Putin reminds the world he still wields a powerful weapon
LONDON » In the five weeks since Russia invaded Ukraine, the United States, the European Union and their allies began an economic counteroffensive that has cut off Russia’s access to hundreds of billions of dollars of its own money and halted a large chunk of its international commerce. More than 1,000 companies, organizations and individuals, including members of President Vladimir Putin’s inner circle, have been sanctioned and relegated to a financial limbo.
But Putin reminded the world this past week that he has economic weapons of his own that he could use to inflict some pain or fend off attacks.
Through a series of aggressive measures taken by the Russian government and its central bank, the ruble, which had lost nearly half of its value, clawed its way back to near where it was before the invasion.
And then there was the threat to stop the flow of gas from Russia to Europe — which was set off by Putin’s demand that 48 “unfriendly countries” violate their own sanctions and pay for natural gas in rubles. It sent leaders in the capitals of Germany, Italy and other allied nations scrambling and showcased in the most visible way since the war began how much they need Russian energy to power their economies.
The EU gets 40% of its gas and one- quarter of its oil from Russia.
For the time being, it appears that the prospect of an imminent stoppage of gas has been averted. But Putin’s sudden demand for rubles helped prompt Germany and Austria to prepare their citizens for what might come. They took the first official steps toward rationing.
Europe’s ongoing energy purchases send as much as $ 850 million each day into Russia’s coffers, according to Bruegel, an economics institute in Brussels. That money helps Russia to fund its war efforts and blunts the effect of sanctions.
“The lesson for the West is that the effectiveness of financial sanctions can only go so far absent trade sanctions,” the firm said in a research briefing.
Putin also has taken steps to insulate Russia’s economy from the effect of sanctions and to
prop up the ruble.
When the allies froze the assets of the Russian central bank and sent the ruble into a downward spiral, the bank increased the interest rate to 20%, while the government mandated that companies convert 80% of the dollars, euros and other foreign currencies they earn into rubles to increase demand and drive up the price.
Aside from currency woes, Russia is struggling economically in other ways.
The country is facing a deep recession, and several analysts estimate that the economy could shrink by as much as 20% this year. An S& P Global survey of purchasing managers at Russian manufacturing companies showed severe declines in production, employment and new orders in March, as well as sharp price increases.
In a matter of weeks, Putin undercut business and trade ties between Russia and more wealthy economies that took decades to build after the demise of the Soviet Union.