By all appearances, the Western powers seem to be hopped up on roofies – the really strong kind. That is the only explanation that I can find for a series of sanctions policies that are wantonly idiotic and blindly dangerous, and which have greatly impoverished and hurt the entire world. The sanctions have achieved absolutely NOTHING beyond making Russia far more wealthy, due to the huge spikes in global commodity prices.
This has staggering implications for all of us, and NONE of them are good.
First, though, it is important to understand what the original purpose of these sanctions was. The Europeans and Americans made a very severe and stupid category error, because they still, TO THIS DAY, believe that Russia’s economy is “only” about the size of Italy’s.
That is true. It is – on a nominal basis, the Russian economy produces about US$1.7T per year. But, nominal output is only part of the story. You have to look at what the people of Russia can actually buy with that US$1.7T that they produce annually.
And when you look at the world in terms of Purchasing Power Parity, the picture changes in a very startling way.
The World’s Commodity Superpower
The moment that you put everyone on a more or less level playing field, looking at the actual purchasing power of individuals within each country, you quickly realise that Russia’s economy is not the 10th or 11th largest economy in the world. It is the FOURTH largest:
Russia’s actual economic strength is roughly on par with Germany’s in PPP terms. And that is before we talk about the actual value of all of the “stuff” in Russia.
Once you account for all of the mineral wealth in and on and under the soil of Mother Russia, the total value of the Russian economy is multiples that of Germany’s, and is a lot closer to, probably, US$15T. Maybe even more.
Failing Sun Tzu 101
This gives us a pretty good insight into why the sanctions totally failed to destroy Russia’s economy. If you look at the most sanctioned countries in the world, besides Russia – countries like Iran, Cuba, North Korea, Venezuela, and so on, pariah states, basically – they simply do not have the economic systems and productive capabilities in place to get around those sanctions. Venezuela is a socialist shithole with collective ownership, which inevitably results in economic failure and collapse. So too is Cuba.
Iran is a theocratic police state, run along strict shariah principles, and anyone who has been reading my writing for a decent amount of time will understand just how idiotic shariah law actually is. If you want to run an economy straight into the ground, implement shariah. Its basic principles of zero taxation for believers and essential enslavement of non-believers, result in a pure slave-based economy that is amazingly unproductive. And this is despite the fact that Iran sits on top of substantial amounts of (high-sulphur-content) crude oil and natural gas.
North Korea is a Communist kleptocracy run by a family of arrogant idiots, without any substantial resources. It depends almost entirely on China for its survival – without its Chinese patrons, the Norks would not survive. Whenever Western companies have come to the Norks, they have essentially taken advantage of practical slave-labour conditions within the Hermit Kingdom.
Precisely NONE of these stylised facts apply to Russia.
Modern Russia is nothing like the Communist dump that was the Soviet Union. Back in the 1980s, the entire Russian economy produced barely as much as California did (y’know, back before it became an actual single-party Communist state). The entire Warsaw Pact produced barely as much as the United States did all by itself.
Today’s Russia, however, is a dynamic, liberal, free-market economy where private property rights are respected. Crucially, the financial system is secure and stable, and government budgets are well managed. Back in 1998 and then 2008, the Russian banking system depended very heavily on foreign capital and credit lines – today, the biggest Russian banks depend overwhelmingly on domestic depositors and savers.
This is the severe category error that the Western powers have made. The West’s leaders continued to believe the late, thoroughly unmourned Sen. John S. McCain III – who is hopefully slow-burning in Hell for what he did in life – who once said that Russia was essentially a gas station masquerading as a country. They assumed that the Russian financial system was still highly vulnerable to the removal of foreign credit lines. They did nothing whatsoever to investigate how Russia has managed to insulate itself from outside financial shocks and influences.
These days, Russia is about as close as you can get to modern autarky – a country that produces and consumes most of what it needs domestically, without the need for substantial imports. This by necessity makes it a poorer country than it needs to be, because the Russians do not leverage themselves using debt, and do not expose themselves to foreign trade flows and instead insist on producing everything themselves, adopting methods that are slower and less efficient, at least at first, than international norms.
Russia is therefore not dependent on Western markets for most things. (There are specific exceptions, like semiconductors and microchips, but those can be, and are being, addressed – such as the recently announced cooperation between Russia and Malaysia with respect to semiconductors.)
