The Coming EU Embargo of Russian Oil, Russia’s Economic Challenges, and the Question of Operational Capacity

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When the EU commits to a measure to undermine Russia that the US opposed as unproductive, one has to wonder when rationality and self interest left the room. The West is only beginning to suffer the cost of blowback from economic sanctions against Russia in terms of higher energy and food costs, which are soon to be followed by price increases and shortages of other commodities where Russia has significant market share. Yet the EU is launching an embargo of Russian oil, just after Poland, Bulgaria, and Finland have decided to cut themselves off from Russian gas, and Russia is also in a spat with Germany after Germany seized Gazprom’s operations there.

The EU is set to provide more details about its scheme this week, so we’ll give only a high level discussion now.

There is always the possibility that the EU program will be unexpectedly well thought out, particularly in terms of contingency planning, despite the idea only having been mentioned as a possibility at the start of March and getting more serious interest in early April.

Our concern is the limited time to consider such a big change means there may be quite a few unknown unknowns. To give an idea of scale of study it takes to understand a system, it took a team of physicists 7 years to identify and map the physical inputs and outputs of Australia and deliver their findings in the early 2000s. And at least in Germany, and I suspect in other EU countries, energy rationing schemes have industry taking the cuts first, households last. In a world of extended supply chains and just-in-time manufacturing, which creates fragility and tight coupling, it’s all too easy to have energy-shortfall-induced problems at one company propagate to others in the same sector.

Admittedly, the EU is not planning to wean itself fully off Russian oil until the end of the year, but that still seems aggressive.

It’s even more difficult to judge the Russian side of the equation, but we’ll also briefly discuss the latest update by its central bank governor, Elvira Nabiullina, which we’ve embedded at the end of this post.

One factor in the West v. Russia economic war equation that does not appear to be getting enough attention is what we call operational capacity, in this case of governments, both their own capabilities and their ability to marshal and direct private sector resources. We discussed it repeatedly in connection with 2015 Greece bailout negotiations (see here for instance). Our concern is the West will be tested and found wanting.

First to Janet Yellen’s cautionary remarks to Europe about barring Russian oil, via the April 21 Financial Times:

Janet Yellen, US Treasury secretary, urged Europe to be “careful” about imposing a complete ban on Russian energy imports, warning of the potential harm such a move could inflict on the global economy.

“Medium-term, Europe clearly needs to reduce its dependence on Russia with respect to energy, but we need to be careful when we think about a complete European ban on say, oil imports,” Yellen said during a press conference in Washington on Thursday.

She said an immediate ban by the EU would “clearly raise global oil prices” and “would have a damaging impact on Europe and other parts of the world”. Yellen added that “counter-intuitively”, a total embargo may not have such a negative impact on Moscow’s finances, with Russia benefiting from higher prices.

The focus of western allies should instead be on trying to reduce “proceeds from sales of oil and gas” for Russia. “If we could figure out a way to do that, without harming the entire globe through higher energy prices that would be ideal. And that’s a matter that we’re all trying to get through together,” she said.

Even when an oil embargo was more a talking point than a serious idea, in early March, German chancellor Olaf Scholz was firmly opposed. But in April, Scholz came around to agreeing with Climate and Economy minister and Green Party member Robert Habeck, that while Germany could not go cold turkey on Russian oil, it could wean itself off it by year end. The end of Germany’s opposition appears to be what has allowed the plan to move forward. Here’s the key argument per Politico last week:

Berlin could handle an embargo on Russian oil imports, Germany’s Climate and Economy Minister Robert Habeck said on Tuesday, suggesting the country could end its dependence on Moscow within “days.”

Habeck, speaking at a press conference in Warsaw, said that Germany had managed to slash its reliance on Russian oil by two-thirds in recent weeks, reducing the share of imports from 35 percent before Russia’s invasion of Ukraine to 12 percent now.

The remaining Russian imports supply the Schwedt refinery in eastern Germany, he added, as other sites had already switched to alternative suppliers. Schwedt, which is run by Russia’s state-owned Rosneft, supplies the vast majority of the Berlin-Brandenburg capital region with fuel.

Let’s put on our skeptic hat. First, this is spring, when energy demands are lower than in the late fall and winter. Second, thanks to the Shanghai lockdowns, there’s been a slowdown in industrial activity, which likely had some impact on German companies. Third, the US has been shipping some of its strategic petroleum reserve releases to Europe, so that could have directly or indirectly benefitted Germany. Those strategic petroleum reserve releases are set to end in October. Fourth, there is a good possibility that some of that oil is actually laundered Russian oil. For instance, at least as far as the US embargo is concerned, I understand that oil sold out of storage is not considered Russian origin. Another play is to mix Russian oil with oil from other sources, and as long as the Russian oil is not more than half of the total, it’s not considered Russian. I hope knowledgeable parties will pipe up and indicate if these practices are still, erm, accepted and what if any other laundering techniques are in use.

And finally, the rule of 80/20 says the first 80% is pretty easy and the last 20% is hard. So getting that last 12% of Russian oil supply to zero is likely to include going without, as opposed to finding other sources.

And remember, this is just Germany. All of Europe is now committed to this program (save Hungary, which is participating under duress and thus is particularly likely to find ways to cheat). So the “Where do we get it?” problem now has more countries competing for non-Russian supplies.

So across Europe, one can expect:

As Yellen predicted, higher energy prices, particularly since the old purchases with Russia were denominated in euros, while new sources are likely to be denominated in dollars, and the euro has fallen against the dollar. So Europe will suffer a currency bite on top of the price increase generated by the embargo

European countries being faced with having to position themselves somewhere on the spectrum of energy austerity due to difficulty of getting replacement supplies and/or unacceptably high costs, or oil laundering (Russia sells oil at a discount on world markets, by the time it wends its disguised way back to Europe with all those middlemen in between, it is at or higher than world price, but likely not quite as pricey as other options.

And as Yellen also intimated, Russia may come out ahead due to even higher oil prices. It can afford some combination of lower volumes and if needed, more discounting.

Now let us look briefly at Russia. The reason the West is trying even harder with energy sanctions is that they expected Russia to collapse with the massive financial sanctions. Not only did it not, to my knowledge, it didn’t even have to rescue a single bank.

Moreover, Russia just dropped its policy rate a second time, from its emergency level of 20% to 14%. Note that Russia also implemented special lower rate regimes to priority activities, such as mortgages. The rouble is now at 71 to the dollar, stronger than it has been since Juky 2020 despite the dollar being super strong, save for a brief blip up in November 2021.

Russia’s successful emergency response points to the advantages of having a not very financialized economy but even more important, apparently a high degree of operational capacity. As Nabiullina describes below, the main contributor to inflation is the loss of Europe-sourced goods; those and their replacements have been bid way up. She indicates that inflation ex that is markedly lower and is falling due to a reduction in domestic demand (consumers are saving).

As we have repeatedly said, Russia having handled the financial challenge vastly better than anyone anticipated does not mean that it will manage the real economy transition anywhere near as quickly or well. Nabiullina anticipates that shock will be the most acute over the next six months, with the economy bottoming at the end of the year.

So we will have a real world test of the ability of Europe and Russia to manage economic restructurings, with Russia’s being vastly more fundamental and thus more prone to failure or shortfall.

Offsetting that are signs that Russia retains some muscle memory from its old central planning days and may have found useful ways to redeploy some of those dirigiste impulses. Scientist GM pointed out how Russia has been able to surpass the West in missile development, and it appears to be simply by dint of diligent application, despite being comparatively impoverished. From his comment:

Currently in service:

Being deployed now:

But presumably there are a few already made and a single one of these can sterilize the whole of the UK; as, very ominously, publicly discussed on mainstream TV in Russia yesterday:

There is no Western equivalent to any of these and there will not be until the end of the decade the earliest.

In development:

Which will be a game changer too. And not even purely because of its military implications — if they have been able to work the propulsion in this context, this will revolutionize all sorts of nuclear power applications in other areas.

BTW, China and India seem to be well ahead of the US in hypersonic missiles and HGVs too.

This is what neoliberalism does.

The Russians had a really rough decade in the 1990s but then seem to have pulled it together. Although it remains to be seen how their R&D will do in the future — most of the fancy doomsday weaponry that gives them a major advantage right now actually seems to be resurrected late-Soviet projects (so much for the USSR having collapsed due to being technologically backward), The foundation of the advances of the 2040s and 2050s (if there is still anyone alive then) will have to be modern Russia, which is not the USSR. We will see, there are both reasons to be skeptical and optimistic about that. The Avangard development was still headed by this guy:

Who is 89 now. Whether have have people in their 30s and 40s on the same level taking over we don’t know.

The US on the other hand should have no problem attracting top talent, but it voluntarily killed its own space program (because it had a trillion a year for Pentagon grifters but somehow did not have a measly ten-twenty billion a year to directly support R&D) then handed it to the “private sector”. And these are the results — it fell behind dramatically and now it has to play catch up. Let nobody fool you into believing that the fact that for a decade the US had to rely on the Russians to get stuff and astronauts in space and the fact that the US fell behind on advanced missile tech are completely unrelated to each other.

That may seem like a long-winded anecdote but it helps illustrate a point: Russia still knows how to make things. By contrast, what passes for Western elites are in thrall to symbol manipulators and speculators. That is why there is reason to question whether Europe has a good grasp of what it is getting itself into with its Russian energy embargoes.

00 Statement by Bank of Russia Governor Elvira Nabiullina in follow-up to Board of Directors meeting on 29 April 2022 | Bank of Russia
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  1. Louis Fyne

    —despite being comparatively impoverished—

    IMO, the Western Establishment conventional wisdom that Russia is merely a “gas station” masquerading as a world power needs its own debunking post.

    Using purchasing power parity GDP, Russia only has ~1/6th the economy of the EU.

    On paper, RU looks like a paper tiger. But measuring solely GDP is flawed and favors bloated, financialized economies.

    1. Dftbs

      That’s a great observation. If in addition to PPP GDP you subtract the “value” of monetized debt from the central bank balance sheet, you’d see even more parity between 146mm Russians and 332mm Americans.

      I’m not implying that central banks shouldn’t own any government, government agency or consumer debt like MBS. But that the combination of ZIRP and QE that has been executed by the Fed(US), BOJ(Japan)and ECB(Germany and Eurozone) did a whole lot to obscure the actual conditions of those economies.

