Good Friday Morning, and March Madness continues! One seeds are falling! Schools I’ve never heard of before are winning! And the fun continues (absent Tennessee, which still smarts). Hopefully, you’ve had time to enjoy the action.
This week, I’m doing a write-up focused on how Russia could win the war in Ukraine, and become a far more complicated issue for the West. Links to follow.
Where you can find me this week
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[03/21/2022] Preparing for inflation to famine – Conservative Institute
[03/25/2022] The Jackson hearings don’t matter, what comes after does – Conservative Institute
Russia strikes back, and how Putin could win.
Sometimes, the big story is evident when I write each week, or I chase a personal rabbit trail. This week, the big story is less obvious, and it plays into some of the economic writing I’ve done.
The intriguing aspect of the Ukraine war it’s an economic war between Russia and the West. Vladimir Putin built up Russia economically to withstand this exact response. He’s had decades to look at how the West managed countries like North Korea and Iran.
Two weeks ago, I wrote, “Russia hasn’t responded to Western sanctions. They have talked of sanctions and nuclear saber-rattling. So far, however, Russia didn’t bring out the big gun: ending oil and natural gas flows to Europe. Russia isn’t doing this for two reasons: first, they need the oil and gas money. And two, Russia hasn’t built up enough pipelines with China to offset the loss of European business.”
This week, we’ve got a proper response from Russia. From Yahoo Finance, Putin wants Europe to pay for Russian oil/gas in Russian rubles:
Vladimir Putin has made it clear: If you want Russian gas, pay in rubles.
The President said on Wednesday that Russia will seek payment in its official currency in exchange for gas sold to “unfriendly” countries.
“I have decided to implement a set of measures to transfer payments for our gas supplies to unfriendly countries into Russian rubles,” Putin said in televised remarks.
It isn’t clear yet whether Russia has the power to unilaterally change existing contracts already agreed upon in euros.
European gas prices jumped 30% after his announcement, while the struggling ruble briefly rose to a three-week high above 95 against the dollar. The ruble is down more than 22% since Russia’s invasion on February 24, and was last at 96.25 against the dollar.
There are some legal questions involved here. Russia’s energy agreements with European countries get done by contract. Changing the contractual terms likely violates those agreements. That works both ways, the Europeans could be out from those contracts, but they also need Russian oil. Putin exerts his leverage here to force Europeans to prop his currency up.
So why is it essential for Putin to do this? The ruble is in a freefall — one ruble is barely worth a penny. He wants the West to support him. As the Intelligence Quarterly group put is:
This decision from Moscow is basically forcing European nations to either boycott Russian oil gas or to avoid their own sanctions. It’s also a message to China as Russia is basically saying that it does not engage in sanctions. This is the west sanctioning itself, not Russia sanctioning the west.
Putin is saying fine: If you want your sanctions, you will pay for them. A piece in the Telegraph makes the case that while Russia’s economy is wounded from sanctions, it can recover. If Putin can limp along for a while and continue grinding out war in Ukraine, he can achieve victory.
That telegraph piece ends with the following observation:
It is a strategic imperative to bring this crisis to a head immediately by raising the ante. A total energy embargo would buttress the military resistance of the Ukrainian armed forces and test whether it is even possible for Putin to continue prosecuting a bungled invasion.
As matters now stand, the sanctions have failed to achieve anything. It is Ukrainian resistance, and military kit mostly provided by the Anglo-Saxon powers of Nato and frontline EU states, that have so far held the line. Core Europe has done little more than bleat on the margins.
The spontaneous willingness of European nations to welcome millions of refugees is marvellous – and the UK should drop its tone-deaf visa requirement immediately – but what is most needed is to confront the cause of this vast human convulsion.
It’s not a coincidence Putin made this announcement while Biden is in Europe trying to strengthen Europe’s response to the war. The critical country involved is Germany. To their credit, Germany says they are refusing to go along with Putin’s demands. However, various German public agencies are warning that gas supplies are low. They want to implement an early warning system for gas reserves.
