I’m back, and thanks to Alexandra DeSanctis and Mike White — er, Isaac Schorr for filling in for me last week. On the menu today: why U.S. sanctions against Russia aren’t as tough and effective as the Biden administration claims; the Biden team is still hedging on whether Russia’s widespread brutality against Ukrainian civilians constitutes genocide; China faces a Covid-19 catastrophe; and trying to find the words when the worst of tragedies strikes close to home.
Russia’s Surging Energy Sales
Why is the Biden administration so convinced that sanctions will eventually compel Vladimir Putin to stop the invasion of Ukraine?
Yesterday, President Biden’s national-security adviser, Jake Sullivan, pledged that, “We will continue to squeeze the Russian economy so that Russia and the Kremlin feel the pain from what they have done in Ukraine. And in the meantime, we will keep working on additional ways to deny them revenue.”
No one doubts that the sanctions are inflicting economic pain on Russia; the more consequential question, which has been asked for a while now, is whether they’re having any effect on Putin’s decision-making and the Russian military offensive. And keep in mind, a sanctions regime is only as effective as its enforcement, and there are still plenty of ways for Russia to sell its goods on a global market. From oil exports . . .
Russia expects to earn 798.4 billion rubles ($9.6 billion) in additional revenue from energy sales in April due to high oil prices, the finance ministry said, as Moscow needs cash to finance its obligations while being cut off from its reserves.
. . . to exploitable loopholes for oil sales to Europe . . .
When is a cargo of Russian diesel not a cargo of Russian diesel? The answer is when Shell Plc, the largest European oil company, turns it into what traders refer to as a Latvian blend.
The point is to market a barrel in which only 49.99% comes from Russia; in Shell’s eyes, as long as the other 50.01 percent is sourced elsewhere, the oil cargo isn’t technically of Russian origin.
The maneuver underpins a burgeoning and opaque market for blended Russian diesel and other refined petroleum products, one of the many that oil companies and commodity traders are using to keep Russian energy flowing into Europe while at the same time satisfying public opinion that demands an end to subsidizing Vladimir Putin’s war machine. . . .
In the oil market, traders whisper about a “Latvian blend” — a new origin for diesel that looks like a workaround to supply Russian product mixed with something else. The typical trade goes from Primorsk, a Russian oil export town near St Petersburg, into Ventspils, a port in Latvia that has a large oil terminal and tanking capacity. That’s where the blending takes place. There are many other locations where blending is happening, including in the Netherlands, and on the high seas, in what traders call ship-to-ship transfers. For many in the market, the Latvian blend is simply shorthand for any blend that contains Russian molecules, regardless of where the mixing took place.
. . . to natural-gas exports . . .
Russian state-owned energy giant Gazprom continued to supply natural gas to Europe via Ukraine on Wednesday in line with requests from European consumers, the company said.
Gazprom said the request for gas exports to Europe through Ukraine had been set at 108.3 million cubic meters for April 6, similar to the request for April 5.
. . . to Russian coal exports:
European Union envoys are set to approve on Thursday a ban on Russian coal that would take full effect from mid-August, a month later than initially planned, two EU sources told Reuters, following pressure from Germany to delay the measure.
Add it all up, and somehow Russia is actually going to make way more money from energy exports this year than last year, despite having invaded Ukraine on February 24: “Bloomberg Economics expects Russia will earn about $320 billion from energy exports this year, up by more than a third from 2021. The ruble has already rebounded to its pre-war price against the dollar.”
And while we would expect Russia to put a brave face on its economic situation, it’s possible that its leaders mean it when they think they’ll have largely adjusted to a post-sanctions world by the end of the year. Prime Minister Mikhail Mishustin said last Thursday — roughly translated — “It’s a sin to complain, we have done everything possible and impossible with the Ministry of Finance this month. . . . So far, there are opportunities at the moment. But it takes time for the economy to adjust. It is impossible not to have at least half a year to reorganize in such a blow.”
In the end, if you bring economic sanctions to a gunfight, it takes a long, long time for your weapons to seriously debilitate the enemy. Russia’s hurt, but it’s enduring: “There is no doubt that the financial and other sanctions have weakened the Russian economy,” Patrick Honohan, a senior fellow at the Peterson Institute in Washington and a former European Central Bank policymaker, wrote in a blog post on Wednesday. “But the sanctions fall short of crippling the economy, as long as they do not interrupt the flow of revenue from exports.”