    2. lance ringquist

      GDP is almost a worthless measurement, almost all of it goes to the rich. sovereignty, protectionism, central planning and nationalism, no not nazi nationalism which is domination of others, nationalism which you owe your allegiance to keeping your own peoples free of economic nonsense like nafta billy clintons nafta and W.T.O. that has striped americas ability to even make simple things, let alone complicated things.

    3. Dan

      One needs to also consider levels of education and state organizational capacity, neither of which are adequately captured in GDP. Compare Cuba – a basket case by many economic measures, yet able to sustain world-class biomedical research that is competitive with the US, Europe, and China.

      1. Dftbs

        Yes that’s right. As with Cuba, how many Tik Tok videos or Marvel movies is their medical capacity worth. Hard to measure by dollars but easier to see in infant mortality and life expectancy.

    4. Susan the other

      Inflation is a trick of exploitation – making it look like simply a supply and demand phenomenon. But it is the only way to extract revenue and profit to keep an enterprise going. But it always waxes and wanes – balancing itself within a certain sustainable (monetarily) range. This is neoliberalism. So during inflation the true cost of a consumer good with all its inputs is very high but with turbo-production it comes down because sales are up. In terms of the environment this is the old joke: buy high, sell low and make it up in volume, no? But the reason nobody wants to drag all this out and look at it is Profit. Without cycles of inflation there isn’t enough money going around to produce things. Because it is far more expensive that capitalism will admit. And all the socialized costs (from unemployment, to failed services, to pollution) are swept under the rug. So in this sense inflation is not so much the lack of goods and full employment, as all central banks talk about, but the creeping effects of denial (for lack of a better business plan) which over the decades has hidden the true level of damage. Nabuillina sounds very much like Powell (maybe a bit more articulate than he is willing to be), and Yellen. Nobody really wants to eliminate inflation. But the day is coming when both profits and inflation will be (hopefully) sustainably controlled within a narrow range and much more effort is put into maintaining both human rights and a sustainable natural environment. In “monetary” terms this could be accomplished by a world currency – a sovereign world currency – that pays back as it goes. That repairs the planet continuously. Spending directly – without the need to churn and damage to gain enough profit to pretend to fix things.

      1. lance ringquist

        sorry, no world wide currency. who is going to print it, set its value, make sure all countries abide by the monetary rules, make all countries accept it and use it.

        who is going to make sure its not seized by financial parasites that will have free reign to roam the world under a system like that.

        in fact we already have that. its called the W.T.O. and the dollar.

        a primer on tariffs.


        tariffs do not cause depressions.

        there has been no tariff related inflation.

        tariffs raise wages.

        tariffs give democratic control over trade.

        tariffs reverse poverty caused by free trade.

        tariffs protect the wealth of a nation.

        tariffs promote research and development.

        tariffs help labor create a high standard of living, its called a civil society.

        tariffs do not blockade ports, otherwise where does all of that tariff money come from.


        tariffs are a tax on the wealthy

        tariffs are a boon for the poor

        tariffs actually lower import prices, and keep them low

        without tariffs, the wealthy can charge more for imports, they do not have to worry about claims of import price manipulation.

        this is a work in progress.

        1. Susan the other

          The thought of a global currency makes me nervous too. But on the other hand, why should we allow our “budget” get in the way of our survival. Any spending on pollution and climate repair and human sustainability, etc. should be out of the hands of grifters of all ilk. It’s so ilky now its almost impossible to imagine a world dedicated to its own well being. My concern here has to do with the enormous expense involved. Everyone will back off because who can afford to contribute that much money and time? So establishing sovereignty for the planet removes it from all those concerns – if it could work. If it could work it would provide unlimited cooperation to clean up the planet, and to that end, it could be enforced by all our various tactics. Tariffs certainly. Another good enforcement would simply be to ration earth’s resources. Right now we have no control over that at all except supply and demand. Another is mandating that anything which is manufactured for human consumption be designed for complete recyclability. Maybe one day the human race will realize that money is just a token of our cooperation. Until then we should give the planet first consideration – just to be on the safe side.

  2. PlutoniumKun

    First off: Just a point about the hypersonic weaponry. I think its incorrect to talk about the US/west as having ‘fallen behind’ in hypersonic weapons. The US actually had a range of useable hypersonic weapons developed in the 1970’s and 80’s. They simply didn’t fit into military doctrine at the time and so were never brought into service. The focus – certainly as far as air war is concerned – was a move to stealth and long range ‘stand off’ smart/self guiding missiles. The Soviet Union/Russia and others could never match the US in this, and sought different approaches, one of which is sheer speed and kinetic energy along with diversity/resilience to make up for other shortfalls in technology (Russia has a much more diverse range of cruise missiles, for example). So the question isn’t ‘who is more advanced’, the question is ‘which approach is better’. We don’t really know the answer to this (not least because it depends on the ground any war is fought upon). Its like arguing which is better, a sword or a spear. Both are effective, which one wins in a fight depends on a wide range of other variables. A sword worked best for the Imperial period Romans, spears worked best for Alexanders Macedonians. As they never fought each other at their peaks, any question of which is ‘best’ is academic.

    As for Europe now – I’m still in awe at the stupidity. I thought that by now European politicians would have been brought into private rooms by industry and agriculture representatives and told the raw truth about the implications of their policies. They will destroy European industry – not just for next year, but in the long term as China and India reaps the benefits. This will be barely a blip in Russia’s economy, they will find alternative markets for much of the oil, and any losses will be made up for in higher prices.

    1. Yves Smith Post author

      I have to disagree with the “fallen behind”. The immediate point was hypersonic missiles, which evade Western defenses, not Russia’s overall military capabilities. It’s looking an awful lot like Russia can outdo the West in combined arms warfare in Europe and Asia. It is not much of a naval power, save perhaps its nuclear subs, and in its doctrine, goes light on its air force and has strongly preferred developing cruise and other precision missiles for long distance strikes.

      Russia’s hypersonic missiles fly below radar detection level and can allegedly hit America by flying over the South Pole. We don’t have the ability to detect, much the less respond to, these missiles. The fact that America could have developed them but abandoned that program does not make the US any less “behind” by virtue of now not having them developed to anywhere near the present Russian level of capability.

      1. PlutoniumKun

        My point when applied to nuclear weapons is pretty much the same. The US has the technological capacity to build hypersonic missiles – after all, the X-15 was hypersonic and it was built in 1959.

        The difference is that the US (and UK/France) has a range of land and sea based missiles and stealth aircraft that Russia or China simply can’t stop if they are launched (except, possibly around Moscow). Whereas, the US has been trying to develop anti-missile technology since the 1980’s with the specific aim of defending against land and sea launched nuke missiles. Russia and China need hypersonic to penetrate a theoretical anti ballistic missile capability. The west doesn’t need them because its not facing the same theoretical defensive capability. Russias fancy new nuclear delivery vehicles are a means of drawing level with the West (in the sense of being able to deliver a guaranteed killer nuclear blow), not a means of getting ahead. Whether a nuclear warhead is delivered by a hypersonic missile, a mirv, a stealth aircraft, or dropped from a Cessna on autopilot doesn’t matter to the people on the wrong end of it, the effect is the same.

        The one area where Russia has clearly demonstrated it is ahead in Ukraine is the use of medium range ballistic and cruise missiles to knock out strategic nodes behind the main battle lines. The west has always assumed it would need air superiority and stealth strike aircraft to carry out that sort of interdiction attack. Or put another way, the Russians have shown that relatively cheap ballistic missiles can put a big hole in a defended weapons depot that the west would try to destroy with F-35’s, or older aircraft with stand-off missiles. The effect may be the same, the Russians have just spent a lot less resources doing it. The Iranians (and arguably the Houthi’s) of course had already demonstrated how effective this is, even against Patriot defended sites. But this is again more a matter of doctrine than technology. The US had very effective short ranged rockets like the Iskander in the 1980s (the Lance), but never really followed it up as a doctrinal matter (or arguably, due to air force/army squabbles).

        The big problem of course with using ballistic missiles in war is that its impossible to know when you detect one in flight if it is carrying a nuclear warhead or not. This at least partly accounts for the wests squeamishness about using them in numbers. The Russians clearly don’t care, or perhaps they know that it is precisely that fear which gives them an advantage. If the Russians fire Iskanders/Kinzals at German/Polish air bases someone is going to have to make a very quick judgement call as to what is on those missiles. All our lives could depend on getting that call right.

        1. OnceWereVirologist

          Tactically the Russian philosophy seems enormously superior. Air-launched ballistic missiles have a far greater range than any combat jet. Even if the F-35 can best any Russian jet in the air and fly through any Russian air defense, they still can’t prevent the launch of Kinzhal missiles targeted at the base they fly from. And absent climate-controlled hangers, maintenance facilities, and well-swept runways I hate to imagine what the availability of an F-35 would be after a month of combat. Even under peace-time conditions they struggle to get it over 50%. If it turns out that Patriot batteries can’t defend those German or Polish air bases then NATO claims of massive air superiority are going to seem pretty hollow.

          1. NotTimothyGeithner

            Even rugged planes need serious maintenance after 2 weeks of heavy use. This is likely a reason for confusion in the West about the Russian air operations. They aren’t going to go big and risk having not finished the job with NATO lurking. Iraq wasn’t at risk of being resupplied until Petraeus came along, and in the Gulf War, Desert Fox lasted months before ground forces were committed to combat. We were slow and methodical.

          2. Michaelmas

            If it turns out that Patriot batteries can’t defend those German or Polish air bases

            They can’t.

            Patriot missiles didn’t stop a single one of Saddam’s scud missiles during the Gulf Wars.
            Postol vs. the Pentagon

            Presumably, they’ve been improved Nevertheless, since the 1950s trillions have been poured into anti-missile missile R&D —
            –and the best that’s been managed in terms of reliable interception capability by anyone is Israel’s ‘Iron Dome’ against the Palestinians’ semi-DIY missiles.

            1. OnceWereVirologist

              Russia seems to be quite successful at shooting down Tochka-Us so missile defense against the previous generation of ballistic missiles is certainly achievable and I would think the latest Patriots are capable of doing at least that much. The question is whether they can shoot something down that is both substantially faster and capable of maneuvring in-flight. I have my doubts, but in fairness, one can never definitively say until a practical test is made and a Patriot battery faces a salvo of Kinzhals under field conditions.

