Fortress Russia can withstand a longer economic siege than the West thinks

Fortress Russia can withstand a very long financial siege by the diminished West, and probably longer than the weakest links in the Atlantic alliance care to endure.

 Vladimir Putin is an order of magnitude less vulnerable to sanctions than he was after the annexation of Crimea in 2014. That episode occurred just as the global commodity boom was breaking, and at the onset of a deep structural downturn in oil and gas. …

Any attempt to block Russian crude exports through an Iran-style financial blockade would be unenforceable. China is the world’s biggest oil importer and would do as it pleased. Washington lacks the diplomatic clout in Asia to force everybody into line. Even if the policy ‘succeeded’, the oil shortage would risk a global recession and Joe Biden’s political demise.

 “You can’t just put Russia into a black hole and treat it as a pariah like Iran or North Korea because it is systemically important for the world economy,” said Christopher Granville, a Russia veteran at TS Lombard.

 The US Treasury learned this in 2016 when it targeted aluminium producer Rusal, only to discover that the Western aerospace and car industry badly needed Russian supply. “They took the bazooka out and within two weeks they had to draw back. It was too painful,” he said.

 Nor can financial strangulation work over time. After Crimea, Chinese banks were too afraid of US sanctions to finance the Russian Yamal project for liquefied natural gas (LNG). China’s sovereign wealth funds instead stepped in and put together a $14bn package. The project went ahead. “Yes, the US Treasury is powerful, but in the end Russia and China will get around it,” said Mr Granville.