The Biden administration has a bad habit of whistling past the graveyard, insisting that everything is going swimmingly and according to plan, while the evidence mounts that its efforts are a day late and a dollar short. And no one in the administration is more guilty of insisting “all is well” than President Biden himself: “There’s nobody suggesting there’s unchecked inflation on the way — no serious economist.” “It happens every single, solitary year: There is a significant increase in the number of people coming to the border in the winter months of January, February, March.” “I trust the capacity of the Afghan military, who is better trained, better equipped, and more re- — more competent in terms of conducting war.” “I’m going to shut down the virus.” “I didn’t overpromise. I have probably outperformed what anybody thought would happen.”
But as the war approaches its third month, there’s yet another dispiriting disconnect between Biden’s tough talk — “The ruble almost is immediately reduced to rubble,” “Russia’s economy is reeling,” “For God’s sake, he cannot be allowed to stay in power” — and what the U.S. effort is doing to Putin and his cronies. It is yet another case of this president overpromising and under-delivering.
If the U.S. really wanted to hurt Putin, we would announce that the United States, with our . . .
- 2 billion barrels of proven reserves of U.S. crude oil and lease condensate;
- 3 trillion cubic feet of proven reserves of natural gas;
- 535 million short tons of coal (enough for the next 470 years at 2020 production);
- 284 million kilowatts generated by renewable fuels, including 121 gigawatts from solar power;
- 97 million kilowatts generated by nuclear power; and
- 70,000 wind turbines
. . . is gearing up to replace Russia in the world energy markets and undercut its prices. You don’t need sanctions compliance if you can offer buyers a similar or better good at a lower price. And this policy move would even be better for the environment, since Russia’s oil and natural gas has higher methane emissions than U.S.-produced oil and natural gas.
Russia’s Kinda-Sorta Genocide
Separately, the administration seems a little too comfortable walking its current tightrope of “what Russia is doing might be considered genocide, it might not, but either way, it’s really bad.” Here was Sullivan, speaking on ABC News yesterday:
SULLIVAN: We haven’t yet reached a determination on genocide. That is a determination that we work through systematically. There is a unit at the State Department that gathers evidence and then makes a legal analysis because genocide is actually a legal determination.
But let’s set legalities aside for a minute, Jon. I think we can all say that these are mass atrocities. These are war crimes. These are shocking and brutal acts that are completely unacceptable, beyond the pale for the international community. So whatever label one wants to affix to them, the bottom line is this, there must be accountability. And the United States will work with the international community to make sure there’s accountability.
Based on recent history, that “legal determination” could take a long while. On March 21, 2022, “following a rigorous factual and legal analysis,” the U.S. State Department and Secretary Antony Blinken “determined that members of the Burmese military committed genocide and crimes against humanity against Rohingya.” The killing occurred in 2016 and 2017.
What is the point of a genocide-detection-and-denunciation process that takes more than five years to work?
How much of the “we can’t call it a genocide yet” argument reflects the fact that if the U.S. announces that, “Yes, this is an ongoing genocide,” then the world and the American people are likely to demand that the U.S. intervene militarily?
China’s ‘Zero Covid’ Approach Finally Collapses
Meanwhile, in case you missed it yesterday, the Chinese government’s policies to control the spread of Covid-19 are on the verge of causing mass starvation in the country’s richest city, Shanghai. It is jaw-droppingly horrific; for about two years — and long after the virus spread out of Wuhan — Beijing treated a virus that is bad but manageable with good vaccines or previous infection as if it was airborne Ebola, locking down whole neighborhoods or cities at the first sign of a positive test. Now, the much more contagious Omicron variant is in the country’s cities, and the “zero Covid” approach simply cannot work.
After several weeks of keeping the city’s citizens locked in, Chinese authorities are loosening the restrictions slightly: “Shanghai has classed residential units into three risk categories, to allow those in areas without positive cases for a stretch of two weeks to engage in ‘appropriate activity’ in their neighborhoods, city official Gu Honghui said.”
The problem is, with roughly 25,000 new cases being reported each day, just how many “areas without positive cases for a stretch of two weeks” are there?
And as for my allegedly unreasonable skepticism about the plausibility of China’s official Covid-19 figures, how likely is it that Shanghai has 130,000 cases but only one case of severe illness?
ADDENDUM: What do you say when the unspeakable happens? The worst of tragedies can strike the best of families. Sometimes, getting an explanation isn’t the same as getting an answer that makes sense, and we’re left wondering why that smile that could light up a room left our lives with so little warning. Hug your loved ones a little tighter today; life has no guarantees, and whether we realize it or not — mostly not — each day with our loved ones is a gift.