              1. Reaville

                The Patriots are very capable. The SCUD episode is 30 years ago. The fix was pretty simple, but the Patriot was not designed to intercept missiles and had not been tested against them.

                Don’t forget that the Russian SAMs given to Syria were quite successful in shooting down cruise missiles a few years ago. Modern SAMs consider missiles part of their necessary target set and are built to kill them.

                No US commander is going to launch nukes on Russia while missiles are in flight to German and Polish targets. Even a moment’s consideration shows that the US would wait for them to hit (since they will hit anyway) before making an escalation decision.

                Combat aircraft are not fragile in combat because the spare parts (assuming they exist) will get to maintainers. The USAF can surge for an extended period. Bare base options are routinely trained for. However, war is attrition and the problem is not to avoid attrition, it is to destroy the opponent first and quickly. If the F-35 doesn’t work, it would constitute a crime. I think the plane will be ok. Generally, fighters get much better after a few years in service. The F-15 got the same treatment (too expensive, can’t fly, radar doesn’t work, can’t maintain it) and yet…absolutely lethal combat record with very high in service rate. We still have lots of F-15s, F-16s, F-18s which will dominate the airspace very quickly given the US/NATO training advantage over the Russians who do not fly much.

                Round about way of answering the dubious assertion that the “Russian approach is far superior”. It is not. They would lose quickly. They can’t even establish air superiority over Ukraine. The BIG DANGER is that a US/NATO attack would be so successful that Putin would use nukes to save his skin.

                Hitler would have done it. Putin seems to like Hitler’s military handbook.

                1. Thuto

                  Scott Ritter, a military guy who generally conducts his analysis outside the mainstream echo chamber, would vehemently disagree with you that Russia would “loose quickly”. Saying things like Russia can’t “establish air superiority over Ukraine” and Putin would use nukes to save his skin is a tell that you’re repeating “retired American General hauled out of retirement for one final hurrah on CNN” jingoistic talking points. I wouldn’t be surprised if you think Russia is losing in Ukraine because they haven’t levelled the whole place the way the US army would have done. Ritter on the other hand thinks Nato as currently constituted lacks the operational readiness to engage Russia in a full-on military engagement, and goes much deeper than the surface level analysis you present here to state his case.

                2. OnceWereVirologist

                  “The Patriots are very capable” is still not any guarantee that they can prevent a salvo of Kinzhals fired from hundreds of kilometres inside the border of Russia decimating the facilities at Rammstein air base and anywhere east of there. There are several good reasons to think that hitting something like a Kinzhal is many times more difficult than hitting a traditional ballistic missile. And then the question becomes to what degree can air operations be sustained when you don’t have secure bases to operate from. Almost zero capability to fly F-35s from under highway underpasses I would have thought. Gripens can do it but I doubt there are enough of them to scare the Russians.

                  1. Alyosha

                    They didn’t intercept any of the Iranian missiles launched at Erbil, which flew in the immediate vicinity of a USAF air port, a US consulate and a major, joint-intelligence base. One would assume that if somewhere had fully updated Patriot batteries, it would be there. I’m also interested in why the news is always about moving a Patriot battery here or there. Are there not enough of them being made to just have additional deployment?

                    1. OnceWereVirologist

                      I’m not sure that Patriot battery failures in situations like that are dispositive. If it’s a single unexpected attack one can never be sure if there’s something wrong with the technology or the operators were just playing “Angry Birds” at precisely the wrong time.

        2. Polar Socialist

          stealth aircraft that Russia or China simply can’t stop if they are launched

          For what it’s worth, the Russian designers have claimed for almost a decade they can detect stealth fighters from ~350 km with their 3D long wave radars.
          The latest Russian AESA radars in Sukhoy fighters can “burn trough” stealth from 50-60 km which may or may not be good enough for a missile fire control.

          And Chinese seem to be working on solutions for bistatic radars with well separated transmitter arrays so the receivers get much better angular resolution. Read the paper, but a lot of it went over my head.

          1. PlutoniumKun

            Detecting stealth aircraft is easy. Its getting a missile to lock onto them thats difficult.

            By the same token building super fast missiles is also relatively simple. Its working out how to hit the target with precision (especially if its moving) that is difficult. An Iskander isn’t all that different from a V2, apart from its ability to strike within meters, rather than hundreds of metres.

            While we often hear that stealth will be useless in a few years, both the Russians and Chinese (and Japanese and South Koreans and Europeans) are investing a lot in stealth for their future aircraft and missiles, so they must see something in it. Although noticeably they are mostly going for ‘relative’ rather than ‘absolute’ stealth.

            Its like with aircraft carriers. Lots of armchair admirals are declaring that the aircraft carrier is dead, killed by Chinese guided ballistic missiles. This must be news to the Chinese, who are spending countless billions on their own aircraft carriers. So either the Chinese are very stupid, or they know from their own studies that the aircraft carrier is still viable.

            1. Socal Rhino

              I believe the point about carrier obsolescence is for peer-to-peer (or near peer) combat. They still have other uses.

        3. Pat

          I do not follow military news or gossip. My information comes from various news reports and comment discussions so to speak. That said, other than press releases do we have any instances where our missile defenses are that much better than anyone else’s. And the last I heard the only successful “stealth” weapon deployment was drones. Do we have real evidence that anything else works?

          Trying not to be too cynical, but in my admittedly less than focused experience the Pentagon’s claims regarding weapons and equipment rarely survives tests and deployments.

          1. NotTimothyGeithner

            I suspect this is why the Russians limited the rollout of new toys. Doolittle for example flew out on the first of every new mission type or tech upgrade in the Pacific so he could get first hand experience on how to fix the problems.

            The Pentagon knows if the Russians really came we would simply knock out appropriate bridges and hit extended supply lines from relative safety. We have the tools for that. It’s the same with China. Except for Taiwan, where will they go that wouldn’t create a unified bloc or a real build up won’t be noticed.

            Since the West has become pathologically dishonest, the Ukrainians largest problem is they had half their army on the border shooting off artillery with the intent of terrorizing civilians. It’s artillery hypothetical, but if the Russians had artillery real build up, where would the Ukrainian army be, deployed in an entirely different matter.

      2. Revenant

        I am not sure about them being undetectable because they would approach from the south. This would have been true of the previous generation of US missile surveillance faced north and west but the current system is omni-directional.

        This was mentioned in a post here the other day. I have tried to find it and a decent reference to current surveillance and failed. Sorry!

        1. Kouros

          And are there any ABM systems or air defense systems positioned in the south or on the eastern seaboard?

          1. David

            The US has no operational ABM systems at all, other than a minimally capable kinetic kill capability against missiles from N Korea and (hypothetically) Iran. Existing AD systems are not designed to deal with these kinds of threats, as far as I know. Whether shorter warning times are really militarily useful is hard to say. It depends on a number of assumption. In one sense, these weapons are like any other kind if long-range artillery: most of the damage is done at the beginning, and the more warning you have, the more you will be able to protect yourself. But it’s important not to be too influenced by the “bolt from the blue” argument. In practice, truly surprise attacks, out of nowhere and with no possibility of taking anticipatory action, are so rare in history as to be almost non-existent. A surprise nuclear attack has made no real sense since the 1970s: the major nations have submarine launch systems which are an effective second-strike deterrent capability.

            1. Michaelmas

              The US has no operational ABM systems at all, other than a minimally capable kinetic kill capability against missiles from N Korea and (hypothetically) Iran.

              Thank you, David. Indeed.

              MIT’s above-ground budget was $1.6 billion annually last time I looked a decade back. Its black budget — derived from Pentagon R&D — was $2.3 billion. The major fraction of that black budget was for anti-missile missile research. Inflation adjusted, it’s been that way for decades and is that way now.

              In all likelihood, as long as there’s an MIT and a United States, such R&D will remain a solid money-earner for MIT because nobody’s likely to conclusively crack the ‘shooting a bullet with a bullet’ problem. Beamed energy weapons may be more feasible, frankly.

      3. Reaville

        Respectfully, “Combined arms warfare” is doing a lot of heavy lifting there, Yves. The Russians have shown virtually no ability to conduct what used to be called “air-land” battles (coordinated between Air Force & Army…I think we can leave the Russian Navy out of the discussion) in Ukraine. Their deficiencies in command and control are predictable and expected based on their rigid top-down command structures. This was true in the Cold War and is true now, and is noted frequently.

        Unless the Russians go nuclear, the battlefield trend is that they are not going to take Ukraine with combined arms warfare. So, they are moving to leveling the country with pushbutton missile attacks. If Ukraine had Patriot or Iron Dome anti-missile technology, the Russians would not be “winning” (is this destruction winning?) with their theater missiles, either.

        The fact that they have tech that can strike America is not new. We have never been able to stop an ICBM, so what’s new? The balancing factor is that Russia cannot stop our ICBMs, so Mutually Assured Destruction is still relevant in missile calculations.

      4. Sibiryak

        Yves Smith: The fact that America could have developed them but abandoned that program does not make the US any less “behind” by virtue of now not having them developed to anywhere near the present Russian level of capability.

        The Popular Mechanics article in the 4/29 NC links supports Yves argument.

        How Russia Beat America to the Hypersonic Missile A near-unstoppable weapon has entered the war in Ukraine, and the U.S. has no way to match it—yet.

        “The United States has conducted 17 different hypersonic-missile tests since 2010, and it has seen 10 failures. The most recent U.S. test, in March 2022, was a success, but America is at least a year away from fielding a hypersonic weapon in combat. Russia and China, meanwhile, both claim to have hypersonic weapons in service now.”

        * * * * *
        “The United States isn’t shying away from the challenge of conventional hypersonic payloads, but the engineering obstacles have so far proven too steep for the Pentagon. Both of the U.S.’s two disclosed boost-glide weapons—the Navy and Air Force’s Conventional Prompt Strike weapon and Lockheed Martin’s AGM-183 Air-Launched Rapid Response Weapon (ARRW)—have failed recent tests. Meanwhile, the U.S. is supplementing its boost-glide development with a hypersonic cruise-missile program, powered by a new method of propulsion that could theoretically leapfrog its capabilities past Russia and China.”

        * * * * *
        “… Russia isn’t the only hypersonic threat on the horizon. According to Air Force General Glen D. VanHerck, China’s efforts in this field have outpaced those of the U.S. by “tenfold,” though he notes that American programs have been improving. Today, the United States has more than 70 hypersonic weapons programs in development, with $3.8 billion earmarked for the effort in 2022 alone.

