The Economic Impact of Sanctions on Russia

Washington Foreign Press Center Briefing on the “Economic Impact of Sanctions on Russia,” August 10, 2022.


Okay, we’ll start the live stream now, please welcome uh to the Washington Foreign Press Center, apologies in advance for the delays. We were putting together some of our technical requirements needed to make sure that we have a great briefing today. My name is Ryan Roberts, director of the Foreign Press Centers and I will be the moderator for today’s briefing on the impact of sanctions on Russia’s economy. I’m pleased to welcome our distinguished briefers. Professor Jeffrey Sonnenfeld and Professor Sonnenfeld is the senior Associate Dean leadership programs as well as the Leicester Crown Professor in the practice of Management for the Yale School of Management as well as founder and president of the Chief Executive Leadership Institute, a nonprofit educational and research institute focused on CEO leadership and corporate governance. Stephen TN is the director of research for the Yale Chief Executive Leadership Institute where he leads a team of 42 research assistants across sectors and backgrounds, working together with professor Sonnenfeld and now for the ground rules for today’s briefing, this briefing is on the record. The briefers are independent experts and the views expressed by briefers not affiliated with the Department of State are their own and do not necessarily reflect those of the Department of State or the U. S. Government participation in Foreign Press Center programming does not imply endorsement, approval or recommendation of their views are briefers will will first provide a brief overview of their research into the impact of sanctions on the Russian economy. After we hear from them. I will open the floor for questions first from the journalists who have joined us in the briefing room and then from those who are joining us online This briefing will end promptly at 12:00. We will post a video and transcript of this briefing afterwards on our website at f p c dot state dot gov. And with that, I’m going to turn the time over to Professor. Thank you very much, Ryan. A little bit of an echo here also maybe slide back a little that’s that’s okay. Um I uh honored to be with you today. Thank you so much for the invitation and for that wonderful introduction. I want to thank uh tom Bossert, former uh national uh Advisor, Homeland Security to the Last administration. Uh Evan Seltzer who’s who’s here representing the Under Secretary of Treasury, uh Brian nelson, uh who of course overseas uh terrorism, uh financial uh sanctions and in other parts of relevant parts of treasury, uh Stapleton Roy who will be joining us, who was the uh ambassador across several administrations to to china Indonesia. And about a third of the rest of the globe through his career of Carla Hills, former U. S. Trade Representative and a member actually of the ford administration, uh Carla Hills. But Ryan, especially to you, Ryan Roberts for the invitation. You’re fantastic team to be here in your beautiful center. I said especially, but of course I should say, especially to the members of the media that are here because we are are thrilled you’ve come out to talk with us and those who are online that you have stayed and those that you saw us stumbling around with our technology that you didn’t get frightened that somehow we’re going to have this, uh, this technology suddenly go up in a puff of smoke and you didn’t get too worried. But when we’re back in classroom at Yale, if we run a couple of minutes later, as we just did the students take flight after about five minutes. So we really appreciate your, your patients. And uh, and you’re entitled to ask as tough a set of questions or friendly if you happen to have any as you as you care to ask, nothing, nothing will offend us. Uh, we uh, got into this work, I’ve been, we’re looking at corporate social impact as a field of inquiry Uh, since I was a professor at the Harvard Business School, I was there for, I was up at Harvard for about 20 years. I’ve been at Yale now, uh, about 33 years. So you can see my loyalty has shifted. Uh, and um, I’ve been looking at everything from how companies respond to a whole host of issues from climate change. When I got into it back in the late 19 seventies and 19 eighties on, on price fixing, antitrust issues. It was called, uh, sustainability was called much more having to do with environmental pollution compliance and conservation issues back then, Gun safety, of course, uh, abortion. Looking at issues of having to do with uh trade, uh, and having to do with immigration reform, a whole host of issues and this spring. Well actually, this February 24 when the Russian attack on Ukraine took place, uh, we took note of the 12 companies that were the first movers that exited. I’d like to say we spark that we didn’t they, they did this all on their own. And um, I know we’re on the record, but just between us anyway, seriously on the record, these were not the first movers on social change and social justice causes that I’ve studied in the last 45 years, big tech, big oil and professional services. They usually almost jump off a cliff rather than get involved in global controversy. You see why Ryan offered those disclaimers upfront as uh as uh welcome tom Thanks so much for joining us. We’ve already introduced you and saluted you by the way. So thanks. Glad you could join us. Tom Bossert, former adviser, senior advisor to the President, Homeland Security, as I mentioned. Uh, so you can see why why Ryan offered those disclaimers as these, not usually the first mover. So we went to talk to the C E O S, why they were pulling out and we saw a major concern they had were the pretenders that pretended that that had very clever public relations smokescreen. Uh, so we went public with that in the major business media as to who was genuine and who wasn’t and that led to move this group jumping from 12 to as we surfaced who was and wasn’t authentic in this front. The stocks crashed of the companies that were pretending to do something but weren’t uh in fact that we’re staying in there. So we saw on a day with the stock markets were down four and 5%. The major indices. These companies, each one of them went down anywhere from 12 to 35%. I don’t know if this triggered it, It was catalytic or it’s coincidental, but the list jumped from that from the 12 to the 75 Uh 2 500. And now we’re tracking 1300 of which more than 1100 have actually pulled out of some form or another. More recently, research that we did took a look what did it matter how they left being a a schoolhouse and I’m a schoolteacher. Uh as as you know, we’re good at grading from A to F on a five point scale. So we took a look at companies who had completely withdrawn, giving an a permanent those who had temporarily suspended, but comprehensively a B those who had partially suspended to see those who have done something which was forestalling some kind of future investments, a little bit more vague and those who were stubbornly digging in and saying we’re not doing those and that was the f and what we have. And you can find it on the social science research network, all of our papers that are relevant here. S. S. R. N. It’s absolutely free type in S. S. R. N. Frustratingly we don’t get a penny of royalties off this either. I don’t think anybody makes any money off of it. But it it uh you can see that uh the more aggressively people pulled out the better the financial results were. And this is not some weird correlation. This is actually time series data. We can see when they pulled out and subsequently what happened to their their stock value. So those companies like Exxon that uh wrote off, I don’t know $56 billion or bp wrote off $9 billion. Or uh shell that wrote off four or so billion dollars. It actually was handsomely made up for in the stock market returns. So the bottom line on all that is doing doing good was not antithetical to doing well. As you see that a lot of this hand wringing angst over the woke C. E. O. S. And somehow is this a bad thing to be doing some something which is in the interests of society. These were independent business leaders decisions. These were no government arm twisting, this was independent of the sanctions per se. Is that these companies saw financial risk. They saw reputation risk, They saw operational risks. Uh And frankly none of them were making very few of them were making as much as one percent of their revenues from china to start with. And there was there were all that profitable Russia to start with another reason why I think Ryan would throughout disclaimers, I might say the wrong country now and then, which kind of matters in this line of work?

