By Helen Raleigh | The Federalist
Last week, the United States imposed sanctions on four large Russian banks and
restricted certain Russian state-owned enterprises from raising money in
international markets. On Monday, the U.S., the European Union, and the United
Kingdom took an extraordinary step to sanction Russia’s central bank, the Bank of Russia,
preventing it from moving assets it held abroad to stabilize Russia’s economy,
or “using other government and private banks to manage central bank
operations.” Additionally, the U.S. Department of Treasury prohibited Americans
from doing business with Russia’s central bank, finance ministry, and Russia’s
sovereign wealth fund. No country’s central bank had ever been sanctioned like
this before. According to officials from the Biden administration, these latest
sanctions targeting Russia’s banking and financial systems represent the West’s
“biggest sanctions campaigns in the past half-century.”
Consequently, the Russian ruble tumbled more than 20 percent. At the market close on
Monday, one ruble was worth less than 1 cent. The ruble’s devaluation will
negatively affect Russia’s economy in many ways. It will worsen the country’s
already high inflation (Russia’s inflation rate was 8.7 percent in January
2022), lower the living standard, and make it hard for Russian companies to
raise capital for existing business operations or future expansion.
The ruble’s devaluation also hurts consumer confidence
and may even cause a run on the bank. Nervous Russians reportedly lined up outside of banks and ATMs to get
their money out, a scene the country hadn’t seen since the fall of the former
Soviet Union in 1989.
In response, the Bank of Russia was forced to raise the
interest rate from 9.5 percent to 20 percent and close the country’s stock
market for this week. The central bank also ordered Russian companies to sell 80 percent of their
foreign-currency revenue. The move was designed to stop the ruble from falling
further by creating artificial supply-demand and giving the central bank access
to foreign currencies such as U.S. dollars. The ruble bounced back some the
next day due to these measures. As of Tuesday morning, one ruble was worth 8.6
cents.
Energy Sector Exempt
No doubt, the latest round of western sanctions has
caused some damage to Russia’s economy. But they are not as effective as they
could have been because Russia’s energy sector is exempted. Russia’s energy companies continue to export oil
and gas worldwide, making phenomenal profit due to skyrocketing energy prices,
and evade sanctions by bringing badly needed foreign currencies back to
Russia.
The energy sector plays the most vital role in Russia’s
economy, which is about the size of South Korea’s. Russia’s energy sector
accounts for 14
percent of the country’s GDP. The country is the world’s largest
natural-gas exporter and one of the main oil suppliers. Revenue from the energy
sector has helped Russia accumulate $630
billion in foreign exchange reserves in recent years and contributed
to more than 40
percent of the country’s federal budget.
A study by
the Kiel Institute for the World Economy, a think tank based in Germany, shows
that an “embargo on gas would drag Russia’s GDP down by nearly 3 percent and
halting imports and exports of crude oil would result in a slump of more than 1
percent.” However, by leaving Russia’s energy sector alone, current western
sanctions may knock out Russia’s GDP by only 1
percent.
Justifying the Exemption
President Biden defended the
carve-out of Russian energy from sanctions as necessary “to limit the pain the
American people are feeling at the gas pump.” Under his watch, gas prices have
skyrocketed 60
percent, and the United States has doubled the
amount of crude oil imports from Russia last year.
Although imports from Russia account for only 3 percent
of overall U.S. crude oil imports in 2021, the United States is on track to
become more dependent on Russia’s oil as President Biden doubles down on
his war
on the U.S. energy industry to advance “green energy.”
President Biden said another reason for exempting
Russia’s energy sector from sanctions is to maintain the economic stability of
our European allies, which are far more exposed to Russia’s energy industry due
to their ongoing crusade against fossil fuels. About 30 percent of the European
Union’s gas imports and 35 percent of its oil imports come from Russia.
Germany, the largest economy in the European Union, is
even more vulnerable — 36 percent of its natural gas imports and close to 40
percent of its oil imports come from Russia. After Russia invaded Ukraine,
Germany halted the Nord Stream 2 pipeline project to show
solidarity with allies. But Germany’s move is mainly symbolic because it
continues to import gas from Russia via the existing pipeline that runs through
Ukraine.
Germany is also on track to phase out coal as soon as
2030 and will not extend the life of its three remaining nuclear power plants.
Without Russia’s energy supply, some estimate the EU’s reserves would only allow its member
nations, including Germany, to survive for three months.
Green Energy Puts Us in Weak Position
Ironically, the United States and European Union’s war on
fossil fuel in their own backyard has forced them to rely on energy supplies
from an adversary. Not sanctioning Russia’s energy sector neutralizes western
sanctions and damages the credibility of the United States and our European allies.
How can Putin take us seriously when he gets a slap on
the wrist on one hand but receives handsome payment on the other hand because
we cannot live without his energy supply? How can leaders in the United States
and the European Union sleep at night, knowing that Putin uses every cent we
pay for every drop of oil from Russia to finance his war?
As a Wall Street Journal editorial points out, “Russia’s invasion of Ukraine is a 3 a.m.
wake-up call to President Biden and America’s liberal political class: Cease
your war on U.S. energy. Europe’s climate obsessions have rendered it
vulnerable to Putin’s extortion, and the U.S. is in danger of
repeating that tragic mistake.”
Suppose the United States and European uinon are serious
about stopping Putin from committing more atrocities and ending the war on
Ukraine. In that case, they must start sanctioning Russia’s energy sector
immediately and hurt Putin where it hurts the most.
To alleviate economic pain back home, both the United
States and the EU must halt their war on fossil fuel and free energy from
ruinous policies. Without taking these steps, sanctions will not be effective,
Putin has no incentive to change his behaviors, the Ukrainians will continue to
suffer, and the United States and the EU look like nothing but
hypocrites.
Helen
Raleigh, CFA, is an American entrepreneur, writer, and speaker. She's a senior
contributor at The Federalist. Her writings appear in other national media,
including The Wall Street Journal and Fox News. Helen is the author of several
books, including "Confucius
Never Said" and “Backlash:
How Communist China's Aggression Has Backfired." Follow her on Parler
and Twitter: @HRaleighspeaks.