    2. Alyosha

      My question would be what sort of hypsersonic missiles both have. The idea of a hypersonic warhead mounted on an ICBM is pretty straightforward, but problematic in that the launch of an ICBM can’t be differentiated from, well, and ICBM. My understanding is that where Russia is ahead is in being able to realistically deploy hypersonics in theater operations. My second question would be related to the materials engineering required for hypersonic speeds and whether the US has the materials and engineering readily available to produce in any bulk.

    3. GM

      By the same logic, stealth was invented in the USSR (it indeed was — it was one of the many things someone there thought of out of curiosity, wrote a paper on, then it was picked up on for practical application by the West) but they saw no use for it at the time and didn’t pursue it.

      The US didn’t have maneuverable guided precise hypersonic missiles in the 1970s. ICBMs and many other missiles do reach hypersonic speed on their way down, and this is often cited as “it’s nothing new” but this ignores all those other aspects.

      If the US had the technology working in the 1970s, this would not be happening now:

      A booster flight test of ARRW took place in April 2021 at Point Mugu Sea Range, off the coast of Southern California but did not launch successfully;[16] this was the eighth test for ARRW.[17]

      Another test in May 2021 for the ARRW’s avionics, sensors and communications systems, was successful. The test did not use any of the ARRW’s systems but instead used a B-52 based system. On a flight to Alaska from Barksdale Air Force Base in Louisiana, the B-52 was able to receive target data from over 1,000 nautical miles (1,900 km) away.[18]

      In July 2021, a second flight test at Point Mugu Sea Range, again being dropped from a B-52 bomber, was a failure as the rocket motor failed to ignite.[19][20] On 15 December 2021, the third flight test failed to launch as well.[21] On 9 March 2022, Congress halved funding for ARRW and transferred the balance to ARRW’s R&D account to allow for further testing, which puts the procurement contract at risk.[22]

      It was still failing to launch properly in late 2021.

      Things are a bit better here:

      The first test of the Intermediate Range Conventional Prompt Strike Flight Experiment-1, was on 30 October 2017. A missile capable of fitting in the launch tube of an Ohio-class ballistic missile submarine flew over 2,000 nautical miles from Hawaii to the Marshall Islands at hypersonic speeds.[12] The Common-Hypersonic Glide Body was tested in March 2020.[6]

      But it is still not at the point where it’s actually in the hands of the army:

      In March 2021, training with inert missile canisters began.[1] On 7 October 2021, 17th Field Artillery Brigade of the I Corps received ground equipment for the first operational LRHW battery.[16]

      The US Army hopes to begin live-fire testing of the LRHW sometime in 2022.

      This is the mighty Lockheed Martin. How is it that NPO Mashinostroyeniya, after all it went through in the 1990s has had its missiles deployed by the actual army for four years now, while Lockheed Martin, with all the countless billions that it has been showered with in the last 30 years still doesn’t have it working at all?

      Here is how the Zircon testing went:

      The missile represents a further development of the HELA (Hypersonic Experimental Flying Vehicle) developed by NPO Mashinostroyeniya[19] that was on display at the 1995 MAKS air show

      Prototypes were test-launched from a Tu-22M3 bomber in 2012–2013

      Launches from a ground-based platform followed in 2015, with first success achieved in 201

      In April 2017, it was reported Zircon had reached a speed of Mach 8 (6,100 mph; 9,800 km/h; 2,700 m/s) during a flight test.[11] Zircon was again test-fired on 3 June 2017, almost a year earlier than had been announced by Russian officials.[20] In November 2017, Colonel General Viktor Bondarev stated that the missile was already in service.[21] Another flight test reportedly occurred on 10 December 2018, during which the missile demonstrated that it could attain a speed of Mach 8.[22]

      On 7 October 2020, the Russian Chief of General Staff, Valery Gerasimov, stated a Zircon was launched from Admiral Gorshkov in the White Sea and successfully hit a sea target in the Barents Sea 450 km (280 mi) away, reportedly reaching a speed of “more than Mach 8” and altitude of 28 km (17 mi).[10]

      On 26 November 2020, the Russian Defense Ministry announced the successful test of a missile launched from Admiral Gorshkov in the White Sea, hitting a naval target 450 km away in the Barents Sea.[26]

      On 11 December 2020, the Russian Defense Ministry announced the successful test of a missile launched from Admiral Gorshkov in the White Sea, hitting a ground target 350 km away in the Arkhangelsk Region.[27]

      On 19 July 2021, the Russian Defense Ministry announced the successful test of a missile launched from Admiral Gorshkov in the White Sea, hitting a ground target 350 km away on the coast of the Barents Sea. The flight speed reached nearly 7 Mach.[28]

      The flight tests of the missile from a coastal mount and a surface ship carrier were reportedly completed as of late September 2021 with over 10 launches performed.[29]

      On 4 October 2021, the Russian Defense Ministry announced the successful test of a missile launched from a nuclear submarine for the first time from a surfaced position. The Defense Ministry, which tested firing the Tsirkon missile from a warship in July, said that the nuclear submarine Severodvinsk fired the missile while deployed in the Barents Sea and had hit its chosen target. Low-quality video footage released by the ministry showed the missile shooting upwards from a submarine, its glare lighting up the night sky and illuminating the water’s surface.[30][31] A second submerged launch from a depth of 40 m was reported later the same day.[32] The next day it was reported that the missile’s trials from the submarine have been completed.[33]

      A Tsirkon hypersonic missile test-launched from the Northern Fleet’s frigate Admiral Flota Sovetskogo Soyuza Gorshkov struck a naval target in the White Sea with a direct hit, Russia’s Defense Ministry reported on 18 November 2021.[34]

      The crew of the Northern Fleet frigate Admiral Gorshkov, as part of the completion of the cycle of tests of hypersonic missile weapons, fired another Zircon missile at a sea target on November 29 and another one at a coastal target on December 16.[35][36] The Tsirkon hypersonic system was salvo-launched on December 24, 2021 and again launched on February 19, 2022.[37][38]

      Obviously, for all these tests missiles have to be manufactured, with the flaws identified in the initial ones fixed, so it’s not like you can shorten the progression by all that much.

      So basically the Zircon was in 2016 where the US missiles are now. That’s a big gap.

      The Avangard:

      The Avangard (then called Yu-71 and Yu-74) was reportedly flight tested between February 2015 and June 2016 on board UR-100UTTKh ICBMs launched from Dombarovsky Air Base, Orenburg Oblast, when it reached a speed of 11,200 kilometres per hour (7,000 mph; 3,100 m/s) and successfully hit targets at the Kura Missile Test Range, Kamchatka Krai.[citation needed]

      In October 2016, another flight test was carried out using a R-36M2 heavy ICBM launched from Dombarovsky Air Base, successfully hitting a target at the Kura Missile Test Range. This was reportedly the first fully successful test of the glide vehicle.[14]

      On 1 March 2018, Russian President Vladimir Putin in his presidential address to the Federal Assembly in Moscow announced that testing of the weapon is now complete and that it has entered serial production.[15][16][17][18] This was further confirmed by the commander of the Strategic Rocket Forces, Colonel General Sergei Karakayev [ru].[19][20]

      The latest flight test occurred on 26 December 2018. Avangard carried by a UR-100UTTKh ICBM launched from Dombarovsky Air Base successfully hit a target at the Kura Missile Test Range

      On 27 December 2019, the first missile regiment armed with the Avangard HGV officially entered combat duty.[1]

      Meanwhile the US did some tests, launched a bunch of programs, cancelled them haphazardly:

      And in the end there is nothing close to being deployed for many years to come.

      The deepest irony is that the Russians resurrected/started all these programs because of the threat posed by the US ABM shield that was being talked about ~15 years ago. But here we are 15 years later, and there is still no such shield, while the Russians did develop all these advanced weapons to pierce it.

      And they are currently working out how to intercept such missiles (for which purposes it greatly helps to have developed them first) and presumably on whatever the next generation will be.

      The question is how were the tables turned like that?

      1. PlutoniumKun

        I don’t doubt that they are having all sorts of problems developing hypersonics now – not least because there is a generational gap in engineering know-how. But it doesn’t get around the reality that these are peripheral weapons projects. Hypersonics just haven’t been seen as important as stealth (whether this assessment is right or not is another question). The Chinese seem to be hedging their bets on this question.

        Its also worth noting that even the Russians seem to see hypersonics as the cream on top of their strike capability – they are still putting a lot of resources into fairly old subsonic cruise missiles, probably on the basis that they are a lot cheaper to make and lots of targets just don’t justify a multi-million dollar missile. The USAF is doing something similar with cheap guided bombs – using networking to greatly improve the efficiency of its cheap and old style JDAMs.

        My overall point is that its a mistake to focus on weapons systems as game changers. Occasionally they are, but much more frequently its all a matter of response and counter-response, of particular systems fitting into overall doctrines. As we’ve seen in Ukraine, modern war is still about who has the most manpower and steel and artillery as much as fancy high tech weaponry. There is no particular reason to think this will change for several decades.

        1. NotTimothyGeithner

          The range of the missiles used in Syria was impressive, and they moved a portion of their Black Sea fleet out after that. It wasn’t necessary. Its basically the power of Zeus, and those missiles can hit sites like Ramstein.

        2. GM

          My point isn’t so much about “game changers”. Although I do think that the Russians have a significant advantage right now, MAD is still ensured, unless one side hasn’t revealed all its cards.

          This is more about tech dev.

          These things often go way beyond the purely military aspect.

          Thus the concern about “falling behind”.

          This is a manifestation of broader problems — the brightest minds in the US have spent the last few decades working on algorithms to game the stock market, sell ads to people and collect their personal information, i.e. purely parasitic activities. Some advances in AI have come out of that, but a lot more could have been achieved if all that energy had been channeled towards actually useful things. Expect the Chinese to pull ahead rapidly in the years to come in those areas.

