Putin's War Against the Ruble

Perhaps the most important story in the world today failing to get the front page coverage it deserves is the fate of the Russian economy — currently in shambles and possibly headed toward a catastrophic collapse. Behind Vladimir Putin’s pyrrhic victory in Mariupol is a suicidal assault on the Russian economy. As long as he remains in power, the ruble is headed into the basement of the world financial system.

Putin’s relentless antisemetic campaign against Ukraine’s Jewish President Volodymyr Zelensky has inevitably inspired preposterous attacks on Jewish bankers and financial institutions who made him the kleptomaniac he is.

In the spirit of the blood libel known as the Protocols of the Elders of Zion, first mass marketed in Russia in 1905, Putin has defined Jews as public enemy number one. Lining up with masterminds of the Holocaust, Putin’s depraved Foreign Minister Sergei Lavrov, pumping his fist over mass Ukrainian graves, argues that the freely elected leaders of Ukraine are Neo-Nazis.

Putin’s propaganda blitzkrieg advances the preposterous notion that the financial community led by Jews is at the heart of the Zelensky government in Kyiv. In fact Jewish business leaders and investors have long been central to the growth of the Russian economy. It is also true that Jewish attorneys were on the team that helped Russia resolve its sovereign debt crisis at a whopping discount. To wit, Putin heavily recruited and enriched Jewish oligarchs to rebuild his nation’s economy and help him become a surreptitous billionaire.

Now that the international business community is deserting Russia and sanctions are paralyzing the economy, Putin’s race war has turned Moscow into an economic pariah shunned by the international financial community. In the end, this will become his painful legacy.

Virtually every sector of the Russian economy — from agriculture to aviation to oil and gas — is being devastated by Putin’s irrational attack on the livelihoods of his own people.

To help quantify this economic death march, I spoke with an expert who has worked in the international finance sector for more than 30 years. His perspective illuminates the tragic consequences of the Russian dictator’s economic and political isolation.

Here is his take on Russia and Putin’s future.

In the months and weeks prior to the Ukraine invasion virtually all the experts including government officials, fund managers, intellectuals, academics, think tank leaders and economists contended that Putin was not going to attack. One of my associates was in the Ukraine the week before Putin began his assault and he returned home convinced that full scale war was not going to happen.

The assumption was that Russia could not afford to lose Western investment. Overnight he has put in place incentives for major customers like Germany to replace Russian gas and oil with solar and wind energy, even coal, which is not good for the environment. It’s the same thing with minerals and agriculture now being sourced elsewhere.

It’s important to understand that on the global scale Russia is not a big player. For example the Canadian GDP roughly equals Russia’s even though it is a far smaller country. Russia right now is just three percent of the emerging markets and that number is headed down. Since the invasion Russian stocks have lost 98 percent of their value on the UK market.

Putin guessed the sanctions would resemble the wallpaper that set back the Russian economy following the Crimean war. I don’t think he anticipated the degree of unanimity among Western countries on sanctions.

The ruble has crashed and is shunned in foreign markets. Trade restrictions have crippled the wealthy who can’t even buy spare parts for their grounded business jets. China, badly hurt by Covid, is reluctant to thumb their nose at America and bail out Russia because their companies could be excluded from U.S. markets if they fail to comply with sanctions.

Making all this much worse is the enormous expense of fighting the war as revenues are collapsing. The people are becoming poorer and poorer. Yes, Putin is very popular in opinion polls. If I was living in Russia and asked my opinion I would give a positive response rather than risk retaliation. The question key question not being asked in these polls is: "How long can people be duped by Putin this time around?"

Because the ruble is barely trading, he can attempt to prop it up and manipulate it. That doesn’t mitigate the fact that Russians can’t buy foreign currencies. To make matters worse, over $300 billion in Russian central bank assets frozen in Western banks are suddenly worthless.

It does not appear that he was attacking Ukraine for the money. He was attacking for the glory of Russia, to reestablish the old Soviet Union and create a route to the Black Sea as opposed to stealing actual assets. He doesn’t intend to rebuild the Ukraine.

He never counted on this war becoming an economic sacrifice. He’s surprised at how long Ukraine has held out and how unified the west has been. Would you ever imagine that Germany would announce overnight a massive increase in their military spending or that Finland and Sweden would apply to join NATO. It is very significant that all the European countries, America and the entire Western world has united in a way no one thought possible.

In the long term the war is catastrophic for Russia. Who in the west is going to spend $30, $40 or $100 billion to develop oil fields, invest in infrastructure and find a way to bring it out of the country? Keep in mind that a lot of these fields are in harsh environments. I can’t imagine that it is cheap oil. Certainly the sanctions will stay in place until Putin is gone, regardless of how the war plays out.

The rest of the world can live without Russia. Yes, if you were dealing with China you could say that over time it’s possible the people could find ways to reinvest in that market. But that is not what is happening here.

Russia is such a small player globally that no one really cares. They only have oil, gas and a limited number of commodities. The number of people impacted by their inability to trade with the west is so small there won’t be any pressure to take off sanctions. The temptation to access that market wouldn’t be close to China’s draw.

Compare his failing approach to China where the government is very careful to keep food prices low. Their leaders are very aware that their staying power is linked to how the economy is performing.

Putin doesn’t have an economic theory. Right now it’s hard to see how he will have the economic means to continue this war. I have a diplomat friend who couldn’t understand how Putin could afford the money he was spending to prop up the regime of a brutal dictator like Syria’s Basha al-Assad This time his colossal mistake has unified his enemies.

When Putin says everything is going according to plan it’s becoming increasingly clear that his plan is a mirage. Right now the ruble is headed toward the ashcan of history.