Are Sanctions Against Russia Starting to Backfire?
Sanctions Always Do
In a speech on March 26th regarding Russia’s invasion of Ukraine, President Biden told the world,
“As a result of these unprecedented sanctions, the ruble almost is immediately reduced to rubble.”
The problem is the Russian ruble has nearly climbed its way back to where it was prior to the invasion. It seems the coordinated onslaught of Western sanctions against Russia may not be having the intended impact on the currency. What is it that inspires the market to prop up the ruble?
Well, Russia has taken the following steps:
Emergency policy rate hike to 20%. Juxtapose that to Western governments continuing to devalue their currencies by maintaining near-zero interest rates.
Russia sets a fixed exchange rate for gold at 5,000 rubles per gram. Initially, this is a discounted rate, but may eventually turn into a premium if the ruble strengthens. This fixed exchange rate allows the Russian government, in theory, to avoid liquidating its gold holdings to purchase goods and services by proclaiming the ruble “as good as gold.”
Putin has demanded foreign buyers pay for Russian natural gas in rubles starting on April 1, and it ain’t no April Fools’ joke, people.
If the ruble was to stabilize, or even rise in value above pre-invasion levels, that doesn’t mean that the sanctions won’t still hurt the people of Russia. After all, sanctions dramatically reduce the market options for the Russian people. There will be suffering.
And Western governments seemingly only know how to exacerbate a situation, so their only response to a stabilizing ruble will be to push for tougher and tougher sanctions. In fact, Daniel Glaser, the D.C. cretin who coordinated sanctions under the Obama administration, is responding as predictably as ever …
“It’s very hard to keep sanctions the same because the target will do things to adjust. So, I do think it’s important to keep the pressure on, and I think keeping the pressure on means increasing sanctions.”
And the current Deputy U.S. Treasury Secretary, Wally Adeyemo, said that new sanctions on more sectors of Russia’s economy were in the works.
Diplomacy is nowhere to be found. Will other government turn to Russia to fill the void? China? Saudi Arabia? Who knows how this all will play out.
Gas for Rubles
At least for now, the governments of the Baltic states — Latvia, Estonia, and Lithuania — have decided to take the hit and refuse Russian gas imports.
Lithuanian President, Gitanas Nauseda, affirms the position, saying,
“From this month on – no more Russian gas in Lithuania.”
The Baltic market is tapping into the Latvian underground gas reserves. But how long will that last them?
The German government has also boldly refused to comply with Putin’s demands. They are prepping the people for rations.
The Italian government expresses indifference to Russia’s demands to pay for gas in rubles. Roberto Cingolani, Italy's Ecology Transition Minister (what a ridiculous title, by the way), said,
“If things remain like this, not a lot will change ... Putin could show that the Europeans are paying in rubles and Europe could pay in euros. … Should Russian gas be stopped today, Italy would not have many problems in the coming warmer months.”
Uh huh, right. Let’s just say I’m a bit skeptical of Italy’s nonchalant response.
Russia hasn’t turned off the taps to “non-friendly” countries just yet. Russian gas is still reportedly flowing. But, payments will be coming due at the end of the month. The question is whether Europe will pay the bill in rubles or decide to stiff the Russian government? We shall see.
What’s frightening to me is the complete lack of diplomatic efforts to achieve peace. In fact, in the speech I referenced at the start of this article, Biden concludes with a hint at regime change. Biden’s closing remarks in reference to Putin were,
“For God’s sake, this man cannot remain in power.”
This is a major, calculated speech, not some political gaffe. It is in fact a very serious threat that puts the whole world at risk of world war.