          Back in the 1980s and 1990s it looked like the US aerospace industry had an endless array of ultra high-tech sci-fi-level fancy machinery in the pipeline (I was actually very deep into this stuff as a kid so I remember it well). Some 25-30 years of M&As, stock buybacks, and fat bribes for politicians later and all it has to show as real-life products is the F-22 and F-35, none of the rest was actually developed (again, quite a few hypersonic vehicles were dabbled into, but nothing was actually completed). meanwhile not just the Russians but the Chinese and Indians too have pulled ahead. Worse, the US even lost the technical capability to build civilian airplanes that don’t randomly fall out of the sky…

          1. Skip Intro

            Even as a question of ‘tech dev.’, we compare apples to oranges. I can’t say exactly what design goals and criteria are used for Russian arms development, but in the US, I believe designs optimize for high cost and diverse congressional districts. A simple successful system, would fail to produce lucrative overruns and redesigns. I think the optimal pattern is a design that is super expensive, but never quite ready, so it will have the huge weight of its sunk costs extorting regular supplements for the vendors, and correspondingly turgid donations for politicians and pro-war think tanks. Having the final products destroyed quickly on the battlefield (or on the way) happens after the bulk of the payoffs have been made, and just means new orders. As the great minds at The Demotivators™ say, ‘If you’re not part of the solution, there is good money to be made prolonging the problem‘.

          2. Glen

            Exactly! America’s R&D went to Wall St and Silly-con Valley. Real R&D was cut.

            Now-a-days, Americans get all excited when a billionare in a rocket duplicates something NASA did in 1962.

            1. Michaelmas

              Now-a-days, Americans get all excited when a billionare in a rocket duplicates something NASA did in 1962.

              No. Reusable launcher rockets landing tail-first — as SpaceX has achieved — are actually new and potentially a very big deal.

              1. chubbychecker

                “potentially” is doing an awful lot of work there, unless you are talking about it being a “very big deal” on tik tok?

                Right now, the SpaceX cost per launch kg is roughly equivalent to the Space Shuttle, meaning we’ve gone sideways for 40 odd years.

            2. GM

              Yes, and the military has traditionally been the leading edge of R&D

              Noam Chomsky: The Military Is Misunderstood:

              Let’s go back to this:


              The typical reactions are “Yeah, the US had Project Pluto/SLAM back in the 1960s, this is nothing new” and “Yeah, but this doesn’t change anything strategically”

              Well, yes, MAD is still ensured, and yes, the US did work on something like this back in the 1960s. But that missile never flew.

              Meanwhile if the Russians have worked out nuclear propulsion for that missile (not a trivial problem, and given that it blew up in 2019, killing a bunch of people, they are still having issues), that opens up all sorts of applications beyond making a cruise missile with unlimited range.

              The Russians have also resurrected the old Soviet nuclear-powered spacecraft project, which got killed by the collapse of the USSR in the 1980s. The US equivalent was also looking promising, and was quite a bit ahead of the Soviet one, but was killed by Congress in the 1970s. But while the Russians have resurrected theirs, the US gave many billions to billionaire-owned private companies to, as you said, copy what NASA was doing in the 1960s and profit from it. And those aren’t going to be working on truly game changing technology such as this because going nuclear is a big legal, logistical and technical mess for a relatively new private company. So now, if anyone is going to get this done in the next 10-15 years, it will be the Russians, and then the tables will turn again, despite all the gloating about how SpaceX has eaten Roscosmos’s lunch.

              And these things are indicative of larger trends. For example, the only commercially working fast breeder reactor is the BN-800 in Russia. Sure, the French had one up and running back in the 1980s and 1990s, but they shut it down, officially because of environmental opposition (who knows what the real reasons were). And now they don’t have one. The US had one at Hanford but it never produced electricity. They don’t have one now either, nor are they building one. And then we have the Indians who are currently building one.

              So not only are the Russians secure in terms of fossil fuel supplies for the next half a century (and they haven’t even started fracking yet, while the US will be on the fracking drill-and-deplete-very-fast-then-drill-again treadmill until even that runs out, which should be in a couple decades the latest) but they seem to be quietly positioning themselves of a post-fossil fuel nuclear future by investing in nuclear R&D (they haven’t scaled up yet but if you have the tech, you can if needed). Meanwhile the US and Europe are sleepwalking…

              P.S. This isn’t to praise the Russians as some kind of unparalleled geniuses — again, we are mostly talking about resurrecting old projects from Soviet times, and building on top of them. The point is more about how dysfunctional things are in the West. Modern Russia isn’t the USSR — the USSR had 5-10x the resources to dedicate to R&D, because it was 2x larger while not having to support the large class of 1% parasites that are syphoning off so much of their real wealth today. There is no excuse for the US, with the ability to attract top talent from all over the world, to be in such a situation. What groundbreaking truly useful for humanity large-scale R&D projects are there ongoing right now? The private sector is mostly busy doing stock buybacks, the government is handing out pork…

              1. Glen

                The Hanford Fast Flux reactor was for making bomb grade material. I don’t know how the US is doing that now.

                I can also tell you from first hand experience that having the most importance focus of upper management shift from how the product and factory are doing to how the stock price/management bonus is doing, warps the moral fabric of the engineers at the company, i.e. everbody watches the engineers that tell management what management wants to hear get ahead, and engineers that are not so good at embellishing the truth get pushed aside. I suspect this is how programs like the F-35 get in trouble at a very low level.

        3. The Rev Kev

          When the Russian hit ISIS with 26 Kalibr missiles from small ships sitting in the Caspian Sea 1,000 kilometers away, that certainly got a lot of people’s attention-

          But when Syrian/Russian air defenses shot down 70% of a US/UK & French missile attack on Syria back in 2017, that is something that the west did not want to acknowledge-

        4. Thuto

          Leaving aside the minutiae of technical capabilities of advanced weapons systems, Biden calling the Kinzhal hypersonic missile, first used successfully in Ukraine, a “consequential missile”, is in my view a tacit admission that this weapon has tipped the scales, if ever so slightly, at least in so far as intercontinental ballistic missiles are concerned. It’s worth remembering that in a direct conflict between Russia and the US, a lot of icbms will be flying so any advantage here will be seen by either side as consequential, and said advantages may compound asymmetrically (e.g. hypersonic missiles completely overwhelming enemy missile defense systems to “clear the path” for conventional icbms). Viewed from this perspective, and within the narrow context of a direct US vs Russia military confrontation, i’d say the current generation of hypersonic missiles are, if not game changing, then at least panic inducing on the US and its allies, as evidenced by Biden’s unguarded comment. The second aspect to this relates to power projection, as Putin said recently when Russia tested its Sarmat ICBM: “it’s an unmatched weapon and our enemies will think twice before threatening Russia in a moment of heated rhetoric”. That comment alone captures the essence of the bifurcation between how Russia projects military power by developing advanced weapons systems for deterrence vs the US idea of power projection centred around subduing other nations through military adventurism. Russia is projecting its military power to push back against what the US believes to be its manifest destiny to be the global hegemon, and I believe this is in no small part due to the development of these advanced weapons systems.

        5. prism

          The key here is material sciences, which the US is seemingly lagging behind.

          At the speed that hypersonic missiles are operating, the materials that are needed to sustain the high drag/resistance become tremendously critical, which the Russians appeared to have been able to demonstrate with their new weapons.

          Although this is all conjecture, we can infer that the US is lagging behind in material sciences from tangential evidence. For decades during the Cold War, the US failed to manufacture the closed-cycle staged combustion rocket engine and gave up early on, while the Soviets went on to develop the necessary metallurgical expertise and perfected its manufacturing process.

          The result? In the early 1990s after the disintegration of the USSR, the US bought wholesale RD-180 rocket engines (still one of the most reliable rocket engines to date) to be used on their Atlas launch vehicles, and the US was even licensed to manufacture them, though it was never able to do so, presumably due to the lack of metallurgical expertise.

          It wasn’t until very recently with SpaceX’s Raptor engine that the US is back in the game with closed-cycle staged combustion rocket engine again, and even the SpaceX engineers admitted that breakthrough in their new alloy (SX500) was key in enabling the engine to be successful in the first place. Still, the Raptor engines are likely years away from being deployed, so the gap is still there.

        6. David

          I do think that long-range, highly accurate hypersonic conventional missiles could be a game-changer, though as always there will be counter-measures at some point. The effect of any indirect fire is largely a function of accuracy, because effects fall off quickly with distance. I’ve seen claims that the Kalibr, for example, has a Circular Error Probable (CEP) of 1 metre, meaning that fifty per cent of all hits will be within one metre of the target. This seems unlikely, to be honest, but even if it’s ten metres, this raises the prospect of direct attacks on government and military facilities in a way that previously only manned aircraft or slow-moving cruise missiles could have hoped to attempt. As a result, threats to critical infrastructure suddenly become much more credible, in a way that nuclear threats never were. By contrast, threatening to meet such attacks with a nuclear response isn’t credible, because it would just mean mutual destruction. As of now, it looks as though any government building, military installations, headquarters, fuel depot, power station or whatever in Europe could be taken out by a hypersonic missile fired from Russian territory. If that doesn’t get the attention of western decision-makers, I’m not sure what will.

          1. NN Cassandra

            It’s interesting question if, with all these long range yet accurate missiles, it’s even possible to wage WWII large scale industrial war, where the point is to outproduce your opponent. Just destroy all the big refineries, power stations, ports, tankers, chip foundries, etc, and the war economy is gone.

            1. GM

              That is not a hypothetical, it is exactly what Russia is doing to Ukraine.

              War should be over very soon without Ukraine being pumped by the West — all the armament factories have been bombed, refineries have been disabled, now the railway substations have been destroyed too (and good luck replacing those big transformers quickly).

              The analysis points to this being a situation like that of Germany in 1918 — nobody had marched to Berlin yet, but capitulation was forced on the country because defeat was inevitable. There won’t be such a capitulation in this case because of external factors, but the strategy has been successfully executed. Without having to indiscriminately bomb cities.

            2. redleg

              Since so many strategic materials are produced in Russia and China, not in the EU or USA, Russia and China don’t even need military methods to cause significant damage to NATO. They just stop shipping the stuff- REE, titanium, electronics, etc.
              The complete absence of strategic thinking from the US and NATO is stunning.

    4. ZenBean

      I thought that by now European politicians would have been brought into private rooms by industry and agriculture representatives and told the raw truth about the implications of their policies

      Do you have an explanation for that? Especially regarding Germany it used to be a commonly told half-joke that its political class is essentially the business class. The Greens might be detached PMC-ideologues, but the same was never true for the other big centrist parties.

      1. PlutoniumKun

        I have no explanation, but Davids comment below is certainly one likely assessment.

        I think another issue may be something we saw during Brexit – a lot of CEO’s could see clearly the damage likely to be caused by the policy, but all felt there was more to lose than to gain by putting their heads above the parapet and saying so in public. But the silence was then interpreted by the public and media as consent or agreement.

