Russia, Putin, Russian Government discussed on Planet Money

Planet Money


I know, but trust me. Check out everyone and their mom. Every Wednesday in the wait wait, don't tell me podcast feed. Okay, sanctioned proofing. The last time Russia invaded Ukraine, the U.S. hit Russia with all sorts of sanctions. Vladimir Putin didn't like that. He wanted to be able to do whatever he wanted to do without repercussions. So he started trying to make Russia immune to future sanctions so that he could put himself in this position to say, go ahead, impose your sanctions. They're not going to hurt us. Vadim Putin has been preparing for this moment for the past 8 years. Andrew Weiss is with the Carnegie endowment for international peace. He's a Russia expert, was on the National Security Council. And he has been very closely watching as Russia has put up its defenses. He says there are a few things Russia has been doing. Like it started stockpiling foreign currency. Russia has huge reserves in a few different currencies and gold. Right now, the Russian government basically has stuck away in a mattress somewhere on the order of $635 billion. These are huge amounts of money that would give rush to the ability to brazen out new forms of western pressure and sanctions. So that's one way that Russia has tried to sanction proof its economy by stashing cash that it can tap into at any time. But the reserve might not be enough. So Russia has done other things to prepare for this moment. Putin has been building relationships with China to work around future U.S. banking sanctions. He made Russia's exchange rate free floating, which basically just means Russia is less dependent on the dollar. And, and here's the big important thing, he's reduced his reliance on foreign investment on western financing. Basically, Putin decided, I think we're going to stop borrowing money. Vladimir Putin is allergic to borrowing money. So back in 2014, 2015, Russian companies borrowed tons of money in the west, had tons of banking relationships, all that has slowly scaled back in the subsequent 8 years. And so he's not looking to use the banking system in Russia or access to western capital to make Russia great. And Andrew says there's one big reason Putin can pull this off, how he can run a country without borrowing a lot of money. Putin thinks he can pay for a lot of what Russia needs by exporting oil and selling it on the global market. This is his Trump card. Basically, every day that Russian government in some form or another pumps out four plus million barrels of oil a day, and it sells those on world markets. And if oil is priced at as it is right now, around a $100 a barrel, that is a lot of money every single day. By the way, Russia can still sell oil because no one has put sanctions on Russian oil, yet it could happen. But stopping Russian oil exports would be terrible for the global economy. It's a horrible dynamic in terms of trying to choke off the ability for Putin to finance himself. And he has all this dollar income that's coming in every day from selling oil and gas. How does he have access to U.S. dollars by selling oil? All major transactions involving oil and gas are conducted in western currencies. So every time Russia sells oil, it's mostly receiving either dollars or Euros. I mean, it's certainly undermines the sanctions in a very big way if the idea is shut them off, freeze them out to U.S. dollars, and then they have this unlimited access to U.S. dollars through this other way. Yep, Russia has the world over a barrel. And Vladimir Putin knows this. It's part of his whole calculus with Ukraine. Yep. So the idea is we know that the things we sell are too important to you for you the west to sanction them. So does this make Russia sanction proof then? We're going to find out Putin feels he can basically tough things out. He can tighten his belt at home. He can continue to run a very tight budget and make the average Russian bear the brunt of any adjustment. That's the structure of the Russian economy that Vladimir Putin has deliberately built. It's a fortress mentality. A fortress that is how everyone is describing Russia right now and listen. Even people like Andrew, who think that Russia is pretty well positioned, say that these sanctions will hurt. If just some of your banks get cut off, you can maybe tough it out. But if all the big ones do, which could still happen, that would be harder. Plus, the U.S. has announced another kind of sanction to prevent Russia from getting pretty important technology that's been developed in the U.S.. The goal here is to cut Russia off from technology it needs for its military. It's shipping industry. It's space program. Andrew Weiss says the U.S. has rolled out maybe.

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