All About the Money: As Ukraine Suffers, Will Russia Feel Any Pain?

“Sanctions work more slowly than it takes armies to move.”

I always follow the money. And right now, the United States and its allies are using money — or the lack of it — to pressure Putin into pulling back from Ukraine. Will it work? Read below, and share this story.

Vladimir Putin’s invasion of Ukraine was predicted, but the results have brought surprises — not just with the impressive fight put up by the Ukrainian people, but also by the way Europe has reacted.

Germany is supplying weapons to Ukraine and significantly raising its defense spending, taking its most aggressive military stance since World War II.

Switzerland has frozen Russian assets in its banks, a decidedly non-neutral move for a country that remained neutral as Hitler goose-stepped across the Continent.

More surprises may be on the way.

“The irony of [the invasion] could be that NATO could expand with Finland and Sweden,” says Steve Liesman. Steve is senior economics correspondent for CNBC.

He lived and worked in Russia in the ‘90s. Steve knows more about the Russian people and their economy than anyone I know. He thinks Putin has miscalculated, at least in the short term. “I think he thought that the Ukrainians would welcome him with open arms. He was wrong about that.”

Steve says that Western sanctions against Russia will take a toll, but they’ll also take time. “Sanctions work more slowly than it takes armies to move.”

THE RUSSIAN ECONOMY

Russia is the largest producer and exporter of natural gas in the world, and it’s the third largest oil producer. The United States imports 5–10% of its total oil supply from Russia, and we have not stopped those imports as of this writing. (If you’re wondering why we buy Russian oil when the U.S. is the largest oil producer in the world, well, without getting into the weeds, let’s just say it’s because we exist in a free market where oil prices fluctuate. Sometimes we are exporting oil for a better price, and then we need to import oil to meet demand. Also there’s an antiquated law that limits what kind of ships can be used to transport oil from one U.S. port to another, and… oh, who am I kidding? I don’t get it, either.)

“Russia will continue to get quite a bit of revenue from oil,” Steve tells me. Even more revenue than normal, as oil prices hover near a record high. CNBC’s Lori Ann LaRocco reported Wednesday that there were over 250 Russian oil tankers on the ocean, seven of them bound for the U.S.

That’s the good news for Putin. But there’s plenty of bad. The Russian currency has collapsed. “That means the Russian economy is probably going to go into a recession,” Steve says. Russian banks are raising interest rates from 9.5% to 20% to discourage people from withdrawing funds. Steve says that will adversely impact mortgage rates. “Russia does have a mortgage market.”

Then there are all the other sanctions, like no more iPhones from Apple, no more Boeing parts or maintenance for Russian airlines, no more oil and gas production in Eastern Russia by Exxon (though Exxon is leaving behind $4 billion worth of assets!).

Putin is trying to slow the financial bleeding by banning foreigners from selling Russian assets, and by banning Russians from sending more than $10,000 abroad.

PAIN FOR YOUR AVERAGE RUSSIAN

Does any of this mean anything to your average Ivan and Anna? Well, assuming they don’t have a loved one fighting in Ukraine (or family living there), it may not mean much. Yet.

“If you go buy a Russian loaf of bread,” Steve says, “your life may not be tremendously changed.” If you get paid in rubles and buy in rubles, “you’re not going to be affected very much by this.” Is life really going to be harder for your typical Russian because Warner Bros. won’t release its new Batman movie there?

Nyet. And yet…

Steve points out that a growing number of Russians have started to enjoy “some of the Western trappings of life” since the fall of the Soviet Union. Suddenly those people can no longer travel. Suddenly there’s a lot of things they can’t buy. “You may not have been able to afford the latest television import from Japan,” Steve says, “but it was there for you if you could.”

That means the pain may be more mental than physical for now. And nothing may hurt more psychologically than the loss of sports. “Russian teams are not allowed to play in the competitive soccer or football leagues,” Steve says. That’s a big deal for a guy living in Siberia whose few joys include watching soccer on TV.

Does your everyday Russian even care about Ukraine? When Steve lived in Moscow, Russians felt a loss of pride over the end of the Soviet Union. However, “Nobody told me their biggest problem was the loss of Ukraine, and nobody told me their problems would be solved by bringing Ukraine back into the fold.”

PAIN FOR YOUR AVERAGE OLIGARCH

It’s a different story for the estimated 100+ billionaires in Russia.

Forbes reports that with the collapsing ruble and plummeting shares of Russian companies traded on non-Russian stock exchanges, at least 10 Russian billionaires are back to being millionaires. They’ve gone from three commas to two.

That’s gotta hurt.

And it may soon hurt more. President Biden has established a task force dubbed “KleptoCapture” to go after the assets of oligarchs who’ve helped Putin. These same Russians can’t access their Swiss bank accounts (“I thought you were supposed to be neutral!”), and Elon’s Musk’s teenage airplane stalker is now trying to track the movements of their private jets.

A few oligarchs have taken to social media to call for peace and negotiations. We can see how effective that’s been. But seriously, who are you gonna be more afraid of: the Swiss, a task force called “KleptoCapture,” and some teenager… or Vladimir Freakin’ Putin?

PAIN FOR PUTIN

Putin can probably withstand a lotta pain, at least financially. The magnitude and nature of his wealth remain a mystery. No one knows exactly what he’s worth (except maybe the Swiss).

“Some people say he’s one of the wealthiest men in the world,” Steve says. Putin may have a stake in Gazprom, the state-owned natural gas company, which Steve calls “the largest company in the world.”

SO… DO SANCTIONS MATTER?

Sanctions may be doing more to unite Putin’s enemies than causing most Russians any pain. But as the financial losses slowly begin to degrade the Russian economy, and as body bags come home to Russian families, will the populace get fed up? Will protests reach critical mass? Will Putin be convinced he needs to find a way to retreat and still hold onto power?

Steve is skeptical.

“It is not the practice of Russians to challenge their leadership or demand the accountability of their leadership,” he says, “and it’s not the practice — or the tradition — of Russian leadership to much care about the pain of its population.”

So if this goes on for a long time, Ukraine won’t be the only country suffering. Russia will suffer too, from self-inflicted wounds. But, as Steve points out, this is nothing new. Suffering is Russia’s middle name. “They’ve been through worse.”

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Cover Image: Vladimir Putin attends meeting of Russian business leaders on March, 2, 2022/Mikhail Klimentyev, Getty Images