The sense of shock and awe surrounding the heavy sanctions on Russia at the start of the war has been overtaken by the reality that the economic battle – like the military assault – will be drudgery.
The big picture: “Right now, neither side is winning economic warfare, if the purpose of economic warfare in the short to medium term is to induce political concessions from your adversary,” said Fletcher professor Chris Miller. Tufts University School of Law and Diplomacy. , says Axios. “Neither side is prepared to offer concessions. So, in that sense, it’s a dead end.”
Driving the news: The leaders of the Group of Seven prepared a plan over the weekend to cap the price of Russian oil, another effort to weaken the keystone of Russia’s financial sustainability: oil money.
Why is this important: The continued escalation of the G7 is a tacit admission that efforts to economically isolate Russia have been insufficient to cut off the flow of cash helping to finance President Vladimir Putin’s war.
- Despite some efforts to reduce purchases of Russian energy exports, soaring oil and gas prices – themselves a reaction to the invasion – poured funds into Russian state coffers.
- Russia’s current account surplus – the broadest measure of a country’s international trade – has tripled to more than $110 billion so far this year, putting it on course for a record high.
- The income boom supported the country’s currency and stabilized inflation. This, in turn, allowed the central bank to scale back the emergency interest rate hikes it had implemented at the start of the war.
This does not mean the Russian economy is strong. Economists expect it to contract by 10% this year, largely due to a slump in consumer spending.
- In other words, continued oil sales help Russia pay for the war. But the standard of living of the Russian people is falling rapidly.
But, but, but: The Russians are not the only ones feeling the impact of economic warfare. Ukraine’s main donors in Europe and the United States are now faced with soaring energy and food prices, linked to the fallout from the war and more specifically from Western sanctions. This soured the public mood and eroded support for the leaders.
- In Britain, Prime Minister Boris Johnson – a hawk on Russia – is in a perilous political position after being weakened by multiple scandals and a cost of living crisis.
- The government of new German Chancellor Olaf Scholz has started to prepare the German population for the rationing of natural gas – Russia is its main supplier – amid the risk of running out of supplies this winter. His popularity ratings are plummeting.
- In the United States, President Joe Biden is grappling with record consumer sentiment — the mirror image of record gasoline prices and a stock market crash — that could spell disaster for Democrats in the next election. mid-term. Biden’s approval rating is at an all-time high.
The big question: Can the world’s great democracies – already torn by internal divisions – create a unified front to push back Putin, regardless of which party is in power?
- It seems fair to consider this an open question. If only because the US intelligence community discovered that Russia intervened in the 2016 US election to help former President Donald Trump win, and he remains the presumed frontrunner for the GOP nomination in 2024.
- France’s far-right party leader Marine Le Pen has not only praised Putin, but has also received funding from Russia-linked banks. The Italian right – which has just done well in local elections – has also taken the heat for strange comfort with Moscow.
- But even if there were no Russian influence at play, a politician could simply decide that anything to reduce the cost of oil, even reaching an agreement with Russia at the expense of Ukraine, would have a political sense.
The bottom line: Analysts like Gerard DiPippo of the Center for Strategic & International Studies say that if allies can maintain support for Ukraine in the face of inflation, they clearly have the upper hand.
- “In the long term, Russia’s position is dire,” DiPippo told Axios. In the short to medium term, he adds, Putin “may have the ability to break the alliance, especially if prices go up. But in general, Russia is in slow bleeding mode.”.”