PUTIN UNDERSTANDS SACRIFICE. DOES THE WEST?
Now that Vladimir Putin is invading Ukraine, the West faces a test of a comfortable idea: that it can exercise power while making minimal sacrifices.
Three things have encouraged this appealing delusion. The West won the Cold War without having to fight the Soviet Union directly; the carnage was confined to proxy wars in poorer countries. The West has managed non-military challenges with relatively little sacrifice; the flu pandemic that began in 1918 killed 1 in every 150 U.S. citizens, many of them of prime age, whereas the coronavirus pandemic has killed around 1 in 500. On the flip side, where the West has accepted sacrifice, the payoff has been dismal. See: Iraq and Afghanistan.
Now, facing the Ukraine invasion, the United States and its allies are up against a dictator who imposes sacrifice on his people in the name of an antiquated, territorial vision of greatness. The West preemptively ruled out the option of matching force with force, arguing that Ukraine is not a member of NATO — never mind the fact that the security of NATO members bordering Ukraine will be undermined if Russia’s invasion is successful. Instead, the West has bet on the idea that it can fight Russia
with sanctions. But sanctions are not free. They, too, demand sacrifice.
Since the Ukraine crisis in 2014, Putin has shown a gritty understanding of this truth, while the West has done the opposite. As Matthew C. Klein observes in the Overshoot newsletter, Russia has used the past eight years to reduce its vulnerability to sanctions. The Russian people have accepted a drop in living standards, cutting their consumption of imports by more than a quarter. Russian businesses have paid off overseas creditors, reducing their foreign debt by one-third. The Russian state has tightened its belt, allowing it to build up its reserves of gold and foreign currency.
By embracing these sacrifices, Russia has fortified itself against the West’s economic weapons. The central bank has a $630 billion rainy-day fund. Even if sanctions blocked 100% of Russian exports for an entire year, the country could continue to import at its current pace and have foreign-exchange reserves left over.
The United States and its allies have options. They can ratchet up the sanctions on Russian parliamentarians and Putin friends, but the dictator will probably shrug at this. They can impose sanctions on particular financial institutions, but Russian companies that want to do business in the West will find alternative bankers. They can freeze
Russian government holdings of U.S. Treasury securities, but the Russians have already sold most of them. They can ban exports of semiconductors and other tech to Russia. Those effects would materialize slowly.
The sanction that would really count would be the suspension of Russia from the SWIFT system, through which banks exchange messages about payments. This would greatly complicate trade between the West and Russia, generating enough havoc to cause Putin genuine problems. Russia’s central bank might be bulging with reserves. But this money won’t be of much use if it cannot be used to buy imports.
For excellent and obvious reasons, Ukraine’s foreign minister has called upon the West to boot Russia from the SWIFT system. Expelling Russia from SWIFT would cause an energy crisis in Europe, so Germany has been opposed. For the moment, at least, it regards the sacrifice as unacceptable.
Of course, the West’s softness — its refusal to accept sacrifice — explains why Putin felt emboldened to invade Ukraine in the first place. Now, the West has to choose whether to ratify his calculation.