Saturday, March 5, 2022

The Great Siege of Russia

Russia, in the midst of laying siege to cities in Ukraine, is now realizing that its entire country is under siege from all corners of the world. This siege will make history, and I hope it marks the beginning of the end of Putin’s rule.

It seems like every country in the world, save China and Washington DC, is joining Ukraine in solidarity: seizing Russian oligarch’s bank accounts, villas, jets and yachts; refusing to process credit card transactions; disallowing Russian banks the use of the international clearing functions of the SWIFT network; canceling purchases of Russian oil (with the notable exception of the Biden administration, out of fear that might further escalate gasoline prices and further erode his polls); refusing to sell goods and services to Russia (e.g., computers, mobile phones); closing their skies to Russian airplanes; and shutting down social media accounts.

Meanwhile, in the past 2 ½ weeks, the Russian ruble has lost nearly half of its value. Russian is self-sufficient only in the realm of energy; it must import large quantities of just about everything else. How long before Russian citizens can no longer find, pay for, or afford the necessities of life? With Boeing and Airbus refusing to provide spare parts, how long before Russian airliners are no longer able to fly? With no access to global financial markets, how long before the Russian economy is starved of liquidity?

The world has become so interconnected that no country can long survive without the cooperation of others. Putin thought he could seize control of Ukraine in short order, but he underestimated the fighting spirit of the Ukrainians, and he never gave a thought to how the rest of the world might react to his actions.

How long before Russian citizens and/or its oligarchs rise up against the madman Putin?

We are witnessing a new form of warfare: global blockades of information, goods, and services.

Soon, we may learn that the world has defeated Putin without firing a single shot.


Benjamin Cole said...

The West financed Putin by buying his oil, and still does (with some notable exceptions).

The West financed Xi by buying everything, and still does.

wkevinw said...

Great comments.

The intended consequence of global trade is the interdependence that is on full display for the current Czar (Putin).

The sieges smell to high heaven. The military is encircling strategic locations, but the utilities are still functioning and I saw reports that groceries are still available. The czar does not want to siege or destroy unless he "has" to.

Unlike many observers, I think the actions are easier to take now that we have certain technologies like instantaneous communication, fracking, etc. We need more oil supply.

Just return the energy markets to a more normal condition, and the majority of the economic and geopolitical problems disappear.

alpacino said...

Thanks Scott! What are your thoughts on commodities soaring in price? The world could see very high gas, food, copper, steel prices. They will drive inflation higher and higher.


Scott Grannis said...

alpacino: rising commodities prices are partly the result of supply bottlenecks and shortages (made worse due to the war in Ukraine, which is a key source of many commodities), and partly the result of excess money. If money were tight, higher commodity prices would force other prices to decline, and that's something we haven't seen yet. Inflation is when there is a widespread increase in prices: a rise in the general price level. And that can only occur if there is an excess of money. I think the evidence points to an excess of money, which means we are likely to see further increases in many prices.

Ataraxia said...

Shutdown shock, supply chain shock, global trade shock, freedom shock, inflation shock, wealth transfer shock, shelter cost shock (low substitution options), war shock. Does this compare to any other historical periods?

steve said...

Exactly the wrong time to have old, addled pols most notably our POTUS. Is the US the only country in the world where we continue to elect these ancient dinosaurs?

Brian Wesbury said...

Very concise...very correct. Thanks Scott, Best, Brian Wesbury

cactus flower said...

What did you mean by "every country... save China and Washington DC is joining Ukraine in solidarity"?

Fred said...

The problem is that if Putin is crazy then we are dealing with a madman with nuclear weapons who may feel he has nothing to lose by setting them off if Mother Russia is about to be destroyed economically.

steve said...

Yes Fred you are quite right. Hence, the markets reaction and why the 10 year is trading where it is when inflation is skyrocketing. Scary times and not since Bay of Pigs is the nuclear option on the table for Mother (F-er) Russia. The longer Putin is in control the more dangerous it gets.

The Cliff Claven of Finance said...

Russia is more self sufficient than most nations, is making a fortune selling natural gas to Europe, and has a great friend in China, who will buy whatever oil they want to sell. China also has a substitute for SWIFT.

Russia's greatest competitor for wheat exports was Ukraine. 2022 does not look like it will be a good farming season in Ukraine, if there is still fighting. And maybe the farms will be controlled by Russia by harvest time? Under normal conditions, Ukraine exports tremendous amounts of food and is considered to be one of the most important “breadbaskets” on the entire planet. For one example,the Lebanese normally get 60 percent of their wheat from Ukraine.

The US and UK promised to defend Ukraine in 1994 in return for them giving up their huge stockpile of nuclear weapons. Then the US did nothing to stop the seizure of Crimea in 2014, did nothing to prevent the Ukraine invasion, and at best sent some anti-tank missiles there under Trump. The sanctions will not stop Russia.

But now the vulnerable nations in the world, from Taiwan to Israel, are sure the US CAN NOT be counted on to defend their allies. In fact, the US is obviously a "It's none of our business -- what's in it for us" nation. That's the libertarian, isolationist, appeaser's dream (nightmare) -- Hey that slaughter in Ukraine is none of our business -- that defense agreement was in 1994, under Clinton -- you can never trust a Clinton -- the Ukrainians should have known that back in 1994.

No nation in the world will ever give up nuclear weapons after seeing what happened to Ukraine.

If Russia wants to win this war, sanctions will not stop them.

Especially with the EU buying so much natural gas at very high prices and China doing what it can to help. Because the attack did not go as well as predicted, the Russians will just resort to killing civilians and destroying civilian infrastructure if there is too much resistance. Just like the US did with the unjustified attack of Iraq (we must attack because they did not participate in 9/11 and did not have weapons of mass destruction) -- we had no hesitation to kill civilians in Iraq and destroy civilian infrastructure. Do you think Russia will not do the same in Ukraine?

The US let this slaughter begin -- was it not obvious 100,000 Russians on the border in the coldest part of the winter were about to attack?

The US then ignored a defense of Ukraine agreement from 1994, signed by our president.

And the US will do almost nothing to stop it. Sanctions are almost nothing.

The US is Not a country we can be proud of. We are appeasing the bully Putin.
What country will b he attack next? How about Moldavia?
And I have to think the people of Taiwan are getting very nervous.