Uh So uh so doing good was not antithetical, doing well. That’s what we thought the work was. Until we started to see that colleagues of ours in academia and colleagues of yours in the media were believing spin that was coming out of Russia From President Putin. And that was to suggest that, Okay, maybe these sanctions are are, and the business exits are noteworthy, but they have no consequence. Look at the strength of the ruble, look at the strength of uh of of the stock market, which would only fall in about 55% or so. And and we thought, wait, how could you buy that?

Where’s all the national income statistics that for the last 70 years, the entire world has used to macro economists and journalists, how could people have not realized uh not to mention Russia alone the last 30 years since Yeltsin, especially until this spring. Under under President Putin, the standard statistics that you would want of imports and exports disappeared where the status on oil and gas inflows and outflows where the commodities exchange data. Whereas the capital market data data inflows and outflows. Where’s the financial status of central banks, of the financial status of major Russian operating company that has been required to probably report monthly the Foreign direct investment, the lending loan or, or, or origination, the volume of flights, by the way, data, which we’ve all, many of these things captured. Uh, because even if Russia is a buyer, they’re not always a salary. If they’re selling that always a buyer, there are other the other side of the equation, we go through to get the date and we can talk about this triangulation that macro economists when they’re working at their best usually do. But sadly, some forgot to do in these last few weeks. And that’s basically what we did. So, I don’t know. We we have a couple of myths we would go through, but that’s how we got into this all to see that. In fact, the Russian economy is uh, is in fact not as strong if any of, you know, the fable of Chicken little, that the sky is falling. And again, remember the State Department’s disclaimer, They’re not saying this, I am. Is that unlike what President Putin says, the Russian economy is in far dire straits uh, then has been advertised from official releases, official cherry pick releases of statistics. And We’ve put all this out there in the Social Science Research Network in a 118 page research monograph with all the sources. You can see where the data’s come from. Uh nobody else has done that. And you can also find it in foreign policy. The last issue. Uh it’s actually on their current to the site which goes through some of the myths that follow from this. Did I say too much know you?

