New York (CNN Business) — Take steps to punish Vladimir Putin and Russia for their aggression against Ukraine it will cost us at home. Because to hit Russia where it really hurts, we would have to hurt the whole world.
Russia is one of the main producers of oil and natural gas, so the world is addicted to its exports. In fact, the European Union depends on Russia for more than a third of its natural gas.
That is why Germany’s measure of cancel the certification of the Nord Stream 2 gas pipeline, which would bring Russian natural gas to Germany. The former president of Russia seemed to gloat this Tuesday of the dependence on the EU, tuiteando: “Welcome to the brave new world where Europeans are soon going to pay €2,000 for 1,000 cubic meters of natural gas!”
The most effective way to attack Russia with sanctions is disconnect your supply of oil and natural gas to the west. But that could trigger even higher prices and more pain for consumers. Oil prices are already close to highs of the last 8 years and they are one of the main engines of inflation. It is already making a dent politically and these decisions will be difficult for Western leaders to enact.
“The president of the United States has his domestic polling to worry about heading into a new election season, and Europe’s leaders also have their own domestic political constraints,” CNN political analyst Josh Rogin told me. “This ends up limiting the range of responses, the range of action that the allies can establish in response to Putin’s aggression. Of course, Putin knows this. That is a reality of democracies and it is an advantage for Putin that he will surely exploit.” .
The White House and its allies announced their first round of sanctions, two banks, sovereign debt and some oligarchs, with more sanctions expected if Putin persists. Biden acknowledged that the sanctions will also come at a cost to Americans.
“Defending freedom will come at a cost to us, too, and here at home,” President Biden said Tuesday. “We have to be honest about it.”
He described as “critical” the fact of “qualifying” the increase in energy costs.
“We are closely monitoring energy supplies for any disruption and executing a plan in coordination with major oil consumers and producers toward collective investment to ensure global energy supplies and stability,” Biden said.
What could this mean? Pressure producers to turn on their taps, coordinated release of strategic oil reserves with allies, a gas tax exemption or incentives for domestic shale producers.
But the president’s tools are limited.
“We have levers, Putin has levers, and when we have finished pulling all our levers, we will be back to square one,” Rogin said. “The ability of the Russians to manipulate the energy markets will always be greater than the ability of the Europeans to mitigate those manipulations.”
Meanwhile, Greg Valliere of AGF Investments tells his clients to expect a Russian reaction with three main goals: “Pushing much of the West into a high-inflation economic crisis; dividing the US between isolationists and internationalists, and launch a cyber warfare assault on the US and Kyiv, disrupting everything from ATMs to corporate boardrooms.”