        1. lance ringquist

          but now the complete economic nonsense being touted by the e.u., the u.k. no longer has to abide by that, and can chart their own course.

          sovereignty is always the wise choice. boris has already acknowledged that russia has won, and maybe charting a different course than the suicide that the free trading e.u. has embraced.

        2. Colonel Smithers

          Thank you, PK.

          It’s the same with the CEOs of Deutsche Bank, BASF and Bosch, the head of the German labour movement and PM of Bavaria, Markus Soder. None dares raise his head above the parapet, especially after Bucha and the singling out by Zelensky of Auchan, Le Roy Merlin and Renault, Merkel and Sarkozy.

    5. vao

      I thought that by now European politicians would have been brought into private rooms by industry and agriculture representatives and told the raw truth about the implications of their policies.

      I seem to remember that there were similar comments on this site regarding the curious absence of trepidation by industry and agriculture when facing the foreseeably dire implications of the inept preparations made by the UK government to deal with the brexit.

      Which to me can mean two things:

      1) Economic policies in Europe (both at EU and individual country levels) are very much influenced (if not controlled) by large transnational firms. They are also the ones that have been systematically delocalizing and globalizing in the past decades. I presume those corporations and their leaders believe (correctly or not) that, if things become unsustainable in Europe, they can weather disruptions with a further wave of relocation of their activities and supply chains in Turkey, India, Vietnam, or wherever sanctions are not in place. They never had any qualms doing that anyway.

      2) Those firms that cannot transfer their activities elsewhere or reroute their supply lines, or would incur substantial costs and difficulties doing so, are SMEs — and those do not have the financial and political heft, the lobbyists, and the experienced battalions of lawyers and PR people to put pressure on the politicians. Perhaps only in Germany — and even there.

      I cannot think of many politicians in European governments that have an industrial or agricultural background. In Austria, there is only one member with actual experience in industrial corporations (Margarete Schramböck); in Switzerland, one with experience as wine-grower (Guy Parmelin); in Germany, one with some short experience in founding and running an IT firm apart from being a consultant (Christian Lindner). All others government members are jurists, academics, finance people, physicians, career politicians and NGOs. And those are countries where SMEs are very strong.

    6. Kouros

      The two stealth planes shot down by the Serbs in 1999 speaks volumes about the US approach…

  3. tom67

    I believe you, Yves, are right and I believe we in Europe and more specifically Germany are heading into disaster. Our elites are shockingly misinformed. Ten days ago I visited the website of “Osteuropa (Eastern Europe) a venerable journal that used to have the very best scholarship about things Eastern European including Russia. “Osteuropa” hosted a discussion on whether Germany could weather a stoppage of Russian energy suppiles. There were four panelists: one political scientist who basically thought we shouldn´t buy gas from Russia anymore because otherwise our reputation would suffer. The host from Osteuropa also barely disguised that he was a proponent of boycotting Russian gas. Then there was some Russian emigrant who was even more agressive and then a true representative of the dismal science. He was of the sort that Yves made fun of when the great financial crisis hit in 2008. He produced some mathematical charts that nobody could understand in the few seconds that he showed them and then – on the strength of his mathematical wizardy – he proclaimed that things wouldn´t be to bad. No more than two percent loss of GDP. But Russia would suffer terribly. This man by the name of Christian Bayer was actual professor of economics at the university of Bonn.
    These four who – with the dubious exception of Christian Bayer – didn´t have any knowledge of how an economy actually works all ganged up on the only true expert, Professor Monika Schnitzer from Munich, who warned of possibly catastrophic consequences as nobody can foresee how such a shock will ripple through supply chains. The erstwhile four – all of whom are considered to be such experts that they were invited to such an august journal – either didn´t understand or willfully misunderstood Ms. Schnitzers reasoning. I was reminded of the famous lines of Yeats in his poem the second coming:
    “The best lack all conviction, while the worst. Are full of passionate intensity”

    1. OnceWereVirologist

      Speaking of the Great Financial Crisis. The collateral damage from that hit the Russian economy to the tune of around an 8% y/y decline in GDP in 2009. If the Russian Central Bank forecasts of an 8-10% decline in GDP turn out to be true and total economic warfare against Russia on the part of the West only produces a marginally more severe downturn than occurred in the GFC, then I think you have to consider that a big win for Russia.

      1. NotTimothyGeithner

        Governments ability to weather the storm is dependent on popularity too. Obama as a newcomer and not President when the crisis hit had a lot of leeway that Biden won’t get and won’t be able to do much in response.

  4. David

    One of the basic problems with capacity is scale. Larger organisations are, other things being equal, less capable than smaller ones, because there are so many more ways for things to go wrong, get lost and turn into political issues. At the national level, the US is the poster child for the problems of ensuring a reasonable degree of capacity at large scale.
    But it’s worse as the number of actors multiplies. Crisis management at any real scale is almost impossible, and the organisations involved (NATO, EU) are so large and unwieldy that a common position is effectively impossible on any moderately-complicated issue. And Ukraine is far worse than that. All of the countries have divisions within their populations, and divisions (if somewhat obscured) within the political system. Moreover, all the governments are internally divided. Take a country at random (Portugal, Belgium) and you’ll find that the Foreign Ministry has one view, the Defence Ministry another, the Finance Ministry a third, the Agriculture Ministry a fourth … all exacerbated by coalition governments, parliamentary majorities and the individual standing and power of politicians. Many of these actors will be talking past each other in capitals, and making alliances with their opposite numbers in other countries.

    For the moment, most countries are just being swept along. The collective West has rushed off in one direction, and it’s going to be very difficult to change that much, and effectively impossible to find a consensus on anything else. The most likely outcome is a slow splintering of the current united front, as different western states quietly start to do different things. The alternative is some kind of inner directorate set up, as happened over Kosovo in 1999, when four or five nations effectively ran the whole war. Had that not happened NATO would have collapsed after the first ten days. But I don’t see that happening in this case.

    1. Colonel Smithers

      Thank you, David.

      It happens with EU rule making and the lobbying in response by interested parties.

  5. The Rev Kev

    In reading her letter, it looks like the Russian economy is not out of the woods yet and that they are in for a rough trot over the next six months. On balance though, they will get through it and it may be that by next year their economy may be in a stronger position. If there is a major reduction on consumer goods from outside countries for example, then that would have to mean that there will be much less money flowing out the country. And like happened with the sanctions that the EU put on Russia after Crimea went back home, local Russian entrepreneurs filled the gap and manufactured or grew local equivalents that were just as good if not better. And they did not have to worry about subsidized imports from the US, EU, etc. undercutting them either. But still they will have to get through the rest of the year first.

    As for those countries as nominated as ‘unfriendly’ by the Russians? Well, that is where the fun begins. The problems that the Russians will experience will be transitional. The problems that the later countries will experience will be structural and in some cases be without solution. It does not matter if you think of yourself as Masters of the Universe, Reality is always ready to come along and b****-slap you silly. Will Smith has nothing on Reality. I have been in Europe in winter and know how could it can get and without heating, those homes will become refrigerators. And just where is industry suppose to get the energy to manufacture goods from? Assume it? Maybe those people come this winter will be able to keep themselves warm in other ways. Like protesting in the streets by the millions and laying siege to government buildings. And if those EU bureaucrats try that you-are-on-your-own-crap, will discover that governments at heart really do only exist at the sufferance of their people? What about the Police and the Army you say? How warm are those barracks in winter time I ask?

    1. GM

      Sanctions may actually be good for Russia.

      The USSR collapsed for the following reasons:

      1. The nomenklatura wanted to consume more than the system allowed them to, especially luxury goods from the West. That problem became more and more acute the more “opening” there was to the West, and eventually this is what resulted in the system being deliberately demolished. It is not a coincidence that the top 1% in Russia (and in the rest of the post-Soviet space) today consists almost entirely of people from or around the 1980s nomenklatura.

      2. That desire for Western goods combined with the “opening” resulted in a balance-of-payment deficit. Greatly helped by the move in the West to fiat currency in 1971 — the USSR needed dollars to pay for Western goods, for which it had to offer its actually valuable natural resources, while the other side could print as much worthless paper as it wanted. That resolves the basic paradox of the 1970s and 1980s — the West took its preliminary plunge into the energy and resources crisis in the 1970s, and things were looking very bleak at the time (while that was the golden period for the East), and yet by the late 1980s it was the USSR, which had plenty of resources, that went bankrupt, not the West, contrary to all logic.

      (3) Refusal to actually implement proper real-time material balance once the technology to do that had become available, but that is really a consequence of (1).

      Much of this stems from the “opening” in the 1960s because it created the close personal contacts and desires for luxury good consumption that undermined the system.

      And then the 1990s came and Russia was flooded with Western goods of all kinds which killed their own industry.

      If they shut themselves off from the West, there will be some short-term pain while the system adjusts, but long term that will be a good thing — oligarchs won’t be able to divert untold billions out of the country to splurge on 150-meter yachts and mansions around the world, local manufacturing will pick up (no more Boeing and Airbus planes? No problem — their own industry, which had been suppressed by imports, will grow instead; same for cars and many other things). The big problems are semiconductors (they do have their own but not the manufacturing capacity at the required scale for civilian use) and machine tool building (that has been completely gutted since Soviet times, and even the late USSR had started to rely too much on imports in that area) so it will be interesting to see what happens there.

  6. Alyosha

    It seems that we’re flirting with the sort of financial contagion and cascading failures experienced in 2008. Of course no lessons were learned, but I have a question that I don’t have the technical chops to answer. Economics is pretty far from a strong suit. Has the west actually insulated Russia to some degree from the potential of global financial carnage?

    Since the west isolated Russia from banking and the western centers of finance, how much would say a stock market dive and the ensuing second order effects from that impact Russia? I have to assume at least some because it would impact markets for Russian exports. But is Russia’s financial sector now air-gapped enough that it wouldn’t get pulled under?

    1. Martin Oline

      I thought this a great question Alyosha, and I am greatly disappointed there are no answers as yet. Economics is not my field but I will check back this evening for enlightenment.

    2. Yves Smith Post author

      The importance of the stock market is greatly exaggerated in the US. Nearly all the volume traded is of existing shares, which has zero impact on the real economy, aside from diverting what passes for talent into speculation. You are twice as likely to become a billionaire in asset management as in tech.

