Evil Genius Or Evil Idiot? Putin Sanctions Russia

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Putin’s requirement that its “enemies” purchase Russian energy with rubles is of no economic consequences for the ruble or anything else. NATO will reject this symbolic diktat, effectively imposing a ban on Russian energy — NATO’s unused economic sanction. Putin is again shooting Russia in the head.

Is Putin an evil genius as everyone believes? Or is he an evil idiot as his actions belie? Putin’s insistence that Germany and other NATO purchasers of Russian energy do so in rubles adds to the mounting evidence that he’s an idiot. As for evil, Putin is a serial killer, whether we are talking about killing individuals or countries. No doubt he will shortly be tried, in absentia, as a war criminal.

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Why is Putin’s ruble-for-energy requirement first-order stupid? Won’t it support the value of the ruble and, thereby, reduce the cost of whatever imports Russians can still purchase? Certainly, the press has drunk this Kool-Aid.

But the answer is absolutely not.

Take Germany. It’s been buying Russian energy with euros. The transaction entails Russia ending up with more euros and Germany ending up with more energy. Under Putin’s decree, Germany would use euros to buy rubles. It would then use rubles to buy Russian energy. The extra hoop through which Russia requires Germany jump leads to exactly the same outcome — euros are swapped for rubles and rubles are swapped for Russian energy. Germany ends up with the same Russian energy and Russia ends up with the same euros.

As for the ruble-euro exchange rate, the extra demand by Germany for rubles is offset by the reduced demand for rubles by Gasprom, the Russian energy exporter. Why? Because Gasprom will no longer be paid in euros, which it’s been selling for rubles. Yes, Gasprom may have been hoarding some euros. But, by law, it was required to convert 80 percent. As for the remaining 20 percent, whether it’s held in Gasprom’s account with the Russian Central Bank or in the Central Bank’s own account, makes no difference. Gasprom is fully controlled by the Russian government. So, if it needs more euros, it can always grab them from Gasprom. Indeed, that’s what the 80 percent rule is conveying.

The cosmetic rubles for energy rule, were Germany and other “enemies” to Russia to comply, would have no economic benefit. But compliance to a Putin diktat, even if of no economic consequence, is not something that NATO members will not do. It’s akin to requiring they package the euros they are now swapping for Russian energy in containers painted with the Russian flag.

Not gonna happen.

What will happen is that NATO countries won’t comply and Putin, will have, once again, cornered himself and be forced stop the sale of Russian energy. Thus, he will impose on Russia the last major economic sanction that the West can levy against Russia — a ban on Russian energy imports, albeit conducted via a Russian ban on Russian energy exports.

Putin, in short, is, yet again, shooting Russia in the head. His comrades would do far better to retarget his gun.


Credit: www.forbes.com /

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