Biden Talks A Good Game On Russian Sanctions. But They’re Not Working.

The headlines have been full of stories about U.S., UK, and EU financial sanctions on Russia because of its invasion of Ukraine. The list of sanctions is indeed daunting.

They include freezing the reserves of the Central Bank of Russia, banning the top Russian banks (and the Central Bank) from use of the international bank message system called SWIFT, banning exports of high-tech equipment and semiconductors to Russia, seizing assets of Russian oligarchs and taking steps to ban Russian exports of oil and natural gas.

Biden said he would “crush” the Russian ruble (RUB) among many other threats. In retaliation, Russia has imposed its own counter-sanctions including prohibitions of exports of strategic and precious metals, limiting exports of wheat, and turning off some natural gas flows to Poland and Finland.

How is the financial war on Russia working out? The short answer is not well at all.

Oligarch assets have been seized, but that’s exactly what Putin wants. Putin’s base is the military, the intelligence service, the Orthodox Church, and everyday Russians. Putin has always regarded the oligarchs as potential political enemies but was unable to strip their wealth. Now the U.S. and UK are doing his dirty work for him.

Strangely, the oil and natural gas flows from Russia have been mostly uninterrupted and Russia is still earning over $5 billion per week in hard currency for those exports.

If you read the fine print on many of the announced sanctions, you’ll see that the effective dates are August 2022 (at the earliest) and many have effective dates of year-end 2022. Still, these are not real effective dates. They’re more like confessions of weakness with a dose of wishful thinking that maybe the War in Ukraine will be over by year-end and nothing will actually have to change.

The latest meaningless effort by the U.S. is described in this article. The Biden administration is working with the EU and UK to destroy Russia’s role in the global energy supply. This plan would involve price caps on Russian exports and secondary boycotts of those who continue to do business with Russia or who do not honor the price caps.

You can think of this as another charade by the Biden administration. Russia provides about 10% of global oil, only slightly less than the U.S., and about the same as Saudi Arabia. Together the U.S., Russia, and Saudi Arabia provide over 30% of the global oil supply (and much of the natural gas as well).

There’s already a global energy shortage, which is leading growing economies like China and India to expand their use of coal. Oil is a world market with a world price (subject to minor variations based on quality and logistics).

You can’t impose price caps on a fungible commodity; producers will work around them or evade them. You can’t cut global oil supplies by 10% without creating a global depression and mass starvation.

In short, Biden’s plan is a non-starter. But don’t tell that to the Biden administration. They prefer the feel-good politics of a press release and cheerleading by a compliant media.