      The one reason for having a public stock market is for the issuance of shares, as in companies selling stock to raise money, presumably to invest in their business. Stock sales, however, are far and away the least important source of capital. Retained earnings are #1 and debt #2.

      Ironically, stock markets matter more in a finacialized economy, as we saw in 2007 and 2008. As highly leveraged financial firms like big banks and AIG got in trouble due to subprime and subprime CDO exposure, they were facing an inability to roll maturing debt on affordable terms. Normally they would sell stock to shore up their balance sheets. But their stock prices were also distressed.

      Shorter: highly leveraged firms are the most likely to need to go to the stock market if they get in trouble, and banks are prime candidates.

  7. Revenant

    Semi-serious speculation: is the EU playing eleven-dimensional chess?

    What better short-term tactic to show loyalty to Uncle Sam than “see-you-and-raise-you” in the Russia-Russia-Russia hysteria? Europe is going to take some pain in the next few months that America will not and it will place itself in Uncle Sam’s hands for replacement energy supplies.

    But, as others have pointed out, the energy needs of all armed forces in Europe are supported, directly or indirectly, by cheap Russian gas and oil flowing in pipelines and tankers. So, medium-term, come winter, Europe will turn to Uncle Sam and say, “sorry my boy but this land war in Ukraine you would like us to fight, I am afraid our hands are tied, we cannot turn the lights out on business and voters. But you’ve got oil and grunts, be our guest. Oh, and we need an economic opening with Iran tout de suite, like we’re angled for since the 2000’s so please tell the Israel where to go”. And long-term, the price of energy is going up and adjusting now will be cheaper than adjusting later (because further malinvestment in assets dependent on cheap-energy is avoided).

    1. NotTimothyGeithner

      There isn’t a Europe. Merkel ran Europe for a time, but now you have a newbie government in Berlin and a weak President in France with screaming Easter Europe states such as Poland. My guess is they will let Poland’s economy be the example and keep the gas flowing with the hope this is over soon. The US is pushing the line of a 10 year war, but the cauldron will be gone in a few weeks with much of Ukraine’s manpower having fled and being turned into Somalia.

      Spain is getting into a fight with its energy supplier at the same time. The Iranians at the same time know how they’ve been treated, and Israel is attacking Palestinians again. They aren’t jumping for a pat on the head from former white colonial types.

    2. Overestimate

      That question is based on the assumption that our misleaders are at all capable of thinking and have a spine.
      Also, I don’t see any upside for them. Our politicians are all professional politicians and have zero career ops to purse outside politics and lobbyism. They are not going to bite the hand that literally feeds them.

      1. Michaelmas

        Our politicians are all professional politicians and have zero career ops to purse outside politics and lobbyism. They are not going to bite the hand that literally feeds them.

        And there you have it. Tony Blair — who can’t use a PC or laptop last I heard — took the UK into Gulf 2 against the resistance of, probably, the larger part of the UK’s population. He is now worth $60 million.

        “European governments accommodated Washington’s agenda. The reason was explained to me several decades ago by my Ph.D. dissertation committee chairman who became Assistant Secretary of Defense for International Security Affairs. I had the opportunity to ask him how Washington managed to have foreign governments act in Washington’s interest rather than in the interest of their own countries. He said, “money.” I said, “you mean foreign aid?” He said, “no, we give the politicians bags full of money. They belong to us. They answer to us.”

        — Paul Craig Roberts.

        1. Colonel Smithers

          Thank you.

          I live near the Blair’s two country estates in Buckinghamshire. The family are worth in excess of £100m and bank their assets with JP Morgan, having dissolved their investment funds. Said funds included Middle Eastern and central Asian money.

          1. JohnA

            I lived near the Blairs in Islington, London, when they moved into Downing Street. Campbell advised them to sell the house, on the grounds it would not look ‘socialist’ leaving it empty or renting, which they did sell for the then market price. House prices were shooting up and allegedly, Mrs Blair, was furious and vowed to build a property empire. Clearly they have done, but not on a politician’s salary, even including her high QC earnings. Rewards come in the after life of power for politicians, clearly.

  8. dftbs

    “The focus of western allies should instead be on trying to reduce “proceeds from sales of oil and gas” for Russia. “. In other words Yellen is suggesting they steal it.

    I think what’s lost in all this talk of embargo is something Yves points out when putting on the “skeptic hat”. That oil sold from storage is not considered as coming from its origin point. It may be Russian. Or Russian oil would then fill the gaps in supply caused by redirection. So the European leadership, which is by many accounts short on technical schooling and long on bureaucratic expertise is looking to pay more in order to placate their sense of virtue.

    There really is something primitive about the morality of modern liberalism that it would call for such vain sacrifices to satisfy the god of ego.

    1. juno mas

      Yes, and all of this could have been avoided with a modest level of diplomacy. Recognizing Russia’s request for national security was not difficult. Ego got in the way.

      1. MILLER

        Not just ego, but the violent Russophobic fixations of the so-called Western elites, which remind me of nothing so much as Melville’s tale of Captain Ahab’s heedless obsession with the great whale, which led to his destruction and that of his crew. We’re the crew.

  9. chuck roast

    There is always the possibility that the EU program will be unexpectedly well thought out…

    Thank you for one of finest qualified backhanders that I have read in a long time. Keep up the good work!

  10. wendigo

    There is not enough money to be made from missle development to make it a priority.

    Search for next generation air dominance fighter.

    It is expected each manned aircraft will cost several hundred million dollars. F 35’s are around $ 80 million each.

    Apparently the lesson learned from the F 35 was to ask for a far more expensive aircraft.

    Also, apparently, the energy situation will be solved by relying on the invisible hand. You know the “unintended social benefits and public good brought about by individuals acting in their own self interest” part.

  11. Anthony G Stegman

    All of these inter-state rivalries need to be set aside if we are to have even a chance to prevent global catastrophe. The West vs Russia is an absurdity in these times. Both need to work together, along with China, India, and the rest of the world to address a myriad of global problems that ought not continue being ignored. Rather than designing the most fantastic weapons of war, the smart and talented need to direct their talents elsewhere.

    1. Alyosha

      Truth. It seems that Russia and China have asked for such a world and been rebuffed. We cannot, of course, determine whether they were trustworthy in their intentions; however, since they also asked for binding agreements it would have been fairly easy to point out their nefarious intentions when those were acted on. It’s too bad that the smart and talented in the US and Europe direct their talents to financial piracy and global empire. Though admittedly, the latter doesn’t actually seem to get the smart and talented.

  12. Safety First

    Ok, some thoughts.

    1. I maintain that we will not know the true and real extent of any sanctions regime, or of its economic impact, until months and months from now, if at all this year. In part precisely because of the visible gap between rhetoric and reality.

    Example A – WSJ’s report on the “Latvian blend” oil (Russian oil at 49%, someone else’s at 51%)(and then what I would do is just offload 49% in port, come back to the Russian tanker and top up again, so you don’t have to buy a new 51% load for every new 49% load, but whatever). There is every possibility that the scheme, and its variants, will persist in reality even when Russian oil is “banned” rhetorically, at least for some period of time. Not the least because I am sure some European trading house is making a mint on the arrangement. What this will end up meaning for full-year EU import volumes or Russian export revenues I have no idea at this juncture.

    Example B – Poland rhetorically slammed the door on “Russian gas”. But in practice, they are still buying that very same Russian gas…from Germany. At an inflated price, of course. So again, what will the actual impact on volumes be? What about prices, both paid by Poland and received by Russia? I mean, anyone with Excel can throw together some projections, but I would rather wait to see the actual figures at year-end. But I suspect that again, rhetoric and reality will not exactly be equal.

    Example C – not Europe-related, but illustrative. Remember how the US granted South Korea an exemption from sanctions against electronics/whatever exports to Russia? Because, I guess, Samsung’s profits uber alles or some such? Or, similarly, the US Foreign Assets Control whatnot issued a special exemption to Usmanov’s companies against sanctions despite Usmanov being on what feels like a hundred sanctions lists?

    Ok, can you imagine a scenario where the EU “bans” Russian this or that, but, say, Hungary or Turkey or whatever gets a similar exemption, formal or informal, keeps importing the stuff and then reselling it to other EU countries through, say, German middlemen? Maybe. In a few months, we might know for sure, but for now, all the rhetoric coming out of the US/EU means…I do not know what it means. But I’d rather keep watching the import/export figures from all sides than listen to whatever is said about it on the telly.

    2. Have the European elites lost it.

    Let me use Eastern Europe as an example. During the Soviet era, many of these countries or Soviet republics had well-developed industrial economies. The Baltics, for example, were making computers, cars, refrigerators, oil products, whatever the hell else. When they joined the EU, one of the conditions was for them to basically destroy most of these aspects of their economies, because one, the Germans had no need for competition (but do like importing cheap labour), and two, this way the Germans could sell them all this stuff instead of having it produced domestically. It’s Imperialism 101 with a Teutonic accent, which does not bring back any memories whatsoever.

    So why did the political elites of these countries accede to all this? Simple – because from their standpoint it’s a simple scheme, spend some years doing the EU’s bidding, and get personally rewarded by some cushy post in Brussels or some consultancy or whatever the hell else. And these countries did not have an established cadre of local billionaires who’d object to having their assets stripped down. This, incidentally, was the key difference between post-Soviet Russia and post-Soviet Bulgaria or whatever, that the Russians actually got a group of oligarchs most of whom, eventually, decided to re-assert a measure of sovereignty to protect themselves and their fortunes, and here we are today.

    But the point is – so extend the analogy to EU as a whole. You have a bunch of “atlanticist” politicians come in, who figure that if they do what the US wants, they will be rewarded in some fashion whether within EU structures or via some US-funded NGOs or whatever. And if so, then who cares what US policies do to wreck their home countries? That’s not what their careers and remunerations depend on.

    In this context, I think it is no accident that someone like Le Pen, on the subject of foreign policy, was basically spouting what you’d have expected to hear from “old-school” euro-centric oligarchs, who might still grouse, complain, and try to push “their” candidates through somewhere, but until and unless they do, the “atlanticists” will just keep helping the US eat their lunch.

    So as usual, the question should not be – have you lost your minds – but rather – how do you personally benefit from this. And I am not suggesting that many of these people are not blithering idiots, mind you, but they still tend to know where their bread is buttered…

    3. Coming back to the issue of sanctions, I would, again, point out that Russia has its own set of problems that will become more and more pronounced over time, and we do not know how or whether these will be addressed with any degree of success.

