We must do what we can to contain Vladimir Putin’s aggression in Ukraine. But we also need to be clear-eyed about it, and face the costs. As I’ve said before, economics can’t be separated from politics, and neither can be separated from history. Here are eight sobering realities:
1. Will the economic sanctions now being put into effect stop Putin from seeking to take over all of Ukraine? No. They will complicate Russia’s global financial transactions but they will not cripple the Russian economy. After Russia annexed Ukraine’s Crimean Peninsula in 2014, the U.S. and its allies imposed economic sanctions which slowed the Russian economy temporarily, but Russia soon rebounded. Since then, Russia has taken steps to lessen its reliance on foreign debt and investment, which means that similar sanctions will have less effect. In addition, the rise of cryptocurrencies and other digital assets allow Russia to bypass bank transfers, which are the control points for sanctions. Bottom line: The sanctions already imposed or threatened could reduce Russia’s gross domestic product, but only by a few percentage points.
2. What sort of sanctions would seriously damage Russia? Sanctions on Russia’s enormous oil and gas exports could cause substantial harm. Russia produces 10 million barrels of oil a day, which is about 10 percent of global demand. It ranks third in world oil production (behind the United States and Saudi Arabia). It ranks second in natural gas (behind the United States), according to the U.S. Energy Information Administration.
3. Then why not impose sanctions on them? Because that would seriously harm consumers in Europe and the US — pushing up energy prices and worsening inflation (now running at 7.5 percent annually in the US, a 40-year high). Although the US imports very little Russian oil or natural gas, oil and natural gas markets are global — which means shortages that push up prices in one part of the world will have similar effects elsewhere. The price of oil in the US is already approaching $100 a barrel, up from about $65 a year ago. The price of gas at the pump is averaging $3.53 a gallon, according to AAA. For most Americans, that gas-pump price is the single most important indicator of inflation, not just because they fuel their cars with gas but because the cost is emblazoned in big numbers outside every gas station in America. (The biggest beneficiaries of these price increases, by the way: Energy companies like Halliburton, Occidental Petroleum and Schlumberger, which are now leading the S&P 500. Anyone in favor of putting a windfall profits tax on them?)
4. Will stronger sanctions weaken Putin’s control over Russia? Possibly. But they could also have the opposite effect — enabling Putin to fuel Russia’s suspicions toward the West and stir up even more Russian nationalism. The harshest U.S. measures would cause the average Russian to pay higher prices for food and clothing or devalue pensions and savings accounts because of a crash in the ruble or Russian markets, but these might be seen as necessary sacrifices that rally Russians around Putin.
5. Any other foreign policy consequences we should be watching? In a word: China. Russia’s concern about the West has already led to a rapprochement with China. A strong alliance between the two most powerful world autocracies could be worrisome.
6. What about domestic politics here in the US? Foreign policy crises tend to drive domestic policy off the headlines, and weaken reform movements. Putin’s aggression in Ukraine has already quieted conversations in America about voting rights, filibuster reform, and Build Back Better — at least for now. Large-scale war, if it ever comes to that, deadens reform. World War I brought the progressive era to a halt. World War II ended FDR’s New Deal. The Vietnam War stopped Lyndon Johnson’s Great Society.
Wars and the threat of wars also legitimate huge military expenditures and giant military bureaucracies. America is already spending $776 billion a year on the military, a sum greater than the next ten giant military powers (including Russia and China) together. Wars also create fat profits for big corporations in war industries.
The possibility of war also distracts the public from failures of domestic politics, as the Spanish-American War did for President William McKinley and the wars in Afghanistan and Iraq did for George W. Bush. (Hopefully, Biden’s advisors aren’t thinking this way.)
7. Could the sanctions lead to real war between Russia and the West? Unlikely. Americans don’t want Americans to die in order to protect Ukraine (most Americans don’t even know where Ukraine is, let alone our national interest in protecting it). And neither Russia nor the US wants to be annihilated in a nuclear holocaust.
But international crises such as this one always run the risk of getting out of hand. Russia and the US have giant stockpiles of nuclear weapons. What if one is set off accidentally? More likely: What if Russia cyberattacks the US, causing massive damage to US utilities, communications, banks, hospitals, and transportation networks here? What if Russian troops threaten NATO members along Ukraine’s borders? Under these conditions, might the US be willing to commit ground troops?
Those who have fought ground and air wars know war is hell. Subsequent generations tend to forget. By the eve of World War I, many in America and Britain spoke of the glories of large-scale warfare because so few remembered actual warfare. Today, most Americans have no direct experience of war. Afghanistan and Iraq were abstractions for most of us. Vietnam has faded from our collective memory.
8. What is Putin really after? Not just keeping Ukraine out of NATO, because NATO itself isn’t Putin’s biggest worry. After all, Hungary and Poland are NATO members but are governed in ways that resemble Russia more than Western democracies. Putin’s real fear is liberal democracy, which poses a direct threat to authoritarian “strongmen” like him (just as it did to Donald Trump). Putin wants to keep liberal democracy far away from Russia. Yet for nearly two centuries, Ukraine has been the leading edge of Western ideology and culture in the face of a reactionary Russia.
Putin’s means of keeping Western liberal democracy at bay isn’t just to invade Ukraine, of course. It’s also to stoke division inside the West by fueling racist nationalism in Western Europe and the United States. In this, Trump and Trumpism continue to be Putin’s most important ally.
Eight Sobering Realities about Putin's Invasion