Putin’s Road To Pyongyang

On at least two occasions since the onset of hostilities in eastern Europe, I suggested Vladimir Putin’s Russia was on the fast track to becoming a pariah state.

Of course, Russia was already a pariah state before Putin embarked on his “special military operation” in Ukraine. Putin’s regime is cartoonishly mischievous — comically nefarious. At times, he seems bent on perpetuating Western memes as immortalized in Cold War-era Hollywood spy films and action blockbusters. Maria Zakharova, Moscow’s de facto propaganda minister, is a walking, talking stereotype. She could’ve walked out of a James Bond film. Again, it’s hard to escape the notion that it’s deliberate. Putin seems to revel in it.

But the Ukraine invasion put Russia on a path to true isolation. There was never anything particularly funny about, for example, extraterritorial poisonings, but pure wars of conquest are a non-starter in the 21st century. If Putin doesn’t change course, Russia risks becoming a kind of grandiose North Korea, assuming you can get past the contradiction inherent in that characterization. There’s no more succinct way to illustrate the point than the figure (below) which shows just how far “ahead” Putin is when it comes to sanctions.

According to data compiled by Castellum, Russia has been sanctioned nearly 7,000 times since the invasion. Putin is the “envy” of his allies in Tehran, Damascus, Pyongyang and Caracas.

On Wednesday, Janet Yellen, Jerome Powell, Chrystia Freeland, Christine Lagarde, Andrew Bailey and a host of others walked out of a G20 meeting as Russian officials began to speak. Freeland is intimately familiar with the dynamics in Ukraine. The daughter of a Ukrainian-Canadian, Freeland has a long and storied history of activism. To call her a known quantity in Russian intelligence circles would be a good candidate for geopolitical understatement of the year. This week, Canada sanctioned Elvira Nabiullina.

The New York Times described Putin’s widely publicized test-launch of a new nuclear-capable ICBM as a “calculated move.” The linked article was essentially a recap of a familiar narrative: A cornered tyrant is a dangerous tyrant, and Putin is disconnected from reality commensurate with Russia’s isolation from the international community.

But a simpler interpretation of Putin’s nuclear posturing (the Sarmat missile is capable of deploying a nuclear warhead anywhere on Earth at hypersonic speeds) is just that he’s morphing into a glorified Kim Jong-Un, who carried out his 12th missile test of 2022 last weekend. “This truly unique weapon will force all who are trying to threaten our country… to think twice,” Putin said, in a statement that could easily be mistaken for a Kim quotable carried by KCNA.

In a separate article, the Times described the video released by the Kremlin: “A white missile emerg[ed] from an underground silo in a snowy launch site in a ball of fire and then [sped] into the sky.” “Putin was shown overseeing the launch by videoconference at the Kremlin and receiving a report from Defense Minister Sergei Shoigu,” the same article said.

All that’s missing is a giddy photo of touchdown hands and hugs. (In 2017, Kim famously released a series of objectively ridiculous images depicting the aftermath of a successful missile launch, which, in an accompanying statement, he called “a gift for the American bastards.” In the same ludicrous press release, Kim promised to “frequently send big and small gift packages to the Yankees.”)

The point isn’t to downplay the peril associated with Putin and his arsenal. It’s just to state what should be obvious to everyone from CIA analysts to average citizens: This is a road to nowhere for Russia. Weekly inflation in the country slowed to pre-war levels last week, but note that annual inflation is running near 20%. PPI inflation is almost 30%.

On Wednesday, The Credit Derivatives Determinations Committee ruled that Russia’s (forced) ruble payments on a pair of dollar bonds constituted an event of default. Recall that on April 4, Yellen stopped Russia’s correspondent bank from processing payments, including a principal payment of more than $550 million and an $84 million coupon payment on a 2042 dollar bond.

Now, default is assured unless Moscow manages to come up with the necessary hard currency by May 4, when the 30-day grace period expires. The determination by the CDS committee means that come early next month, swap holders will be able to collect on contracts covering $40 billion of debt. The West is just three weeks away from successfully engineering what Bloomberg helpfully reminds you would be Russia’s “first default on foreign borrowings since the Bolshevik repudiation of Czarist debt in 1918.”

Meanwhile, on the “new monetary world order” front, sanctioned Russian financial institutions won’t be able to issue UnionPay cards. According to RBC, which cited five sources from the banks, the Chinese card payments provider is wary of secondary sanctions. Sberbank was informed of the decision at a private meeting.