Perfect. Why don’t we um I don’t know, Stephen, if you want to add anything or do you want to take two minutes to go through a couple of the points that you have or we can open it to questions from our journalists. I’m happy just to go through a couple of slides showing some of the day that we have. We have a comprehensive 70 page slide deck, which accompanies the 118 page SSR in publication, which can be found on our website for the sake of time. Only going to highlight just a few of them. Just to give you a sampling of what we’re doing and how we’ve been able to come to the conclusions that we have. And hopefully for the thousands dialing in via zoom, you all can see the slide show as well. And I believe we’ll post this afterwards as well. So if we can go to slide number 21 of the topics we want to talk about right now because it’s so timely, is this myth that sanctions are somehow creating a global famine. This is um myth that’s been propagated relentlessly by the Kremlin. And there’s the smith particularly in developing countries, that the United States has somehow created a global famine, that the United States sanctions are leading to a collapse in agricultural products, soaring agricultural costs. And uh, this simply is just not true and will take just a few slides to really unravel what’s going on with this specific topic. Just as a sampler of the many different myths we deal with. Um as you can see from the slide behind me here, actually, contrary to Russian propaganda, wheat supplies this year, thanks to bumper crops from the United States, from, from brazil, from Argentina from several major wheat producing countries, thanks to great weather, it’s actually record crop yields this year. And what that means is even assuming that no wheat gets out of Ukraine, uh, we are actually seeing a rise in global wheat supply this year compared to last year. It’s not just a demand story, it’s a supply story. And you can see on the slide behind me, this is not at all the myth that’s been propagated by the, by the, by the Kremlin, if you believe their myths, you think that we’re in a global famine with a supply contraction, but that is simply not true. And obviously, thanks to the efforts of our leadership at the State Department and elsewhere, If those safe maritime lanes are able to get some more weed out of Ukraine, that supply will rise even more. Uh, and you see that reflected in weak market pricing on sly number three, we can just show the price levels over time. As you can see, wheat prices have fallen back to where they were before the invasion began, there now at prewar levels. Uh, so that goes to show that a lot of the initial spike in wheat prices in March and April were nearly doubled. It was driven more by financial markets pricing in a sense of Armageddon, which never came to pass. It’s not reflecting actual fundamentals of supply and demand because we have increasing supply at the same time, we actually have decreasing demand for some reasons there, which um, it’s a complicated story, but the key key components, supply side of that equation on slide, number four, this is a bit of a technical slide, but for the financial journalists on zoom, you all appreciate the importance of futures markets and wheat futures are currently in what they call contango, meaning that future wheat prices are reflected to be higher than what they are today. Uh That actually shows we’re not in a structural deficit. There are no imminent supply challenges right now, if there were futures market would be in backwardation, not contango, meaning that prices today would be higher than what they will be one or two years down the line as the markets are pricing the men. So that goes to show that the supply side of the equation is very different from the prevalent narrative that’s being spread by Putin contrary to this myth about a supply deficit. We’re actually operating with a supply surplus. So that gives you some sense of the research we’re doing. I’ll just fly through just a couple of additional sides to give you a sense of what’s in the 70 page slide deck on slide number five. Um as you can see as Jeff mentioned, there’s a, a whole host of statistics which used to be released by the feminine plea invasion, which are no longer being released on slide number six. As you can see from a map of Russia’s pipelines. Natural gas for Russia is a non-fungible good because it’s mostly piped gas. It’s not liquefied natural gas, they don’t have liquefaction capabilities to the most to the greatest extent. So, if you take a look at the actual map of pipelines, uh, most of Russia’s pipelines lead towards Europe. Only one single pipeline connects Russia to Asia. That’s the power of Siberia pipeline because you can see here is still very much under construction. Most of the key legs have not even been built yet and won’t be built until 2025. Um on slide number seven, as you can see. Yes, Russia has been able to sell more oil to Asia, specifically in India, but they’re having to take a unprecedented $35 price discount and it takes 35 days for that oil to get transported to East Asia contrary to just 2 to 5 days in Europe. The last couple of slides as you can see on slide eight Russian domestic industrial production has fallen off across basically every single sector across society in some cases by 60 or 50% very dramatic levels. And one last myth we’re going to unravel here bef where we hand it over for questions on slide number nine as Jeff mentioned, Putin loves to talk about the Russian ruble and how strong it is. That’s simply not true. It’s an artificial exchange rate. It’s a reflection of capital controls. Simply put, if you live in Russia right now, there is no legal way for you to obtain dollars. You can’t access dollar deposit accounts, you can’t buy dollars from the bank. You see that listed here and you can see the trading volume has plummet Across the ruble, showing that there’s a heavy premium being played being paid on the black market. So with that, I’ll hand it back to draft into Ryan and we can give you a link to these materials, but it’s optional reading, uh, none of it will be on the final exam. So don’t feel like you have to follow up, but we’re happy to follow up with any statistics on any of this and open it for questions and sorry, we went on longer. He Ryan told us we had 10 minutes. So we, we studiously avoided looking at the clock since we were late to start with. Um, thank you so much for those remarks and those insights, a lot of information, hard to put it into a few minutes to really appreciate that work. Um, will now open for questions and answers from our journalists for journalists in the briefing room. Please raise your hand if you have a question. If called upon, we ask you to please wait for the microphone before posing your question, kindly identify yourself and the outlet that you represent for journalists who are joining us online. Please raise your hand, raise hands on at the bottom of the zoom meeting uh, and turn your cameras on so that our briefers can see your face and we can see you as you ask your question. Um, so let’s turn to question right here. Thank you so much. My name is Jaroslav Paul. I’m Ukrainian journalist representing you can inform your agency. Uh thank you for your presentation and for this information about sanctions. But I have two questions, actually to Professor Sonnenfeld. The first one is about impact of Russian sanctions. Despite all these sanctions, Russia is continuing its passive behavior in Europe. It’s not about Ukraine, it’s also about, you know, European union, gas supplying and etcetera, etcetera, including including uh food security. Do you see any additional sanctions or other leverage that could be used to effectively block any possibility of Russia continuing its aggression. This is the first question and the second one, Sorry, uh, the Ukrainian government is calling to recognize Russia as a state sponsor of terrorism. Would you please explain what the status means in the context of the additional sanctions and in in your opinion, what is preventing the U. S. State Department from taking this step?

