Russia is getting hot against the economic war

Markets have stabilized following Russia’s Feb. 24 invasion of Ukraine, as if the bombs and missiles would not derail the global economy. But the economic war is running parallel to the shooting war.

Much of the analysis of Russia’s war on Ukraine focuses on the invasion and defending forces fighting for brutal land battles in the village-by-village of eastern and southern Ukraine. Russia’s military and denying foreign technology Russia needs to maintain and replenish its weaponry. Like tank and artillery battles, the economic combat is the longest-lasting one in the war of attrition.

The economic war is intensifying as the improbable starts to seem: Ukraine could win. The US and NATO deliberately weakening Russia, en route to a Ukrainian victory. Heavy weapons, such as tanks and artillery, that Westerners were reluctant to give the war at the start of the war are now more freely flowing.

In response, Russia has now stopped supplying natural gas to Poland and Bulgaria, and its strongest move yet remains a sign that Russia is tightening the taps or shutting it down. “All three parties to the conflict, NATO, Russia and Ukraine, are escalating,” the Eurasia Group warned in an April 27 analysis. “Further escalation becomes more likely as animosity builds.”

Poland and Bulgaria can get by without Russian gas. But Russia and its energy customers are now beginning to “weaponize” oil and gas shipments, which are one of the more alarming scenarios analysts have drew at the outset of the war. If Russia halts gas shipments to other European countries or the entire continent, it would cause skyrocketing prices in Europe and possibly cause a recession, which could help raise the cost of undermining European voters.

At the same time, European countries are likely to have a phased boycott of Russian oil, which they can replace from other sources more easily than Russian gas. Even so, a broader embargo of Russian oil would raise global prices for everybody and add to inflation in Europe, the United States and elsewhere. Tightening the screws on Russia’s economy generates collateral damage in many other countries.

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Russia’s financial system on sanctions. But those sanctions still have room for Russia to sell oil and gas, and Russia will benefit from its own invasion of Ukraine. Some analysts think that Russian President Vladimir Putin was on the verge of his invasion of Ukraine by former German Chancellor Angela Merkel in December, or even Joe Biden’s replacement Donald Trump as US President last January. But it’s more likely that high-energy prices in the run-up to Russia’s Feb. 24 invasion persuaded Putin he’d have a cushion of energy revenue, even with inevitable sanctions.

Russian President Vladimir Putin and German Chancellor Angela Merkel enter a hall during a news conference following their talks at Kremlin in Moscow, Russia on August 20, 2021. Alexander Zemlianichenko / Pool via REUTERS

Russian energy revenues hit $ 76 billion in the fourth quarter of 2021, the highest level in 10 years, according to the Institute for International Finance. The research group thinks that higher oil and gas prices are now pushing Russia’s energy revenues higher, even with sanctions. Stopping oil purchases altogether or tightening financial sanctions in a way that would require prohibit financing.

If either of these things happen, a key factor is whether the major energy buyers such as China and India would buy most or all of the oil Russia. If they do, it would have been a lifeline for Putin’s military financing. The United States is the leading effort to cut off Russia, a pressure campaign that could remake global relations for years to come. World War III, but the economic battle may force fence-sitters to pick sides and suffer.

An opaque fight over technology

The energy war is likely to affect minutely-by-minute accounting of global energy markets. The battle over technology is available to Russia. The United States and many other countries have passed on sweeping bans on computer equipment and many other items in Russia, including a broad effort to impose pain on Putin and the Russian economy. Some of that technology has military applications that could directly affect Russia’s offensive in Ukraine.

Russia has vast stockpiles of Soviet-era military hardware, but its stores’ advanced weapons are more limited. British forces examining the remnants of Russian weapons in Ukraine Russia’s war-making capabilities include US-made circuit boards in the advanced Iskander-K cruise missile, US-made fiber-optic gyroscopes in the 9M949 artillery rocket and a British-made oscillator in the TOR-M2 air-defense system.

“Russia’s modern military hardware is the most dependent on complex electronics imported from the US, the UK, Germany, the Netherlands, Japan, Israel, China and further afield,” Jack Watling and Nick Reynolds wrote in a recent report. RUSI.

The Pentagon says Russia has had “inventory issues” with precision-guided munitions and “dumb bombs” that are far less accurate. It’s hard enough to build sophisticated weapons, and “here’s a problem with the Russian military industry,” according to the RUSI report:

Putin and his advisers famously miscalculated by planning for a quick military campaign that would promptly remove Ukraine’s elected government. With the loss of one-fourth of its combat power and a grinding war Russia could actually lose.

Another consequence is that Russia is surely scrambling to find foreign components that it needs to rebuild key weapons stockpiles. Most of the cases in Russia that do not need to be purchased are from companies that make the most of it. Instead, Russia is likely seeking components through third-party or black-market sources, or even theft. Western governments are likely seeking foil such acquisitions. While battlefields on the battlefield, supply-chain warriors battle the shadows.

No end in sight

Russia’s “Victory Day” on May 9. But by almost all accounts, there is no chance of any resolute outcome. In reality, the twin military and economic wars are likely to last for months, if not longer. Europe is a shortage or a complete lack of Russian energy next winter. The point is a phased embargo on Russian oil that would be squeezed over Putin over a period of weeks and months. Putin, for his part, has given signs that he is preparing for the Russian public, which could include a new conscription to help fighters dying and getting in Ukraine. Maybe we’ll know the outcome by May 9, 2023.

Markets are not prepared for an intensifying economic war between Russia and much of the rest of the world. Russia invaded after energy prices spiked and stocks fell 24, but markets have since stabilized. In the United States, traders are once again paying more attention to inflation data and the Federal Reserve than they are to geopolitical hotspots.

The oil prices could hit $ 200 a barrel if there was a full and effective embargo on Russia oil. The only time US oil prices were at that level, on an inflation-adjusted basis, was in 2008, as was a deep recession. Other factors hurt the economy more then oil prices back then, but we have other problems now, including, well, non-energy inflation and a rapid pivot from monetary easing to tightening. Recessions usually arise from a single source of confusion, rather than a single source, and there are still some economic shock waves in Russia’s military barbarism.

Rick Newman is the author of four books, including “Rebounders: How Winners Pivot From Setback To Success.”Follow him on Twitter: @rickjnewman. You can also send confidential tips.

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