Monday 30 May 2022

Wolfgang Münchau: Are sanctions making Russia richer?

In the Spectator an article by Wolfgang Münchau headlined

Are sanctions making Russia richer?

'At this rate, Russia’s current account surplus could hit $250 billion. So the extra money being banked by Russia is almost the same amount as the $300 billion of central bank assets and foreign currency reserves that were frozen by the West after the invasion.'

America will pay a price for freezing (confiscating) US bonds owned by Russia and it might be very high indeed.

I start to ask myself: is the West making a terrible mistake spending so much money on the Ukrainians?

I quote this by John Winterson Richards.

Is this an irony or a paradox? Putin invaded the Ukraine on the assumption that he would win a conventional war easily and the West responded by starting an economic war which it thought it would win easily - and both may turn out to be equally badly mistaken.
The war on the ground looks to be heading to a stalemate, probably with any territorial gains slightly in Russia's favour but not by much, certainly not enough to justify the political disaster of the humiliation of the Russian Armed Forces, and the grand strategic disaster of Finland and Sweden joining NATO. Putin overestimated the efficiency of his military and underestimated that of the Ukrainians.
Meanwhile, it looks as if Western sanctions may prove more damaging to the Western economies than to Russia. There are always markets for the raw materials which are the basis of Russian exports. Discounts can be used to cement existing alliances. For the rest, Russia appears to be retreating into autarky, which is far from optimal but which is not without a silver lining. It is politically advantageous to Putin that disinvestment by foreign businesses means selling their assets cheaply to Russians - some states have even adopted that policy deliberately: it is economically disadvantageous in the longer term but popular with the masses in the short term.

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