Putin can not ‘freeze’ Europe – but neither can the US stop Putin

By John Tamny

You can not be sure of the final destination of a good. This is a self-evident fact that is unfortunately overlooked by a group of commentators who decide – arrogantly – that everything is self-evident.

The latest proof that the deep-minded lack logic is Russian President Vladimir Putin. On the occasion of the gathering of 100,000 Russian troops on the border with Ukraine, tons of journalistic ink have been spilled on what should be done, what could be done and what could be Putin’s response to what – in theory – should or it could happen.

One way for the free world to stop Putin from occupying Ukraine is for the United States and other strong economies to cut Russia off from the “global banking system.” Sounds very simple. Cut off Russia’s access to hard currency and Putin will order his troops to gradually withdraw from the border with Ukraine.

But there is no logical way for the United States – or any other country – to cut Russia off from the global financial system. This is because the US dollar – like other reliable currencies around the world – has given new meaning to the term “exchangeability”, as has the financial one.

If we look at this issue in the light of the “loose” sanctions that are in place today, Russia will not have access – at US command – to the “world banking system” or the “dollars” at the exact same time that it will have access to global financial resources and dollars, simply because its economy is so strong that the sources of money want to provide liquidity to the country’s economic activity. Even if we assume that the US has the power to “freeze” Russia’s access to US funding sources or dollars, let us keep in mind that more than 50% of the dollars circulate outside the US. The money goes where it’s good; if it thinks it’s safe in Russia, it’s going to Russia, ignoring the wishes of American diplomacy and politics.

For example: it would not be unreasonable to assume that President Biden could ask JP Morgan, Goldman Sachs and Morgan Stanley to cease operations in Russia. Government approval is important for financial institutions. However, such a demand from Biden would not be of great importance to financial institutions dealing with Russians.

The financial sector is highly competitive. Market share is hard to gain. Assuming that JP Morgan and Goldman Sachs stop financing economic activity in Russia, does a reader put his hand in the fire that other sources of financing will not “parade” in the country, doing exactly what the aforementioned banks did? The answer to the question is self-evident. In the “closed ecosystem” that is the world economy, you can not stop the financial flows. Those who shut down are replaced, while those who “freeze” customers can not control the attitude of competitors towards the same customers.

The only real obstacle to the inflow of money is the lack of production. In this case, the sources of financial resources discover – always and everywhere – a productive economic activity.

And here we come back to Putin. A much-discussed barrier to sanctions (in terms of access to financial services) is Russia’s large amount of gas reserves. Foreign policy elites estimate that if sanctions were imposed on Moscow, Putin would respond by closing the door on the European Union in the middle of winter – when the European bloc meets more than 40 percent of its Russian needs. natural gas.

Enough of the problematic points in the above assessment. First of all, the share (and) in this market is hard to gain. Therefore, we find it hard to believe that the Russians would leave such a lucrative market so easily. Or else: it is unlikely that the Russians would cut off access to such a lucrative market. Why; But why do they need the money.

Some will say that the Russians could stop selling gas only to EU countries. Very well. You re-read the above. And now use your common sense. Suppose – an extremely unlikely scenario – that Russian producers decide to lose a lucrative market share just to sell gas to “others” – no one knows where the product will end up. Just as the United States continued to import oil from OPEC and the “Arab countries” in the midst of the 1973 embargo, so would EU countries continue to import Russian gas. The embargoes are symbolic.

In fact, all economic sanctions aimed at resolving foreign policy problems are symbolic. The truth is that – as producers – everyone ultimately deals with everyone; they invest in each other – whether they like it or not. In short, Russia’s access to financial services cannot be blocked, nor can Moscow cut off access to its gas.

What does all this mean for Ukraine? I do not have an answer, since I do not have special knowledge in foreign policy issues. What I can say, however, is that the attempt of experts, politicians and diplomats to play the “card” of the economy to curb Vladimir Putin’s ambitions will not work.

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