Thank you, thank you very much for those questions and which is to you, your family and your countrymen. Uh I think the the role of sanctions has been very powerful uh since we sat down here this morning. A piece I just saw just came out in foreign Policy magazine that talks about how you take down a tyrant. I won’t take you in a summary that uh I haven’t read it myself to see what the editors did to our writing. Hopefully it’s similar to what we sent them. Uh and it takes a look at the historic role of sanctions. Unlike what you hear with some journalists and some foreign policy experts that will talk about how sanctions have sometimes been disappointing, say in Iran North Korea and Cuba they fail to take a look at the large number examples, some of it from your part of the world, in central and eastern Europe, where Jaruzelski in Poland or Ceausescu in Romania, or it can occur in East Germany, we could go on and on. And it was even back in in in in Ukraine before we could talk about the role of economic sanctions uh as well as chile or Argentina or Libya, unlike the rest of Arab spring, there’s something different happened with Libya. Uh, and what you see there, which is unusual is that has happened in a few times in history. Those examples I gave as well as perhaps South Africa in the days of the raj with India is you had private sector voluntary efforts that were massive. 200 companies that pulled out of South Africa, where the gold standard, the high water mark shouldn’t use gold standard was talking about South Africa, but it was still was, uh, quite noteworthy historically until the, This, there’s nothing like this in world history to have 1100 plus companies, multinational companies voluntarily pull out working in conjunction is what makes this happen. A lot of foreign policy experts still don’t understand this. They think selective use of sanctions, you know, let’s punish them with their automobile tires. No, that doesn’t work. It has to be cross sector. It has to be comprehensive that the examples that we talk about is when that’s happened. Uh, and you can see that in central Europe, that has mattered now when you see that Russia, President Putin, we don’t like to say that he’s Russia, but President Putin on his own as is the saber rattling and talking about cutting back of 20% into the, the gas pipelines, for example right now, I don’t know, you shouldn’t have heard this here, first, we’re already in, in Europe, in Western Europe, that’s been buying that those, those that gas is more than 70% filled already, far ahead of where they were last year in this time. Uh and uh, there’s alternative supplies are coming along. They’re Germany has ramped up six massive conversion plants that have gotten surprisingly little publicity. Maybe it’s a good thing. Maybe we don’t want to put too much focus on them. It’s remarkable. None of them were on the books six months ago. They’re all due to be completed by the end of this calendar year. Maybe there’ll be a little slippage, but for the cold of winter, uh they’re not gonna be dependent on on Russian gas. As a matter of fact, Russia needs to sell that gas, 85% of that gas goes to Western Europe. And as you just saw, there is no pivot east, they can’t sell very much of that to uh India or china, no matter what President Putin said, that’s a myth or some journalists said it’s a myth, they can’t do it, it’s vapor, it has to go through the pipes that carry vapor, it’s not liquid. But what’s Germany doing there creating capacity for Europe to with these conversion plans to receive liquid gas from Algeria, more from Norway from the United States have already received more from the U. S. Now in Europe than they did from Russia. So it’s in terms of the gas issue. It’s it’s not as as threatening as as those headlines were. And and in fact, Europe has shown a remarkable Model of unity and resolve that harkens back to the Second World War, where it’s incredible, despite a lot of the misgivings we saw in nobody here on this call, but other friends of ours in the media suggested that there be this divisiveness in Europe. Sure, there are some people questioning every policy should be questioned. But we saw a week ago today that there are these 15% rationing agreed to by the Eu That’s remarkable. Uh So I think that on the on the energy front, it’s nowhere near as as threatening as the headlines were. Which is why we lead on the on the grain and food insecurity issues because uh we we hopefully have changed the narrative, the false narrative that was out there. Seeing Vladimir Putin as the world’s savvy energies are. It’s just not true. And just to jump in if we can get slide number 10 behind me. Um One slide number 10 is up. I’ll pause just a second, but I think it’s now up um you can see the piece that Jeff referenced just now. This is a new publication which just came out literally minutes ago. Uh it’s a new foreign policy export argument and it’s amplifies many of the themes that we were just discussing right here right now expanding on our previous peace. Thank you. Let’s go to Alex for a question. Okay right. Yeah. Oh Alex, you get extra credit. You get the A for the class for sure. Good question with the first question. But you definitely get the A. Yeah. Uh three miles second south Korea. No, I will start with the second question and Jeff can tackle the first on the issue of um of there’s three essentially pivot areas where Russia has traditionally retained significant influence. But we’re seeing from economic data that that’s changing very rapidly. It’s the caucuses in Central Asia and its eastern Europe, all of which have been traditionally in the soviet soviet sphere of influence, all of which retained very close economic ties to Russia. But we’re already seen in trade data, even though Russia is not releasing its trade data and every transaction there’s a buyer and there’s a cellar. So if one side is not releasing data, you can find it from the other side. And what we’re seeing when we triangulate the trade data is that all of these bordering nations are not only doing less trade with Russia, but they’re actually the beneficiaries of net capital inflows as well as talent inflow into these border countries. Um you have this to different degrees, not so much particularly in Azerbaijan. But if you look at countries such as for example Estonia, Uzbekistan, there are hundreds of thousands of highly trained Russian tech workers flocking to those countries. You have um you have new financial center is being developed. For example in Tashkent. Um you know the Tashkent I. T. Park has tripled in size thanks to the influx of Russian migrants. So in these traditional areas where Russia because we all need a lot of influence. Um and this pertains to Azerbaijan as well. Uh These regions are having to cultivate much closer ties to other regions including of course Europe and pivot away from Russia. This is the case with Azerbaijan with the new gas deal that was just signed. Of course lots of complications. They’re very idiosyncratic factors on the ground. But the macro narrative, the macro story is that these traditional these regions have traditionally been in the soviet sphere of influence are pivoting away from Russia and towards Europe towards the United States. Towards other countries that can now take Russia’s place. I should also mention as we refer to Azerbaijan. Um and the flight of professional talent uh to nearby states is pretty significant from Russia seeing I. T. Talent that we we know that that Taz who is represented here has already published back in April the 5 to 700,000. This is Russian data have already fled uh and are not returning. So we expect that the number is quite a bit higher than that but in particular Azerbaijan but we have we have we should mention that you have two people before you uh answering your questions and hopefully uh in more detail than even you wanted is that we are representing 42 researchers that are for from every, almost every country, I think every country represented in this call uh that are native speakers as well as uh many of the citizens of those places and many of them operating there and including uh probably shouldn’t mention this even in Russia. We don’t copy our Russian sources on our emails hopefully. But uh we have people giving us uh photographs data. Uh, they’re they’re fluent in at least 10 or 12 languages from from from uh you know mandarin or Russian to polish German Ukrainian and things. Uh but we have the people in Uzbekistan or I was just telling us this morning, uh some some data we have to verify in terms of the magnitude of Russian I. T. Folks who have fled their two professional. So that’s sort of interesting from that standpoint. But you still ask about the the average Russian, there’s another point where I wanted to harken back uh to Ryan’s reminder that this is not the official voice of the State Department. I should also say this is not the official voice of Yale University. This is our own little team uh that the State Department has been clear in January, I haven’t heard them echo this since, but I’m sure this is probably the position still that this is not about the Russian people, this is about targeted leadership. Vladimir Putin. But your questions about the Russian people we know from the Second World War, we have the book of Jacob Gold Homer’s provocative book, 19 95, Hitler’s willing executioners where he condemned, not just if you’re for his evil schemes, but the enablers the important role, if anyone’s looking up, I think was the publisher, but I have no stake in that either, that the role that the average German had through their complacency, they were complicit. So how does this tie in here?

