Opinion | How to win the economic war against Russia

But she is right about one thing: the West is collectively waging an economic war against Russia on a global scale that would have been unthinkable just a year ago. The consequences of this will probably accompany us for decades to come. This new Cold War marks the end of the era of globalization and integration that has shaped the international system since 1989. We now live in a world of great power competition, economic nationalism and technological decoupling. The risks of this new economic war may not be nuclear, but they are sky-high, including for the United States.

The sanctions against Russia are more far-reaching than previously assumed. These include extraordinary measures such as freezing Russia’s central bank reserves and cutting banks off from Swift, the financial messaging system that is an integral part of the global economic infrastructure. They have targeted countries’ key vulnerabilities in a world of globalized supply chains by denying Russia access to advanced technology. Author Chris Miller writes that “among the hardest-hit sectors were cars, trucks, locomotives and fiber optic cables, all of which have seen production fall by more than half.” Russia’s imports have also slumped.

As The Economist points out, some of Russia’s broad economic indicators are holding up better than expected. The International Monetary Fund had predicted that Russia’s economy would shrink by about 8.5 percent this year. It has since revised its forecast to a 3.4 percent decline. Inflation spiked at first, but is now easing.

The reasons for Russia’s economic resilience are manifold. Russia is actually not that globalized economy and the state has a large footprint in it, both of which protect the population from external blows. But by far the biggest explanation is that Russia is a resource economy, a country that depends heavily on its exports of oil, gas, nickel, aluminum and other commodities for its prosperity. And these have largely been shielded from sanctions because the West recognizes that the world depends on these inputs and a ban would cause as much pain to consumers as it did to producers.

Washington’s sanctions have been well planned and well executed, with one exception: energy. If the goal is to reduce Moscow’s oil revenues, the sensible strategy – assuming you can’t cut it Everyone Russian oil supply – would consist of allowing oil to flow freely while working on a long-term plan to reduce the West’s dependence on Russian energy. That way, supply would remain plentiful and prices low. Instead, Western countries announced an embargo on Russian oil.

The proposed price cap for Russian oil is an attempt to correct these mistakes and essentially negate the effects of the oil embargo. Efforts to get Saudi Arabia and other Persian Gulf countries to produce more oil have also failed. The Saudis miscalculated how badly their decision would go down in Washington, and it will cause a rupture in relations between the two countries. But the bigger problem is the West’s incoherent energy strategy. It has underinvested in the energy it uses today (fossil fuels) based on magical thinking about the energy of tomorrow (renewables) – which will really arrive in large scale the day after tomorrow.

The greatest danger facing the United States is that much of this global economic war will be waged by America alone, using the dollar’s unique weaponized status. Because countries must use a truly global currency, the threat of cutting them off allows for sweeping sanctions that can affect goods and services not made in America. The dollar hit a two-decade high last month due to a lack of alternatives. At the same time, many large countries – notably Saudi Arabia, the other Gulf states, India, Turkey, Indonesia and China – are looking for ways to shake off the influence of the US currency and escape Washington’s far-reaching economic power.

As I have already suggested, President Biden must deliver a speech declaring that Washington is only using these weapons because of the unprecedented nature of Russia’s challenge to the rules-based international order, and that they will never be used in the normal course of action or out of purely ecclesiastical interests. Wherever possible, Biden should try to forge the broadest possible coalition. Otherwise, even if the United States won this battle with Russia, future historians might remember that moment when countries around the world began to reduce their dependence on America, and when Washington began to lose what was a French President once considered “exorbitant privilege” to own the world’s reserve currency.