MORE OPPOSITION TO PUTIN'S WAR

Germany has just announced they are supplying modern Stinger AAM shoulder-fired missiles to Ukraine. This means the Russians cannot operate helicopters in the country (Stingers ended Russian helicopters in Afghanistan in the late 80s), and any aircraft operating below 10,000 feet is in range of the missile. This can destroy Russian air superiority.

This from British economist Adam Tooze at his Chartbook Substack:

As Russia’s aggression in Ukraine escalates, so too have the deliberations in Europe and the United States over financial sanctions. It is only 48 hours, but it seems that we have come a long way since President Biden’s announcement on Thursday afternoon. As of the morning of midday Saturday 26 February east coast time, rumors were circulating of measures that would amount to a declaration of all-out financial warfare against Russia.

A truly comprehensive sanctions regime, like that which the US has imposed on Iran, involves simultaneous and mutually reinforcing action on all three fronts. It entails action against both private banks and the national central bank, excision of financial institutions from both correspondent banking relationships and the SWIFT communications system, and targeted efforts to stop trade in strategic goods, if necessary by imposing secondary sanctions on those attempting to engage in trade with the sanctioned country.

So far in relation to Russia, the US has moved to stop US financial institutions from offering correspondent banking relationships to all major Russian commercial, industrial and policy banks. Crucially, it extended sanctions to Sberbank, by far the most important Russian bank.

This will have a disruptive effect on the ability of Sberbank to offer its clients any international service. As of today, February 26, VISA cards issued by Sberbank were no longer working outside Russia.

Sberbank’s stock value has crashed and will likely continue to plummet. The bank may be exposed to runs by Russian depositors anxious to get their hands on their cash and to switch it into foreign currency as quickly as possible.

There were significant queues to cash machines and counters at Sberbank outlets across Moscow yesterday. It became next to impossible to withdraw foreign currency towards the evening. Russia’s largest bank clearly in trouble as a result of sanctions.

Since Friday the indignation over Russian aggression, heroic Ukrainian resistance and the prospect that this will unleash an escalation of Russia’s attack, have raised the temperature in Europe. Not only are more and more European countries delivering weapons to Ukraine, including Germany, but there are calls to deliver such serious financial pain to Russia that it causes a change of mind on the part of Putin and his circle.

By Saturday midday European time, the German and Italian governments agreed to enter into talks about ending Russian access to the SWIFT system. Even the pro-Russian Hungarian government has indicated that it will not stand in the way.

If SWIFT-exclusion is implemented, it will deliver a severe blow to Russia’s financial institutions and indirectly to trade and confidence in the economy. It may have a ripple effect into the Belarusian financial system, which may act as a conduit for Russian payments and if so may find itself sanctioned as well.

What was rumored in Washington on Saturday morning were not more steps on energy, but a further escalation of financial measures: sanctions against Russia’s central bank.

Cutting Russia’s national bank out of the euro and dollar-based financial systems, would be a truly dramatic step that would strike at Russia’s national economy as a whole and one of Russia’s strongest cards, its foreign exchange reserves.

As sanctions on SWIFT look increasingly likely, key to watch Belarus. If not also sanctioned, Belarusian banks could become instant middle-men during the intense short-term disruption as many are connected to Russia's SWIFT alternative

But, if Russia’s aggression provokes all-out financial war including sanctions against Russia’s central bank itself, then all bets are off. In such a scenario, the crucial question would be whether Russia can actually access its immense reserves and how it could spend them.

Russia also has a large reserve of gold. But what is the value of those reserves if the Russian central bank is deprived of access to international markets where it might sell the gold for euros or dollars? Russia would be reduced to bartering gold or other assets for whatever imports Russia needs, cutting out the need for international currencies. Which partners would be willing to engage in such a trade and at what price?

China is the only likely candidate and they would dictate stiff terms. But, as keen market observers note, difficulties with payments mean that Russian oil is already trading at discounts.

The situation in Ukraine is clearly critical. Days matter. As investors weigh the scale of the likely damage, financial markets in Moscow are becoming dramatically disturbed. On Friday as the markets gained the impression that sanctions might not be a severe as, at first, feared, the cost of ensuring Russian debt against default actually fell.

At this point it remains an open question, how far either Europe or the United States are willing to go.

But if the West does want to keep up the pressure on Russia and materially to assist the Ukrainian struggle for survival, it needs to ramp up its measures. The packages announced on Thursday and Friday were tantamount to accepting defeat. If the West wants to punish Russia comprehensively, it has the means to do so. The cost will be far less than the huge sacrifice born by Ukraine, but, if energy is involved, the cost may be significant, and it will certainly hurt not just the elite, but a large part of Russian society. It is a major step.