U.S. One-Sided Stupidity On Economic Sanctions Continues.

The Biden administration has made it clear that Russia will face “severe” economic sanctions if they invade Ukraine. These sanctions are likely to include a ban on Russian banks having access to the U.S. dollar payments system run by the Treasury and the Federal Reserve, as described in this article.

That’s problematic because Russia is one of the three largest oil producers in the world (along with the U.S. and Saudi Arabia) and produces about 10% of all the oil produced on a daily basis. Since oil is almost 100% priced in dollars, does this mean Russia can’t sell oil?

Equally important is a U.S. threat to prohibit sales to Russia of any goods made with U.S. machines or U.S. technology, including cutting-edge semiconductors. This ban would apply regardless of where the goods are actually made.

For example, semiconductors made in China using U.S. machines would be banned from sale to Russia. This would hurt Russian efforts in artificial intelligence, maritime technology and aviation, not to mention creating problems with China, Japan, South Korea, and other exporters to Russia.

No doubt these sanctions will prove costly to Russia. But the U.S. seems to believe the Russians are helpless and will just stand there and take the pain.

That’s a ridiculous assumption. In the first place, Russia has spent thirteen years building up its gold reserves, until they are now over 20% of the total Russian reserve position.

This gold is worth about $150 billion at current market prices and is safely stored in Russia. It cannot be hacked or frozen by Western sanctions. Physical gold can be used to satisfy external financial obligations either with a simple transfer or by using it as collateral for hard currency loans.

The other aspect the U.S. seems not to consider is the Russian response to U.S. sanctions. Russia will launch financial and economic sanctions of its own.

Russia will shut down energy deliveries to Western Europe which will cause them to freeze in the dark. Russia will increase its energy sales to China, which will defeat the purpose of U.S. sanctions. If Russia cannot use U.S. dollars, they can begin to use Swiss francs and other non-dollar hard currencies.

This sanctions war will do more harm to the global economy and Western interests than it will to Russia. Perhaps someone in the White House should give Joe Biden a clue about how sanctions actually work in a full-scale war scenario.

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