    Specifically, over the past 20 years especially, Russian oligarchs and the Putin government essentially built out an economy that exports resources or low-processed products, and imports high-end and high-processed products, first and foremost capital goods. In other words, we sell you the oil, but buy from you the drill to get that oil, and the spare parts for said drill. If you go down the line of Russia’s critical imports, you notice that it’s things like machine tools, electronic components, optics, high-end industrial chemicals, et cetera, and Germany is one of the largest counterparties.

    For many of these things, there are simply not any replacements from China or wherever. Especially if you are talking about something having to do with, say, commercial aviation (MS-21 and the SuperJet use a lot of Western-produced parts), or oil & gas exploration (there might literally be one producer in the world for certain specialised drilling or geoseismic equipment). So either there will need to be some black-market scheme, which costs money and will have a deleterious impact on both Russian businesses and consumers, or, after eight years of talking about re-industrialisation but doing not very much in practice, Russia will need to actually re-industrialise, but this also takes time and costs money. What will actually happen, I do not know, but I do expect that by next year, when the lack of these kinds of high-end imports really starts to tell, the Russian economy will be suffering meaningful headwinds. I do not think this will cause a complete collapse or anything, but remember, even during the Soviet era most of the time there was robust trade with the West (indeed, Soviet industrialisation was largely driven by imports of both machine tools and specialists), and that does not look like where we are going presently.

    4. I won’t spend much time on Russian weaponry, but two quick points.

    – In the context of post-Soviet Russia’s shift to a resource export economy, massive de-industrialisation was accompanied by equally massive, err, de-edumacation. In other words, it is now producing far fewer high-quality scientists, engineers, et cetera, and many of those it does produce had, pre-war, been moving to the West for better salaries and such. So literally for the past decade there has been this discussion in Russia of – we are making stuff now, but haven’t anyone to make new stuff in 10-20 years, and what do we do about it. Something to keep in mind.

    – One key difference in Russian vs. US military-industrial complex is the extent of state vs. private control. Even in the post-Soviet era, Russian “VPK” (military-industrial complex, literally) remains state-owned, though not quite as integrated with the Armed Forces as it had been in the USSR. I can rant and rave about the extent of corruption and private-sector stupidity at the Pentagon for hours, but the point is – it’s always been private for-profit contractors seeking to extract federal budget moneys, and the Pentagon is now filled with people who’d spent their entire careers doing said contractors’ bidding. This is why every time the US gets into a war someplace it “discovers” that it lacks some basic but critical warfighting equipment and capabilities, e.g. minesweepers, light ground-attack aircraft, whatever.

  13. JusThink'n

    I used to own a VW Diesel, I still keep an eye on fuel prices. In the past years diesel, since the unsulphured type came on, cost has generally run about $0.50 a gallon more than regular gas. Today, here in southern Delaware the regular gas price was $4.25 while diesel was $5.79. That is $1.54 price difference. That happened in the last week.
    Maybe the Russian oil sanctions kicked in?
    Maybe the oil companies decided to gouge the diesel market? Any body want to speculate?

    Also, trucks use diesel. This will mean the price of goods will have to absorb this increase. Not a good picture in my opinion.

  14. NN Cassandra

    What I don’t understand is the mechanism by which this self-sanctioning is supposed to bring Putin to his knees. Russia is running trade surplus, which means they are exporting more things than they import/need, and voluntarily refuse to take these excess exports is not going to hurt Russia. It seems like continuation of that magic thinking that replacing $300B number with $0 on some computer in NY would immediately grind to halt Russia’s shops and factories.

    And even if EU manages to switch to other suppliers of energy, it will be for higher price and thus damage competitiveness. Can’t wait when all the remaining manufacturing is going to be moved to China/India/Vietnam where it will run on Russia oil/gas bought with discount.

  15. RobertC

    Yves opening thesis

    When the EU commits to a measure to undermine Russia that the US opposed as unproductive, one has to wonder when rationality and self interest left the room. The West is only beginning to suffer the cost of blowback from economic sanctions against Russia in terms of higher energy and food costs, which are soon to be followed by price increases and shortages of other commodities where Russia has significant market share.

    As I’ve asserted before, the intent of Putin (and “closer than an alliance” Xi) is disruption of the Atlantic Alliance.

    The US and EU are responding with disruptions of their own: sanctions and weapons transfers.

    The problem for both the US and EU is their pandemic-augmented intrinsic political and economic fragility and instability.

    ++ Compensating for embargoing Russian natural gas is a lengthy and expensive effort.

    ++ Compensating for embargoing Russian oil is a lengthy and expensive effort.

    ++ Compensating for embargoing Russian agricultural and industrial inputs (eg, fertilizer, metals) is a lengthy and expensive effort.

    ++ Accommodating the influx of 15% of Ukraine’s population is a lengthy and expensive effort.

    ++ Responding to the forthcoming MENA famines and population movements will be a lengthy and expensive effort.

    Individually each of the ++ disruptions would engage focused attention from the US and especially EU governments.

    Their concurrent combination is overwhelming those governments taking energy and funds from their intended domestic agendas.

    They are flailing, especially the EU with the Ukraine-Russia conflict on its eastern border.

    Russia had planned for the West’s disruptions and is executing its mitigations, which won’t be pain-free but also weren’t unexpected.

    Ukraine is Putin’s and Xi’s cats-paw. The ++ disruptions listed above are their “big” weapons. Military force is their “little” weapon.


    Janet Yellen, US Treasury secretary, urged Europe to be “careful” about imposing a complete ban on Russian energy imports, warning of the potential harm such a move could inflict on the global economy.

    The disruptions aren’t just Russian energy imports and the harm isn’t potential anymore.

    The future is moving from the West. And it’s looking like this jan krikke May 1, 2022 at 7:53 am

    1. Yves Smith Post author

      Russia’s key demand in their negotiation before the war was to get a security guarantee. The US wouldn’t deign to consider that, which was tantamount to saying Russia should not exist.

      In one of his two key speeches on the onset of the war, Putin said Russia wanted a new security arrangement. In its December 2021 list of requirements were Ukraine neutrality, the withdrawal of the invitations to join NATO to Ukrain and Georgia, and withdrawal of NATO infrastructure and equipment from Eastern European countries. NATO could still operate, just not too close to Russia. This is basically making the US adhere to the “not one inch further” pledge that it broke.

      1. podcastkid

        Yes, pursuit of first strike capability has been like an addiction, distant dream/goal willy nilly. Add it all up, and it’s probably more expensive than the F-35 [add in depts to nature]. Don’t think Putin himself savors the idea [in the future we don’t know what’ll be the case], but one development the US should not provoke via brinksmanship is Russia putting a bunch of hypersonics on submarines. I don’t know of Putin throwing that in our face (specifically). All I know is Russia has addressed what is in plain view, Mark-41 installations getting closer. IMO the MICIMATT should revamp their whole approach, and tell the admin to start negotiating.

        Also informative is Marshall Auerback’s 5/4 piece at The Scrum…”Inflation isn’t a ‘Putin Problem’” (real comprehensive, except I disagree with him on nuclear power stations).

  16. XXYY

    One thing I haven’t seen much discussed is the difference in popular attitudes between Russia and the US / NATO.

    My reading of the Russian media and blogs suggest that the Russian people have seen very clearly that (a) everyone in the West hates and despises them, and (b) that they are engaged in an existential fight which they very much need to win in order to continue to exist as a nation. And perhaps (c) there is a group of heavily-armed Nazis knocking at their door trying hard to come in. The Russian people have seen this movie several times before, in some cases within living memory, and they know very well what is at stake and what level of mobilization is needed. Putin’s approval rating is well over 80%, and the military effort has very broad support in this society.

    In the West, things are very different. The population sees little or no reason to launch a war over a far away country that most of them couldn’t find on a map. The vast majority of people see much more urgent problems, like poverty, corruption, climate change, and skyrocketing prices. Ruling Western elites have spent the last decade or two completely ignoring their own populations, if not actively screwing them over, and their own recent military adventures have uniformly turned out disastrously. Western leaders have little credibility, and the question on everyone’s lips is “why are you risking a nuclear war when I can’t even afford rent or food?”

    To the extent that conflicts are won by the side with the strongest will and commitment to win, it’s pretty easy to see what’s going to happen here.

    1. Irrational

      Yeah,, except the leaders aren’t listening. Interestingly, I have tried to have a conversation with a number of people on this the last couple of days and it’s all “oh, but we have to stop Putin, otherwise Poland, Baltics, whatever are next. Europe is doomed.

    2. redleg

      Without diplomacy, nuclear annihilation is inevitable. The US and NATO’s Russophobia (and the US’ complete absence of anything except punishments) has made diplomacy impossible. Until that changes, this situation is a time bomb of US/NATO’s own making that affects life on this planet.

    3. podcastkid

      Russia did a false flag by blowing up a radio station (broadcasting in Russian) in Moldova? I can’t buy it. Maybe I’m wrong, but it seems like there’s a good chance they realize they’ve got enough on their plate as it is.

      All he (P) cares about “is accomplishing his legacy”…theanalysisnews. All I can say is, to me, it’s pretty strange when old trusted voices start heading toward the deep end themselves.

  17. Altandmain

    For Russia, the main issue now is transitioning to a serious industrial economy and making its own higher tech goods that it imports from the Western world.

    That means following the model that nations like China undertook, although with a large twist, as the market for exports is far more limited – it will be more geared for domestic consumption. It will require a major industrial policy and an expansion of Russia’s current manufacturing capabilities. It will also mean resisting financialization.

    If there is still some state planning capability, then rebuilding that would be key. So too would forming partnerships with China as well on what they have to import to build replacements. China too will be eager to reduce its reliance on the Western world.

    Russia is literally one of the best nations to try MMT and industrial policy. It’s rich in natural resources and has a well educated populace.

    The Europeans don’t seem to realize that they have badly messed up. Energy is not so easy to replace, which is something that a lot of economic analysis tends to miss. Financialization has led to a lot of smoke and mirrors, along with fake numbers that don’t reflect real world strength.

    At the moment, public opinion in Russia is very much that this is a fight for survival. The Western nations generally don’t see this in those terms and are more worried about inflation, along with their falling living standards.

    De-dollarization seems next – I think this was inevitable with a rising China, but it has been greatly hastened by the actions of the Western world.

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