Russia needs Germany and Europe’s money. Europe needs those energy flows to stay open, even though that money is bankrolling the war in Ukraine. Who breaks first?
That’s the first unknown for this week. The second is: what’s going to happen in Ukraine?
On a daily basis, I admit I bounce between optimism for the Ukrainian people and dread that Russia can still win this thing. To track the progress of the Russian military, I’ve relied on maps from three sources: The French military, the UK military, and the Institute for the Study of War (which is the closest we can get to a US-produced map).
There is a considerable agreement between the three sources. My concern is an overfocus in American media regarding Ukraine holding Kyiv. That city is vital; however, it’s not the only target. While Russia is attacking Kyiv, it is destroying southern cities like Mariupol.
The brutality of what is happening to Mariupol cannot be understated. Estimates say 90% of the city is destroyed. Ukrainians are digging mass graves for each other. There’s no food, water, or supplies. The Deputy Mayor of Mariupol went on Fox News and said his people were suffering genocide and war crimes at the hands of Russians.
If Mariupol falls, Russia will effectively control the southern parts of Ukraine. Russia can use that victory to consolidate and then take Odesa or Dnipro. Russia would possess all the main waterways, access to the Black Sea, and a majority of the nuclear power plants.
This tactic should look somewhat familiar for students of history: it’s a version of the anaconda plan from the Civil War. If Russia can choke off access to all areas from the West, Russia will have the upper hand. Ukraine will hold Kyiv and have access to the West through Poland. But Russia will have a strong hand at the negotiating table.
If Russia’s “plan B,” since the quick strike has failed, involves strangling Ukraine, they’re on the path to achieving something like that. Russia controlling the Black Sea would cause other problems geopolitically because it puts the Russian Navy right on the doorstep of Istanbul. You have the Bosphorus strait, which gives you access to the Dardanelles and Mediterarraian Sea.
Kyiv is important for political reasons and European support. Southern Ukraine and the Black Sea are critical for broader geopolitical reasons. It wouldn’t shock me if Putin tried to consolidate his position in the south and use that to set up a long-term strategy. Suppose he had unfettered access to those sea lanes. In that case, it’d be challenging to enforce sanctions anywhere in Eastern Europe or Asia.
I’ve written two columns recently (here and here) on the potential for famine and a food crisis resulting from this war. France is openly warning of famine in the next 12-18 months. Countries in that region are highly dependent on Russian and Ukrainian grain exports. Ukraine may not be able to produce. Russia, however, is claiming it will undercut countries like Australia to provide grain.
The key for Russia to do this smoothly will be controlling the Black Sea, Ukrainian farmland, and wiggling around sanctions. There’s a viable pathway developing for Russia to win. If that occurs, Putin becomes an even worse problem for the West, and the butchering in Ukraine will deepen.
Part of my writing this week is an attempt to counter a sense I’m getting in US media that’s too “rah rah, Ukraine.” I’m concerned people believe Ukraine is legitimately winning this war, and Russia cannot win. Long-term US, UK, and French intelligence all think Russia can and likely will win — the surprise to everyone has been the brave Ukrainian resistance. But the brutality of war is real and deepening.
We may get to a standstill. It’s also possible for this conflict to get worse. Russia can choke off Ukraine and make things worse for areas south and east of Kyiv.
I’ll leave you with this parting thought. Niall Ferguson wrote an outstanding essay in Bloomberg. He directly addresses the American belief that this war could drain Russia. This concept was my initial thought when the war broke out, though I’ve started to question it now. The White House sentiment, as Ferguson sums up, is a regime change in Russia. He writes:
The fascinating thing about this strategy is the way it combines cynicism and optimism. It is, when you come to think of it, archetypal Realpolitik to allow the carnage in Ukraine to continue; to sit back and watch the heroic Ukrainians “bleed Russia dry”; to think of the conflict as a mere sub-plot in Cold War II, a struggle in which China is our real opponent.
