The Economic Front
First, how will the West respond if an increasingly desperate Putin uses chemical or tactical nuclear weapons?
The Ukraine Crisis has now evolved into a three-front war that simultaneously includes a military conflict in Ukraine, a growing refugee crisis in neighboring countries, and the impact of sanctions on the Russian economy. Today’s commentary will focus on the economic warfare between the West and Russia.
“An economic nuclear bomb”
In a recent New York Times article, Tom Friedman dramatically declared, “The West, led by the United States, has dropped the equivalent of an economic nuclear bomb on Russia.” Friedman may be right. The Russian invasion of Ukraine began on February 24th. In the last month, the United States and its NATO allies have imposed sweeping economic sanctions on the Russian economy.
The unprecedented sanctions include blocking Russian banks from accessing SWIFT, a global communications service that facilitates international financial communications. The United States has also frozen $630 billion in assets held by the Russian Central Bank. This action prevents Putin from using this key financial resource to prop up his faltering economy.
International corporations are also playing a leading role in impairing the Russian economy. Led by McDonald’s, American Express, and IBM over 450 companies have suspended their Russian operations. As a result, Russian consumers cannot withdraw their money from A.T.M. machines or purchase “Bit Maks” from the now 847 closed McDonald’s restaurants. In addition, Russian factories are beginning to feel the impact of a growing shortage of microchips.
The All-Important Energy Card
Economic sanctions are beginning to affect what Russians can buy and access. However, it is important to remember that energy exports are what President Biden calls the “main artery” of the Russian economy. President Biden is correct – energy is the cornerstone of the Russian economy. Russia is the world’s largest exporter of oil and gas.
On March 8th, the United States announced a ban on all Russian oil and gas imports. The ban will have a minimal impact on the American economy. Prior to the restriction, Russian oil only accounted for about 3 percent of total US consumption. In contrast, the European Union imported roughly 40 percent of its gas and 25 percent of its oil from Russia.
Led by Germany, the European Union hoped its economic relationship with Russia would promote cooperation and prevent hostilities. But this proved to be a flawed assumption. The EU is currently sending Putin about $1 billion a day in oil and gas money. This revenue is playing a key role in funding the Russian war machine. Unfortunately, it will require time for European countries to reduce their dependence upon Russian oil and gas imports.
The Ukrainian war has now entered its second month. It is increasingly clear that we are now at the dawn of a new geopolitical era fraught with dangers and uncertainties. For example, we do not have clear answers to two crucial questions: First, how will the West respond if an increasingly desperate Putin uses chemical or tactical nuclear weapons? And second, what role will China ultimately play in the ongoing crisis?
FOR DISCUSSION AND WRITING
1. Give one reason why the West’s economic sanctions may succeed? Give one reason why they may fail.
2. Write a short statement explaining how you would respond to the changes in your daily life if you were a middle-class Russian consumer.
3. “The West, led by the United States, has dropped the equivalent of an economic bomb on Russia” – Do you think Friedman’s statement is a accurate description or an exaggeration?
FOR FURTHER INFORMATION
Today’s commentary drew upon information in the New York Times (“Why Russian Oil and Gas Matter to the Global Economy”) and the Washington Post (“What Facts Could Change Putin’s Course in Ukraine War” and “Here’s Where Russian Oil Flows”)
Author · Instructor