We don’t see on the streets of Moscow, the courage that we see on the streets of Kiev and elsewhere, Uh, similar ethnicity, common. Why would this be?

Well, I don’t know. But uh, even recent data still tells us that roughly 4% of tech savvy Russians are downloading the VPN to receive this information. So while there’s they know there’s no alternative press, they know that opposition candidates are are jailed or killed or both. Well, then, what does this mean?

Well, there’s a hopeful, hopeful angle on this is even if relatives immediate kin are are discarded by Russians. Uh, as we just saw this article, as you may have seen yourself in the Washington post from uh, well, we we have many Russian sources, the import of courageous symbols as we saw with steven Biko. Uh and of course of and in South Africa and uh, and uh the the people who are who are killed in martyrs such as him is that uh that we we had um, Vladimir uh, Karen Mirza has gone into prison as Alexei Navalny. Navalny is of course, but as he is writing articles out of prison in the Washington post, six or seven of them already, the one that just came out two days ago, he said uh that that refers to the roughly 17,000 people from human rights groups in Russia that have defied official bans and threats and and said, chided the US Russian experts as being naive, saying publicly released polls invariably showing overwhelming support for both Putin and the war. The reliability is about as high as the 99% official results for the Communist Party soviet style elections. I continue to be amazed by Western analysts who take these polls seriously. A recent media expose of the Russian polling industry revealed, among other things, that people simply refuse to respond to pollsters questions for fear of repercussions. So, I there’s a tipping point at some point where we see uh that that there’s enough uh suffering, there’s enough hardship that the Russian people come to recognize that the architect of their suffering, it’s not the West, they’re not being vilified by others, just as South Afrikaners learned because of the sanctions and boycotts together, they were in fact being reviled by the world, not by some diplomatic force, by some country that had some retribution, but the world saw them as rogue nation as that comes clear. They start to recognize the number one enemy of the Russian people is Vladimir Putin. That’s when we see people out on the streets. Um Great, let’s, I’m gonna take one more question from the room here and then we’re gonna go online to, I promised journalists get to that. Yeah, Good morning. My name is john Murray, I’m with the German press agency. Um, thank you very much for doing this. I’ve got to two questions. Did I understand you correct Professor Sanford that you are saying that Germany is not heading into an energy crisis this winter because the Germans very much fear this. And the second question is, um, how do you, is there any estimate how long the Russian economy can sustain this?

