An All-Out Financial War Declared Against Russia

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  • On Sunday night and Monday morning, the US and Europe imposed the most crippling and severe sanctions ever levelled against a G20 country.
  • The economic war that the EU and Nato members have launched against Russia is mainly financial, and technological, cutting off the Russian state from its overseas assets.
  • They also lead to counter-sanctions, and to military threats. Thus Germany, a very much larger economy than Russia, is not only imposing sanctions but preparing to diversify its energy supply and nearly double its defence budget

Many nations have decided to declare a financial war with Russia and the countries have even imposed a sanction against Russia. Many companies taking back their foreign investments due to the current scenario as stated in a recent report by the Guardian. 

Imposing the sanction and the economic war against Russia

War is never just a matter of soldiers and weapons. Indeed, economic warfare has been a central overt aspect of war, especially obvious since the beginning of the 20th century. It still is today, but we call it “sanctions”. But sanctions are a form of war, not an alternative to it, and like war, dangerous, damaging and unpredictable in impact.

On Sunday night and Monday morning, the US and Europe imposed the most crippling and severe sanctions ever levelled against a G20 country. Russia has been treated like Iran, North Korea, Venezuela. Russian money, until recently so eagerly sought, so politically efficacious, not least in London, has been sterilised.

The economic war that the EU and Nato members have launched against Russia is mainly financial, and technological, cutting off the Russian state from its overseas assets, which are now unusable, and preventing it from buying all sorts of critical equipment. The overseas operations of Russian financial institutions have been hobbled and Russian financial institutions expelled from the technical mechanisms of global capitalism.

 The consequences have been clear, a huge devaluation of the rouble, a doubling of rouble interest rates, potential runs on domestic banks, and the possibility of inflation. The Russian state has been financially disarmed, externally at least.

The attack is not a total one, quite deliberately so. Russia can still sell its two main exports for hard cash, energy and grain, but that is a measure of the strength of the west. It does not want to deprive the world economy of supplies at a time of rising commodity prices. But who is in charge is completely clear, and what expectations are also. Foreign investors in Russia are pulling out as best they can, like BP and Shell, and cultural and sporting bodies are acting to ban Russia. Social media imposes controls, mendacious broadcasters are banned.

The darker side of the coin

What this episode reveals if nothing else is that if we choose to do so the power of money can be silenced, markets can not only be bucked but directly and powerfully manipulated. The great financial crisis and Covid both launched complex financial engineering measures to keep economies going, now they have been inverted to crash and control one from the outside, a trickier task. As James Meadway suggests, something like this has been threatened before, but doing it is a different matter. The state is back, and international coordination and cooperation too, with the two of the three great economic blocs in the world working in concert.

The belief that international trade would be so good for all, that no sane person would ever start a war again was, in the words of Norman Angell, The Great Illusion. But there was always another much darker side to this coin. It was that if one cut a belligerent nation out of international trade the economic and social consequences would be so awful it would be forced to cease fighting. Economic warfare was indeed thought of as a weapon of mass destruction, as Nicholas Mulder’s brilliant and timely history tells us.

 This was especially true of the liberal internationalists of the interwar years, once lazily thought of as pacifists, who saw sanctions (and a bit of international airpower) not so much as alternatives to war, but rather particularly devastating forms of war whose threatened use would maintain liberal world order. They had some justification for thinking this. The blockade of Germany and Austria-Hungary in the great war had itself killed hundreds of thousands.

Wars and sanctions of history

But the second world war demonstrated the limitations as well as the possibilities of economic warfare. The British launched an economic war against Germany in 1939, driving German trade-off the surface of much of the earth, and especially from 1940, preventing neutral trade with German-dominated Europe. They attacked Germany’s supply of iron ore from Sweden, leading to Germany’s invasion of Norway. Strategic bombing, thought of as an extension of the blockade, was also launched in 1940.

 But Germany knew what was coming, and partly for that reason had made a deal with the USSR, and later invaded it. The imposition of oil sanctions on Japan in 1940 led to it attacking the US, British and Dutch empires in the east in December 1941. It took years of war and sanctions to crush the German and Japanese economies, even though the allied United Nations controlled all the rest of the world economy.

After the war, the cold war went with hot sanctions. The iron and bamboo curtains were heavily policed economic and technological barriers. And since the end of the cold war sanctions continued to be used, indeed extended. They have proved damaging, and indeed deadly to people, though not to regimes. Iran, Iraq, Cuba, Syria, Venezuela, North Korea, Afghanistan are or have been subject to sanctions, often for years. Russia too has been sanctioned since 2014. But sanctions have probably not been the worst causes of economic collapse. Russia, after 1989, lost perhaps half its GDP per capita, which did not return to Soviet levels until around 2005. This economic catastrophe created Putinism. Covid itself had an enormous impact on much of the world economy but has changed little else.

Sanctions are seen as an alternative to war, more readily voted for. But they are aggressive actions and are like wars in that they are costly affairs. Effective sanctions require serious economic and political intelligence, the capacity and willingness to act against evasions and to bear the cost they impose on the imposer. Sanctions are, like war, a matter of alliances. In the second world war, the United Nations dominated the world economy, to an extent that today’s Nato/EU cannot match. Interdicting the Spanish merchant marine during the second world war was a very different matter from bringing China into anti-Russia sanctions today. On the other hand today Russia has an economy smaller than Italy’s.

Effectiveness of sanctions in the current scenario

How effective sanctions could be in crippling an economy like the Russian one remains to be seen. After all, it is much easier to affect financial instruments than the real economy, and trade is not everything for a country as geographically large as Russia. As was found during the second world war sanctions don’t simply take a chunk out of an economy, they force it to change, to emphasise self-sufficiency. Sanctions force states into internal transformation and repression. They also lead to counter-sanctions, and to military threats. Thus Germany, a very much larger economy than Russia, is not only imposing sanctions but preparing to diversify its energy supply and to nearly double its defence budget, which would make it very much larger than Russia’s.

 Putin’s crime is thus not just a matter of attempting to take over Ukraine, but turning the world once more into one with surging military expenditure and warring political-economic blocs.

The political logic

But we also need to look at the political logic that may play out. While there is a possibility that these events will boost the standing of western militarists, those who would have us continue to engage in permanent war, another possibility is there. For who are the enemies this time? They are neither communists nor Islamists nor Arab nationalists. They are white nationalists, producers of fossil fuels, kleptocrats, near climate denialists, critics of what they call gender ideology and practised and fluent liars. It is not just Putin who should be scared, but all the mini-Putins he has inspired, in power in London, Brasília, Budapest, Warsaw and Riyadh, and recently in Washington.

This has the potential not only of turning into a global campaign against fossil fuels and kleptocratic tax havens but might arouse the wrath of the woke against the neofascist international of our time. But we must beware, for the liberal internationalist drive to sanctions and to war, usually illegal, has already blighted the lives of millions in the 21st century. We should remember that war itself is a crime, not merely the site of potential war crimes.

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Source: The Guardian

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