Taylor: Waging financial war with Russia is unprecedented, risky — and sure to be painful all around
In an attempt to isolate Russia after its invasion of Ukraine, the United States and allies launched a series of never-tried-before techniques of economic isolation.Carl Von Clausewitz’s famous dictum about “war as politics by other means” is echoed in what the U.S., Europe and others are attempting. It is financial isolation as war by other means. Russian President Vladimir Putin understands this, declaring March 5: “These sanctions that are being imposed are akin to a declaration of war.
The initial “shock and awe” effects of financial war on Russia were immediately visible in financial markets.FILE - Women look at a screen displaying exchange rate at a currency exchange office in St. Petersburg, Russia, Tuesday, March 1, 2022. In the days since the West imposed sanctions on Russia over its invasion of Ukraine, ordinary Russians are feeling the painful effects — from payment systems that won't operate and problems withdrawing cash to not being able to purchase certain items.
In the international market for Russian bonds — a market in which I worked from 1997 to 2000 for Goldman Sachs — things have gotten extremely complicated. Russia attempted to pay interest on its ruble-denominated bonds to investors on March 2. But foreign owners of those bonds, who are thought to own about $29 billion worth, can’t get paid. The Russian central bank halted payments being sent abroad.
Beyond that, U.S. and European investment and business with Russia has been canceled abruptly. Western oil giants BP, Shell and Exxon all announced withdrawals of investment in joint ventures with Russian giants Gazprom and Rosneft immediately after Russia’s invasion of Ukraine. In the long run this will hurt the Russian oil industry.
Seizing yachts, jets and other high profile assets of Russian oligarchs is likely to be ad hoc, unevenly enforced and mostly symbolic. As someone whose personal financial advice is to never buy a boat, however, I feel yacht-owning oligarchs should have read my stuff more closely. See what happens when you don’t listen to me?FILE - People stand in line to withdraw U.S. dollars and Euros from an ATM in St. Petersburg, Russia, Friday, Feb. 25, 2022.
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