Uh, you know, the second question, the hard one where I’m a public official, I would talk about other things and duck it completely. Uh, because uh, we’re pushed to say, you know, how much running time do they have left?

They have foreign currency reserves of of less than as advertised, 600 billion, but 300 billion of that is frozen by the west and and, and perhaps between also be re allocated maybe to Ukraine for the rebuilding. We don’t know, but it’s Certainly not accessible. He’s there drawing down on that roughly?

I don’t know, 80, 80 billion of that has already been used up just since the outbreak of war. So we don’t put a specific date on because there’s so many uncertainties to how much of the war effort is ramped up. We see this morning’s reports is that the prisons are already being empty to try to draft new soldiers. Uh, and and we’re looking at 75, number of estimates coming in of fatalities, uh, In Russian soldiers. Uh, that maybe that this war after loosens up, then the staying power would be a lot longer. If it if it continues to try to ramp it up, then that these reserves will disappear. They’re already running deficits 2% deficit. Oh, that doesn’t sound so bad. If you can’t finance it. It’s bad. Nobody, nobody in this room, nobody, you know, nobody remotely would invest in in Russian debt right now. They’re not repaying it. They’re defaulting on. Nobody is not vestibules. So those deficits matter. So that’s why, you know, we don’t know. But it’s certainly, you know, uh, not not not a long period of time. So, but very good question. And the first question which you think is the easier one?

I wouldn’t say it’s going to be easy. A 15% rationing is a hardship. You know, what, what does it mean?

Won’t be done?

I don’t know how it’s gonna be balanced between industrial and residential and other commercial uses. And I think it’s remarkable unity and resolve in Europe should be celebrated. The EU should be celebrated for that. I don’t say that’s going to be easy for people and and I hope the production. Uh, there are no production delays, construction delays on these plants in your country, but it’s just incredible. They were not on the books and they’re racing ahead. And the best estimates that we see is that it will be done by the year’s end, December gets kind of cold in New Haven. I don’t know how it is in Munich and Berlin. Hopefully it’s still quite warm by then. But I don’t know, Stephen any thoughts on this?

Absolutely. Just to amplify one of Jeff’s earlier points. Um, as it pertains to gas in Europe, there’s no illusions that this will be easy. It’s not that this won’t be a crisis, that’s the wrong way to frame it. Every policymaker in Europe, especially Robert Robert, hey beck in Germany underst the magnitude of different scenarios moving forward and policymakers are being proactive policy makers are being proactive and taking steps. Uh, and there again, as Jeff said with remarkable unity across the EU to actively bring on new supply and guests. That is an extraordinarily important story. In addition to everything that’s being done with the renewable transition and at the end of the day, um, it’s much easier for a consuming nation to be able to onboard new supply than it is for producing nation to be able to find new markets when there are international pariah, the way the commodity cycle works, You have a transitory increase in prices right now due to the short term supply disruption, but higher prices incentivizes producers, uh, nations that might not have been previously profit to onboard new supplies. And of course, there’s a time lag there. It takes new, it takes time to build new re gasification terminals and to bring on new gas supplies. But over time as prices continue to rise, new supply will be brought on board and that will increasingly balance supply and demand. And as long as the EU stays united through Putin’s divide and conquer tactics, which remarkably right now on the gas price, it is um, this is a solvable transitory crisis. Whereas for Russia, it is not a solvable, it is a permanent loss of market share. It is not replaceable and not solvable as this is a brief aside if I had any academic colleagues in the lie there wondering why I mentioned steven Biko and not nelson Mandela, I already imagined faces grimacing back home on the campus. The reason I was talking about the martyr, he he was murdered. And of course, nelson Mandela was an incredible inspiring figure uh, and uh, but as who I never got to know, but I didn’t know. Ben Bishop, Desmond tutu, who talked quite directly at this is a great human rights activist who said, uh, an anti-apartheid leader that the marriage of private sector, uh, exits with the government, uh, sanctions was critical for the inextricable intertwined nature of the symbolism and the substance of what these economic pressures say to a domestic population in that, in that case South Africa, let’s go now to our journalists who are on zoom. Uh, we have a question from martin Burkhardt. Um, would you turn on your camera and pose your question?