The Biden administration not only thinks it’s doing enough to sustain the Ukrainian war effort, but not so much as to provoke Putin to escalation. It also thinks it’s doing enough to satisfy public opinion, which has rallied strongly behind Ukraine, but not so much as to cost American lives, aside from a few unlucky volunteers and journalists.
He writes further:
Prolonging the war runs the risk not just of leaving tens of thousands of Ukrainians dead and millions homeless, but also of handing Putin something that he can plausibly present at home as victory. Betting on a Russian revolution is betting on an exceedingly rare event, even if the war continues to go badly for Putin; if the war turns in his favor, there will be no palace coup.
As for China, I believe the Biden administration is deeply misguided in thinking that its threats of secondary sanctions against Chinese companies will deter President Xi Jinping from providing economic assistance to Russia.
Ferguson then goes through the same analysis I did above, pointing out that the main theater is to the south and east. In those campaigns, Russia is finding significant victory.
He ends, comparing the current conflict with the Cold War:
I would put it like this: Cold War II is like a strange mirror-image of Cold War I. In the First Cold War, the senior partner was Russia, the junior partner was China — now the roles are reversed. In Cold War I, the first hot war was in Asia (Korea) — now it’s in Europe (Ukraine). In Cold War I, Korea was just the first of many confrontations with aggressive Soviet-backed proxies — today the crisis in Ukraine will likely be followed by crises in the Middle East (Iran) and Far East (Taiwan).
But there’s one very striking contrast. In Cold War I, President Harry Truman’s administration was able to lead an international coalition with a United Nations mandate to defend South Korea; now Ukraine has to make do with just arms supplies. And the reason for that, as we have seen, is the Biden administration’s intense fear that Putin may escalate to nuclear war if U.S. support for Ukraine goes too far.
That wasn’t a concern in 1950. Although the Soviets conducted their first atomic test on August 29, 1949, less than a year before the outbreak of the Korean War, they were in no way ready to retaliate if (as General Douglas MacArthur recommended) the U.S. had used atomic bombs to win the Korean War.
History talks in the corridors of power. But it speaks in different voices, according to where the corridors are located. In my view — and I really would love to be wrong about this — the Biden administration is making a colossal mistake in thinking that it can protract the war in Ukraine, bleed Russia dry, topple Putin and signal to China to keep its hands off Taiwan.
I think he is correct in his reading of both Biden and the strategies involved. I would add one thing: Africa was largely ignored in the first Cold War. Over the rest of this century, I do not believe that will be possible. Advanced technology requires rare earth minerals that most countries are starved to find. Africa is likely sitting on a mountain of wealth in this regard. If oil was the liquid gold of the 20th century, rare earth metals could be the new version of that in the 21st.
The last point I’d make regarding Ferguson’s essay is this: American leadership entering the Cold War understood war. Most of those leaders fought or lived through WWI, and their children fought in WWII (Bush 1 was the last WWII generation leader we had). Americans have experienced some war: 9/11 left a collective scar, and we spent 20 years fighting Islamic extremism abroad.
But Great Conflicts with large powers hasn’t been a thing in several decades. Since the fall of the USSR, the United States has engaged in economic dances worldwide. History is reasserting itself, though. Great Power conflict has returned. We don’t have a generation with us know that knew those lessons. That is our weakness — fortunately, it’s a more significant weakness for Russia and China. Those two countries consistently purge their ranks of dissent.
That said, when dealing with Stalin, Mao, Putin, or Xi, it’s nice to have an Eisenhower, Kennedy, Nixon, or Reagan at the helm. Biden is not that. His predecessors were not either.
The leadership gap concerns me moving forward.
Links of the week
Alcohol-Related Deaths Spiked During the Pandemic, a Study Shows: The deaths were up 25 percent in 2020 compared with 2019, amid heightened stress factors and delayed treatment, according to a new report. – NYTimes
Biden throws Putin a nuclear lifeline – The Washington Examiner
Neoconservatism: A Vindication – John Podhoretz, Commentary Magazine
Twitter Thread(s) of the week
Satire of the week
Thanks for reading!