‘The War’

“The war” is already such a ubiquitous part of the daily news cycle that it’s no longer necessary to mention Russia or Ukraine or Vladimir Putin when referring to the conflict in passing or when setting up a story about the latest developments.

It’s just “the war.” Everyone knows what that means. Already. Just three weeks into Putin’s incursion. We now talk of “the war” like we spoke of “the pandemic,” which isn’t over yet either. Just ask Hong Kong, where the situation is still acute.

“The war,” “the pandemic” — who knows what’s next. It’s the end of the world as we know it. I feel fine, as the song goes, but millions don’t. The death toll from COVID is now in excess of six million and more than two and a half million people have fled Ukraine as refugees, including half of Kyiv’s residents, according to the mayor. “We also estimate that about two million people are displaced inside Ukraine,” UN Refugee Agency chief Filippo Grandi lamented on social media, calling the war “senseless.”

New satellite imagery cited by the AP suggests the massive military convoy lined up outside the capital has “split up and fanned out into towns and forests, with artillery pieces moved into firing positions.” Putin is facing more accusations of war crimes after a Russian airstrike in Mariupol hit a hospital, killing three. Twitter was compelled to remove false claims by the Russian embassy in London calling the bombing staged.

Putin on Friday said 16,000 “volunteers” from the Middle East will join the fight on the Kremlin’s behalf. “If you see these people who want, of their own accord, not for money, to come to help the people living in Donbas, then we need to give them what they want and help them get to the conflict zone,” Putin said, speaking from the Kremlin. He continued to use the term “special military operation” to describe the war.

The EU is doubling its financial support to Ukraine to €1 billion, while the US Senate approved almost $14 billion in humanitarian and security aid as part of a full-year federal funding bill preventing a government shutdown. Just as Putin’s invasion rekindled NATO, it also provided an exceedingly rare opportunity for bipartisanship in Washington. As Bloomberg put it, “a bipartisan sense of urgency to approve the $13.6 billion for humanitarian and security aid in response to Russia’s attack led to an overwhelming 68 to 31 vote on the legislation.”

Ominously, a new ZDF poll found that more than half of German voters support a ban on Russian oil and gas imports. “55% of those questioned are in favor of not importing any more gas and oil from Russia, even if we have supply problems,” the color accompanying the poll results read. “An embargo is supported by a majority of SPD supporters (62%), CDU/CSU (56%) and Greens (73%).”

Russia hit back at Western sanctions with export bans on 200 products, but like the West, Putin was reluctant to include energy and raw materials, for obvious reasons (figure below).

“The list includes over 200 products, including technological, telecommunication and medical equipment, vehicles, agricultural machinery, electric equipment, as well as railway cars and locomotives, containers, turbines, metal and stone cutting machines, video displays, projectors, consoles and switchboards,” the Russian government said, calling the measure “necessary to maintain stability on the Russian market.” (I’m not linking to the website. It’s not secure, figuratively or literally.)

Just so everyone’s clear on this ahead of what’s sure to be relentless propaganda emanating from the Kremlin’s English-language financial propaganda portals, Russia is going to experience an acute inflation shock. In all likelihood, Putin will attempt to stifle the release of data detailing the scope of the problem.

According to Rosstat, weekly inflation in domestic and imported cars and TVs hit 15% during the first week of March. Prices for smartphones, as well as some fruit and vegetables, jumped between 7% and 9% over the same week (figure below).

Generally speaking, economists see inflation in Russia reaching 20%. I’d suggest that’s conservative. It’ll probably be much worse than that, although, again, we’ll likely never know. Black markets will develop and anecdotal accounts will become more reliable than the official data. According to an Instagram post by a local cafe owner in Moscow, some costs are up 300% since the start of the war.

“The Russian people are now the poorest in Europe per capita (lower in dollar terms than Moldova), yet Putin says Western sanctions were going to be imposed anyway, and they will adapt,” Rabobank’s Michael Every wrote Friday. “And adapt they are. As a mirror to the Western seizure of Russian yachts and mansions in Europe, foreign business assets of departing firms in Russia will be auctioned off to Russian bidders, and if none emerge the state takes control,” he added, writing that,

This looks like an equally corrupt reversal of the disastrous privatizations of the early 1990s. At the same time, 500 leased Western jets in use in Russia, which can no longer get insurance or service, are likely to be seized too, with compensation offered in rubles: Don’t expect Russia to ever get Western replacements. Russia is also proposing a ban of foreign ships at its ports as Russian ships cannot call at Western ports. This shows how geopolitical supply chains and ocean carriers now are.

Globalization as we know it may be dead, as Every put it, citing a tweet from a fertilizer industry worker, but so is Russia economically. This won’t turn out well for the Kremlin. It can’t. And not in the same way that Boris Johnson insists Putin “can’t” win in Ukraine. Rather, “can’t” in the sense that it’s almost mathematically impossible for Russia to escape from this without suffering among the worst economic shocks in its modern history.

I’d pose one simple question for those pushing some version of the yuan bailout thesis: What, exactly, are everyday people in Russia supposed to do in the period between now and whenever the new yuan-commodity “monetary world order” is unofficially inaugurated and operational? Because that thesis, to the extent it’s viable, will take years to develop, let alone become entrenched. In the meantime, Putin is cut off from hard currency and Russians from virtually all Western creature comforts, from Whoppers to Visa cards.

JPMorgan and Goldman are also pulling out of the country, joining a corporate exodus that’s now so far-reaching as to be scarcely worth documenting. Simply put: No corporation that isn’t Russian or Chinese wants anything to do with Russia unless it involves commodities and even that’s dicey, with Western energy companies divesting and exiting and traders self-sanctioning. “When you’ve lost the ‘vampire squid,'” as Every joked, commenting on Goldman’s exit.

On a Friday conference call, Dmitry Peskov said there are no “real reasons” why Russia should default on its sovereign debt. “They’re artificial,” he said, noting that Russia is “ready to pay all external debts in rubles.”

But Dmitry, nobody wants rubles. Not even the people who bought Russia’s local currency debt now. The problem for the Kremlin is that although all money is “artificial,” some is more real than others. Money is a shared myth. With the sole exceptions of Christianity and Islam, the dollar is the most successful shared myth in the history of the world. And Russia isn’t legally allowed to possess dollars anymore, unless it’s in connection with commodities sales. Even then, any dollars taken in are effectively frozen as soon as they’re received.

This war is over. Just unfortunately not the military part.