More aggressive sanctions could stop Russia – and also hurt the West

  • Russian sanctions are not enough to stop Putin – in fact, his crude oil exports are increasing.
  • The West could end the war in Ukraine by completely banning Russian oil and gas, a former Putin adviser has said.
  • But that would risk further boosting inflation, especially in Europe where Russian oil is in high demand.

While Americans are experiencing what President Joe Biden has called “Putin’s price hike”, the sanctions driving this inflation are not doing enough to stop Russia’s invasion of Ukraine.

A harsher punishment would necessitate much more economic suffering in the United States and Europe.

Russia is, for one thing, the most sanctioned country in the world, with most of the latest measures a direct result of its attacks on Ukraine. But those attacks continue, with new satellite images showing Russian troops massing near eastern Ukraine. Although the West has severed its financial ties with Russia and drastically reduced imports of Russian oil and gas, Vladimir Putin’s war continues.

The West could increase its sanctions to a level that would force Putin to retreat, according to some of the Russian president’s former associates, but such a move would worsen inflation and increase the risk of a short-term crisis.


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Russian crude oil exports are on the rise

Thanks to renewed demand from India and long-term contracts with China, Russia is exporting more crude oil. It comes after the country exported a record 4.7 million barrels a day through 2021, according to the International Energy Agency. The West has taken unprecedented steps to hammer Russia’s massive energy trade, but there is still enough demand elsewhere to keep the sector afloat.

This allowed the Russian government to continue raking in $1 billion a day from oil alone, a sum that was essential in raising the value of the ruble and financing the invasion, said Oleg Ustenko, economic adviser to President Volodymyr Zelenskyy. , in an interview with South Korea on Sunday. MoneyS media.

The problem, according to exiled oligarch Mikhail Khodorkovsky, is that the sanctions have simply not been strong enough. The United States must demonstrate a “coherent policy of force” if it is to stop Putin in his tracks and go beyond sanctions against banks, the energy industry and Russian elites, he said. added in an April interview with Bloomberg.

Elsewhere, Putin’s former chief economic adviser told the BBC a few days later that “a real embargo on oil and gas exports to Russia” could end the war “by a month or two”. While the United States instituted a total ban on these products, the United Kingdom announced a plan to phase out oil imports throughout the year.

The EU took an even softer stance, saying in early April that it would ban coal imports and continue to consider an oil embargo. This is probably because the EU depends on Russia for around 40% of its natural gas and around 27% of its oil imports. By comparison, Russian oil and petroleum imports accounted for less than 2% of US supply. This leaves the EU and the UK much more vulnerable to an inflationary crisis. European countries could ban Russian energy entirely, but this would lead to a sharp spike in prices.

It could also exacerbate the inflation problems the region is already facing. Supply chain strains continue to trap major economies, and rising energy prices would almost certainly lead to higher shipping rates. This would affect all kinds of goods and further widen the gap between supply and demand.

Crude oil and natural gas are also essential to many manufacturing processes. Fertilizer producers, for example, rely heavily on natural gas, and rising gas costs would force these companies to raise prices. Yet fertilizer costs are already historically high, threatening famine and higher food inflation around the world. The intensification of bans on Russian energy products could trigger chain reactions that would worsen inflation throughout the Western economy.

Economic pain could be the key to stopping Russia, but for the West to distribute it, it must also be prepared to bear it.

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