“Sanctions against Russia are not likely to achieve their aim of forcing President Putin to the negotiating table as his forces succeed in achieving their military objective” — Paul Ebeling
Russia has fattened itself on the proceeds of last yr’s boom in energy prices. That means it’s now in a prime position to weather reprisals designed to sap his fiscal ability to wage war.
The financial sanctions imposed by the US and it Western allies will take too much time to unfold their full effect.
“President Putin’s decision to escalate the military confrontation into a war suggests a willingness to accept near-term economic pain in favor of securing long-term geopolitical goals,” wrote the CIO of global wealth management at UBS on Thursday.
Russia may look like an easy sanctions target given its economy that lives off exports harvested from the fields or mined out of the ground.
The manufactured crisis in Ukraine offered President Putin the chance to deflect from domestic problems such as its glacial pace of innovation and reliance on foreign imports of electronics, machinery, and other durable goods.
But despite its antiquated industry and infrastructure, Russia is now better prepared than ever to weather the sanctions. As the country enjoys vast resources at its disposal, making it the world’s largest exporter of Nat Gas and wheat.
It is not a coincidence that the military offensive in Ukraine coincides with historically high energy prices, which have filled Russia’s coffers over prior months and given it a huge economic cushion.
Russia has proved it is capable of living within its means. At $82-B in September, Russia’s current account surplus reached its highest since the global financial crisis, and its fiscal debt sits at just 16% of GDP, paltry compared with the EU’s 98% at the end of Q-3 and growing.
Last yr Russia decouple financially from the global reserve currency system by accumulating more gold in its central bank vaults than it holds in USDs. According to the World Gold Council, stores of nearly 2,300 tonnes at the end of November are the 5th largest in the world after the US, Germany, Italy, and France.
The Central Bank of Russia (CBR) also said it is “ready to take all necessary measures to maintain financial stability,” announcing forbearance measures on Key balance sheet solvency metrics lasting until October to prop up any credit institutions that may see access to capital via interbank lending markets severed.
The CBR also holds some $640-B in foreign exchange reserves, and can afford to pause further interventions to prop up the Ruble if it wishes. Plus, Russia’s sovereign debt is largely impervious to attack from bond market vigilantes thanks to the share of foreign creditors falling below 20%.
President Putin in an enviable position and his incursion into Ukraine will likely be successful no matter what we hear from Mr. Biden as Russia is a super power that lives within its means.
NATO and the Western allies will offer support but not defense, Ukraine has to go it alone!
Have a prosperous weekend, Keep the Faith!