This Is What Sanctions Can Do to the Russian Economy

Joe Weisenthal (0:11)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:17)

And I'm Tracy Alloway.

Joe Weisenthal (0:19)

So Tracy, our last episode was, of course, with Zoltan Posar, and we talked quite a bit about the sanctions, the sort of the economic pressure that the US and Europe are putting on Russia over the war. However, it really seems like there's a lot more to dive into with respect to the mechanics and power of the sanctions themselves.

Tracy Alloway (0:43)

Oh my gosh, I'm getting flashbacks to doing international relations stuff at university. But yes, there is a lot to do and say when it comes to sanctions. And of course, the overarching question has always been, do they actually make much of a difference? And on the one hand, what we've seen in the past, I guess, week or so is that they can be very dramatic and clearly, in the space of a few days, the US and its allies has basically created a financial crisis in Russia.

But on the other hand, Russia is still invading Ukraine. And there's the question of what happens next now that you've ratcheted up this kind of financial pressure.

Joe Weisenthal (1:25)

Right, and there is the fact that even with the sanctions, Russia is getting tons of cash every single day, largely from Germany and other Central European players who are deeply reliant on Russian energy, in particular natural gas, but also coal, which of course raises the question of can European countries, can the US impose effective sanctions that accomplish something against Russia when at the same time, particularly Europe is so dependent on Russian exports?

Tracy Alloway (1:58)

Absolutely. I think having a big commodities exporter involved here obviously complicates everything, especially at a time when people are worried about inflation. But the other thing I will say, and I think I mentioned this on the episode with Zoltan, but the other interesting thing here is people have been reacting preemptively to the threat of sanctions. So sort of voluntarily self-sanctioning themselves. And in fact, on the day after the invasion officially began, we saw a lot of people in the market just step away from Russian assets altogether, simply because they didn't know what was and wasn't going to be impacted. And to some extent, that's continued today. So yes, we still have Europe, in particular Germany, importing a lot of energy, but we've seen some other players, some commodities traders in Singapore, for instance, voluntarily step away from the market.

Joe Weisenthal (2:53)

Yeah, absolutely. And then there's another element, which is also sort of voluntary, which is just not necessarily fear of sanctions, but companies just deciding, you know what, we're going to wash our hands of anything to do with Russia.

Tracy Alloway (3:05)

Too much paperwork.

Joe Weisenthal (3:06)

And yeah, it's pretty striking this sort of domino or cascading effect of companies saying, we just don't want to have any involvement. We want to completely walk away. I don't think the Russian economy has boomed in recent years. So it's not as though, perhaps this is not a huge source of revenue and profits for a lot of these companies, but it is really striking to see so many corporate interests abandoning the Russian economy right now, even apart from formal sanctions-related activity.

Tracy Alloway (3:37)

Absolutely. So many different threads to pull here.

Joe Weisenthal (3:40)

That's key. And as long as the US and the rest of NATO does not want to get involved directly militarily for obvious reasons, then of course, sanctions and other related things become the primary means of putting pressure on Russia.

So we have to dive into the sanctions and how they work and what they accomplish further. We're going to be speaking with a sanctions researcher. There's a lot of background in this area. We're going to be speaking to Edoardo Saravalle. Edoardo, thank you so much for joining us.

Edoardo Saravalle (4:12)

Thank you so much for having me.

Joe Weisenthal (4:13)

So why don't we start off big picture?

You know, what in your view are the key elements? There have been tons of announcements really over the last week. What are the key most important things in your view that have been announced so far?

Edoardo Saravalle (4:28)

I'd say there are a few of them. I think the big one to start is the action against the Russian central bank. That was initially discussed as kind of a final escalatory move, and the fact that it came so early in the escalation is a sign of how serious governments on both sides of the Atlantic were about sanctioning Russia. But I think the other big ones, the other biggest one I'd say are the banking sanctions.