Yes. Hi, thank you very much for doing this. I’ve always been confused about what the purpose of these sanctions on Russia are. Was it to bring about the fall of Putin primarily or was it primarily to limit or even, uh, stop his ability to wage war on Ukraine?

And so I wondered whether the authors of this report had found any evidence that sanctions have at least had a limited impact on Russia’s ability to wage war. And whether sanctions only could be successful if there is a total ban on energy imports to Europe. And last thing I’ve been thinking about is this even if there were a total ban on energy imports could Russia not just finance its war by la by larger budget deficits, basically finance it by what I’m sorry, But oh, I’m sure I can jump in on the budget deficits. Um, there’s two ways to essentially finance the budget deficit for a government. You’re either selling debt and raising new capital or you’re drawing down your rainy day funds in the case of Russia. They’ve been locked out of international capital markets ever since the start of the invasion has been zero debt issuances across any Russian entity, whether sovereign or corporate zero equity issuances for any Russian entity, It’s been frozen out of Western capital markets, which of course are the deepest richest sources of capital. You can say that they still have access to domestic capital markets, but the entire capital in that market is a fraction of what Western capital markets represents. It is not the same deep rich liquid pool of capital. The Western financial markets are now in terms of drawing down rainy day funds. Nobody is saying that Russia will go broke overnight. Russia does not have high external debts in the does have even beyond the frozen portion, 300 billion approximately. And foreign exchange reserves primarily denominated in gold and women be what this is, is it’s the structural erosion of Russia’s economy at every single level over the intermediate to long term. It’s not an overnight financial crisis or overnight, you know, depletion of rainy day funds, budget deficits can be sustained in the short term, but they’re unsustainable in the intermediate to long term. When you’re facing the crisis that Russia is facing. And I would also jump in on your question about military capabilities. The Ukrainians are finding weapons with semiconductors um, that they’re recovering from the Russian weapons with semiconductors that are salvaged and cannibalized from refrigerators. Uh, that is not a sign of a healthy producing economy. Um, This is degrading Russia’s actual ability to make war in the sense that they cannot obtain the imports and the technology that they need in order to remain innovative and productive over the intermediate to long term. It is that lack of access to restaurant technology to the global market. That erodes Russia’s economy in the intermediate term, but also erodes Russia’s ability to wage war. It’s war making capabilities and getting some of those parts. You’ll always see articles that some of your colleagues will write about some mighty component or some uh airplane uh parts get in, something will always leak in through a black market. There’s always going to be opportunities for smuggling. You can’t run an economy based on the smuggling and smuggling itself. We’re looking at these replacement parts. Nothing is at 20% we’re looking at 60 70% inflation across these sectors that we had up on the board before, 60 70% inflation makes things here look pretty good Back home here. But you also have this surging unemployment. Uh our data has suggests of the companies that have exited is that that’s that’s about 40% of the Russia’s GDP, that could be a big chunk of the workforce. If you take Russia’s own numbers, that they only only represents 12% Of the Russian workforce. That’s except that’s five million people right there. That’s direct employment of five million people. I don’t know that there’s an economist that you would ever talk to. That won’t say that’s the director of the multiple of jobs dependent on those companies would be conservatively three times. That’s you get back up to the 40% number. Again, that’s a lot of unemployment. We’ve heard some companies that stayed in Russia say, oh well the Duma has issued this decree that if they don’t keep working, they might get imprisoned. There aren’t enough football stadiums in all of Europe to hold 40% of the workforce. Uh all that would do would be to trigger the next Russian revolution. I can’t imagine uh any any leader sane or insane trying to round up 40% of their of their workforce. That that’s that’s crazy. So what is the objective of all this is that you opened with as Stephen talk through the fact they can’t finance this war?

Uh that’s again where I want to again screen from the mountains up that this is this is speaking not for Yale University, not for the United States government, not for the State Department, uh, just for myself. And hopefully steven will stand by me here in our little team. Is uh when you have a person that military officials around the world have labeled as the most dangerous human being who ever walked the planet more than Genghis khan more than a telethon more than Adolf Hitler. Why?

Because of the cash that you’ve talked about inflammatory language here in this room because of that. Like uh and the cash he has and the access to thermonuclear warheads is right now. Uh of the uh I guess it’s around 12, almost 13,000 nuclear warheads in the world that the U. S. And Russia have about 90% of them. So we’re talking about somebody who is a an an imperialist of bloody uh dictator, a tyrant that uh taking on innocent sovereign nations Crimea what they do under fearing the interfere in the elections of Georgia and Moldova Moldova France or the US. I mean, this is this is not something where Neville chamberlain like appeasement is like some easy ceasefire and everybody can go away happily ever after. Is uh and and I certainly speaking only for myself here on the 77th anniversary this week of the bombing of Hiroshima and Nagasaki, I’m not talking about taking on this tyrant through warfare. So what’s the other lever we have?

