Kevin T. Dugan writes:

Six weeks after the U.S. and the G7 countries weaponized the global financial system to impose their harshest-ever sanctions on Russia, the fissures are becoming apparent. The ruble strengthened to its prewar value against the dollar by Thursday, a sign that the capital controls set by the country’s central bank were working. As the currency continued its rise on Friday, the Central Bank of Russia surprised the world by cutting its interest rates 3 percentage points to 17 percent — still high, but a sign that the country’s defensive stance was too aggressive. European countries are still buying energy from state-run giants like Gazprom, flooding Russia with euros and dollars that can then be used by any of the more than 200 banks that aren’t under sanction.

Anecdotally, the pressure seems to be diffuse and hard to pinpoint: A Moscow resident I’ve known since well before the war told me over Telegram that grocery stores were full of food and mostly 5 to 10 percent more expensive; diesel gas prices were 53.59 rubles a liter, or roughly equivalent to $2.70 a gallon — cheaper than just about everywhere in the U.S.; and luxury-goods retailers on Tretyakovsky Proyezd, Moscow’s equivalent to Rodeo Drive, are still apparently selling clothes and handbags on the down low to some of their most prized customers, thanks in part to the government blessing the gray market in upscale goods. Russian President Vladimir Putin has called sanctions a “declaration of war” — and perhaps it is, but it has also been a propaganda boon for the Kremlin as it escalates its war in Ukraine.

Remember, Russia was prepared for this. As one of the world’s largest economies — with a gross domestic product of around $1.8 trillion — Putin has leveraged the country’s most important asset, its oil and natural gas reserves, so that countries like Germany are more reliant on it than ever. But it’s not just that the rest of world was caught flat-footed. According to Columbia University economist Adam Tooze, the Russian budget had been engineered prior to the invasion to balance out if the price of oil fell to $44 a barrel, meaning that it’s been able to sock away a ton of money. Ever since 2014, when Putin faced Western sanctions for the annexation of Crimea, more of Russia’s goods have been produced domestically and debts were restructured to be paid in the local currency. In its run-up to war, Russia effectively removed itself from the global system where it was spending while further entangling its neighbors that were giving it money, and given the country’s size and power, made it difficult for the world to reverse course. [Continue reading…]