Before the invasion of Ukraine, there was a clear consensus on the limitations of economic sanctions. They would take a long time to organize and even longer to have any effect. Just about every commentary I read anticipated Russian tanks in Kiev long before sanctions could have any effect.
That judgement now looks way off the mark. Despite some limited advances in the south of Ukraine, Putin’s invasion seems to have stalled. Meanwhile sanctions, both official and unofficial, have raced ahead.
Booting Russia out of SWIFT, seen as an extreme option two weeks ago, turned out to be only the first step. Not only were Russia’s foreign exchange accounts frozen, but the kleptocrats who have benefited from Putin’s rule saw their assets seized, with a high likelihood that this will end in expropriation.
Even more striking is the speed with which global enterprises have pulled out of Russia, writing off billions in past investments in the process. To take just one example, almost every major car company has shut down Russian factories and stopped supply. And, unlike in the past, Russia can’t fall back on its own capacity. The biggest Russian producer, Lada, is majority owned by Renault, which in turn is owned by the French government. Renault hasn’t pulled the plug yet, but it will be forced to do so soon. Even without a formal decision, shortages of imported parts have forced the plants to shut down.
What this means is that, within a week or two, Russians will be unable to buy new cars or get spare parts for old ones. That in turn means that car dealers will have to shut down, putting their employees out of work, along with production line workers. Repair shops will probably be able to carry for a while on by cannibalising parts from scrap yards, but that can only go so far.
And there’s nothing special about cars. Most of the manufacturing sector is in the same position, along with the stores that sell its products. Most air travel outside Russia has stopped, and domestic air travel is now shutting down as leasing companies demand their planes back and shortages of parts start to bite.
There doesn’t seem to be any obvious way back from this. Even with a rapid peace settlement, foreign investment won’t come back any time soon, and the destruction of wealth won’t be reversed.
Thinking about Putin’s possible reaction is scary. He could blow up the world. But, I can’t see any way that he can salvage the Russian economy.