As a direct result of these policies, and because of the enormous mineral wealth that Russia possesses, the Russians have effectively insulated themselves from global sanctions. But they have also positioned themselves in such a way as to exert near-total command over European energy markets, and substantial control over global energy and commodity markets.
The Price of Stupidity
The graphs in the slideshow below show the enormous cost of provoking Russia and sanctioning it. Each graph shows the 5-year price history of various commodities, starting with oil, coal, and European natural gas. You can see just how bad things are getting for Europe, in particular, which has nowhere near the level of resource independence that Russia has.
You can also see from these graphs the impact that these huge spikes in energy prices are having on commodity prices. Wheat – of which Russia is the world’s largest exporter – is soaring in price. So is iron. And steel. And nickel. So are most other metals.
As a direct consequence, gold and silver, historically used in both industrial applications and monetary ones, are soaring in price.
The Result of Sanctions
Now, the original goal of the Western sanctions was to cripple the Russian economy and cause the ruble to go into free-fall, destroy Russia’s budgetary stability, collapse its financial system, and wipe out its ability to trade globally.
What do you suppose has actually happened? If you’ve been paying any kind of attention, you already know.
The Russian ruble is stronger today than it was at the beginning of the year. In fact, it is so strong that the Russian Central Bank is actually getting a bit worried and wants to let it weaken a bit, so as to keep Russia’s exports competitive to the rest of the world.
That strengthening, by the way, has also created a serious braking effect on inflation in Russia. Prices spiked over 17% year-on-year in March 2022, but the rate of inflation is already slowing, and the CBR has already cut benchmark rates from 20% in early March, to 17%, and just now to 14%. The Russians expect inflation to go back down to their preferred target of about 4% within a year. Their economy actually grew in March 2022, resulting in Q1 GDP growth overall of about 3.4%, last time I checked.
If this is what sanctions can do to Russia, I suspect that the Russians will look at these data and say, “bring it on!”
And what has been the effect of sanctions on the Russian budget balance and trade system?
(Parenthetically, I really enjoy two things – analysing data, and using R. When I can do both at once, well, I’m one happy Warrior-Servant.)
Yeah. RECORD current account surpluses. MASSIVE budget surpluses.
The Russians are practically SWIMMING in money. They have more damn money coming in than they know how to spend. They actually have no idea what to do with it.
Conclusion – The Definition of Insanity
The West is now preparing for its SIXTH round of sanctions. The EU plans to include bans on Russian oil, on top of its existing ban on Russian coal. All they are doing is jacking up energy prices for themselves to nosebleed levels. Already we are seeing serious strain on the European economy – businesses in the EU are screaming about the soaring costs of inputs and commodities. Meanwhile, Russia is simply taking its rejected coal and shipping it to India, which wants and needs coal, and to China. Russian oil is in fact being shipped in secret to the USA and Europe, by literally breaking international maritime law.
European nations who refuse to pay for their gas using the proposed gas-for-rubles scheme think that they can get away with siphoning off gas in the reverse-flow and secondary markets. They are idiots for thinking this way. First, Russia controls the flow of that gas – Azerbaijan, Qatar, and Algeria simply cannot provide anything like those volumes in anything like enough time.
And second, Russia has barely responded to those sanctions, and look at what has already happened to Europe. The moment that the Russians get sick and tired of this crap, and simply shut off the gas flows to Europe – as they already have with Poland and Bulgaria, over entirely legitimate issues of non-payment – you will see the entire European economy collapse.
We are no longer witnessing the slow-motion suicide of the West. This is a real-time swan-dive off a cliff onto sharp rocks below. And the entire world is suffering because of the hysteria, stupidity, paranoia, and downright evil of the Western world.
If you ever doubted that there is a spiritual element to all of this, then I recommend thinking very carefully about why all of this is happening. There is NO rational explanation for what the Europeans are doing. This is entirely irrational, stupid, and emotionally driven. And this speaks to a spiritual element that we cannot and must not discount.
This also tells us how we are going to get out of the whole mess. God’s judgement is very clearly upon the West – and rightly so. By rejecting God, we have rejected all that He gave us, and we are suffering as a result. The way back from the brink is to embrace truth, kill our pride, and get on with the simple business of living by the Law of God.