, two big countries that have not joined in with the West’s sanctions – India and China – “sense a bargain to be had”. India is experimenting with a “rouble-rupee mechanism” that would bypass dollar payments. China might prove a big buyer. “As Russia’s trading position weakens, the Urals discount will go up. So will China’s purchases.”

“The Kremlin is certainly in trouble on the battlefield, but it is not yet running out of money,” said Ambrose Evans-Pritchard in The Daily Telegraph. It will face “a greater test” this month as pre-invasion sales contracts expire and “shippers struggle to secure insurance and financing for fresh Russian cargoes”. But the health of the rouble shows the failure of previous rounds of sanctions and curbs on the Russian central bank. “The country does not need to tap its frozen foreign reserves to defend the currency as long as revenues keep flowing from the sale of hydrocarbons and metals.” The West’s “phoney economic war” must now give way to “a harsher phase”. Nothing less than “a total energy embargo against Russia” will do.

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