The other level lever is what we saw happen. And all those other countries of relatively peaceful, relatively bloodless. I don’t know. I think Harry Connick maybe cost 80 lives or so in East Germany is these are relatively bloodless transfers of at least you stop a bloody hit a dictator by showing that they don’t have the control that they pretend to have to their population, They need to be seen as a totalitarian. That’s their only base. If you can show that they don’t have control of civil society. That’s what Gandhi did. And that’s what we’re talking about here is that is he gets stripped away. This emperor is denuded to not have the control of civil society. That his economy is a wreck. And he’s the reason behind it. Then his powers curtailed. I’m not, I don’t know that he’s overthrown. I don’t know what happens to him, but he certainly is distracted and can’t continue this bloody rampage Stephen. Are you still with me on this?

It’s well said, and I could not agree anymore. So you have one person. But what about a total ban?

What about a total ban on energy imports?

The total ban on energy imports?

Would that do it in terms of limiting his ability to wage war in Ukraine?

Can we wait for him to fall?

Is Ukraine going to wait for that?

Well, just to jump in, as you know, there’s many different degrees of energy import bans being considered. One of them is the oil price cap that’s being worked on by, by the United States, uh, Secretary of the Treasury, amongst many others. Uh, and there’s obviously, you know, the, the eighth package proposal from the EU when it comes to the U. S. Oil embargo as well. I mean, the gas embargo, excuse me, there’s different variations of the Spa’s Implementation. But on the question that we’re asking, obviously that would go a long ways towards choking off the flow of revenues into Russia’s coffers, that is the largest source of revenue for Russia, upwards of 50, even 60% of the revenue in some years. Um, there’s no understanding the impact that that would have. But even short of that, what we have to understand is at the current moment, regardless of what bands are put in place. The oil and gas market for Russia has already irrevocably deteriorated. Russia’s production is projected to decline over the next 10 years, even by the Russian Energy Ministry’s own estimates, because they not only don’t have the markets, they can’t get the oil and gas out of the ground. A lot of Russia’s most promising energy developments around the arctic and they, they lack the, the upstream technology to be able to continue to innovate there. So there’s so, so yes, on your question, it’s obviously a very important measure. But even short of that, what we have to understand is that in terms of what’s actually going on, Russia’s status as an energy exporter is already under severe strain. And we saw some financial industry energy experts talking about 380 to $400 Uh, barrel uh oil. And of course, um they are not geologists, they’re not geopolitical experts and they apparently are not very good economists. I’m not sure what their backgrounds were, but they were ridiculous because they’re predicting that’s where we would be approaching now. It’s, and we’re looking at $90, a barrel. Uh and if we’re looking at a $35 discount on that because Russia has found that China whose imports are down 50% by the way, they’re not compensating for the import crashing from the west that Russia imports, uh, from China are down, uh, 50% as much of the rest of the world uh, is but that Russia and India are thinking, well, great, we’re going for this $35 a barrel discount, take that off. The 90 suddenly were getting perilously close to their break even because they may be the third largest oil producer in, uh, in the world. But they are um, They’re, they’re producing one of the least efficient. They’re $42, a barrel. It’s going to be hard for them to make money. Uh, even if everybody wanted to buy it. Given where, uh, India and China and by the way, India’s uh, tanks are being filled. Their, their their demand is gonna probably fall off. And I don’t, I can’t, I can’t speak for what China’s demand will be, but they’re getting a very good price. And not not getting much money to Russia for that. Thank you very much. I think we have, um, we have time maybe for one last question either from our briefing room or from our participants on on zoom. If there was one more No. Well, with perfect timing, we have exhausted all of the discussion. I don’t know, uh, Jeffrey and Stephen, do you have one last comment or one last takeaway you would like, um, our journalists to take from today’s event. This sounds like it’s pandering, but actually the questions were fantastic. We we have we don’t really do the kind of public exposure that you’re used to with public officials for a living. So we’ve got a little punch drunk. And uh and sometimes with questions, but the questions we usually have our are pretty repetitive. So we uh we don’t usually get this deep and I want to congratulate you, not just for your your tolerance with us, starting a little bit late, but in all seriousness, your patient and thoroughness of the questions. We we’ve never had an hour long discussion of this stuff and uh, I wish we could in the media and it’s nice of you to have taken time away from your busy days to invest in it. And I think that we had something to offer, even if you don’t agree with us, we really appreciate you listening to us. Well, thank you very much. Uh this ends the Q. And a session. I’d like to express our special thanks to our briefers, Jeffrey, Sonnenfeld and Stephen, T. N. And to all of the Foreign Press Center. Journalists who participated today. Thank you very much. And this concludes our briefing

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