Hello All,

(From Breitbart Business Digest, 2/22/2022)

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Harvard economist Jason Furhman recently described the Russian economy as "a 
big gas station." That's not quite right. Russia is a big gas station in a 
huge field of waving grains. It is the largest supplier of wheat in the world. 
Russia and Ukraine together account for one-quarter of all the exported grain 
in the world and nearly one-fifth of exported corn.

But Furhman is right that apart from food and energy, the rest of Russian 
economy is incredibly unimportant to most of the rest of the world. Russia's 
total Gross Domestic Product was $1.6 trillion in 2019, making it the world's 
11th largest economy. But it is just the 40th largest buyer of U.S. exported 
goods, amounting to less than $6 billion, in part because its GDP per capita 
is so low. As of 2019, Russian GDP per capita was ranked 57th. It's the 20th 
largest supplier of imported goods to the U.S., selling us $22.3 billion worth 
of goods in 2019.

On the other hand, Russia's unimportance to the world's economy also means 
that the world's economy is somewhat unimportant to Russia. That limits the 
amount of pressure that economic sanctions can put on Vladimir Putin unless 
they hit Russia's energy and grain exports. On Tuesday, the U.S. and allies 
said they would put sanctions on two Russian financial institutions closely 
linked to the government, and Germany said it was suspending work on the Nord 
Stream 2 pipeline from Russia to Germany. But because the pipeline has not yet 
been completed, the suspension will have almost no economic impact on Russia 
at all.

Joe Biden seems to know that the sanctions announced on Tuesday will not 
actually provide much by way of deterrence. Even while announcing the 
sanctions in reaction to "the beginning of a Russian invasion of Ukraine," 
Biden indicated that he thinks Vladimir Putin will continue his moves against 
Ukraine. The sanctions were described as "the first tranche" of sanctions, 
implying more are to come. He said the U.S. still believes that Russia is 
"poised to go much further in launching a massive military attack against 
Ukraine." We'd say it was as if Biden had told the gas station that we weren't 
buying milk there for a little while.

The global oil market on Tuesday initially reacted by sending Brent crude to 
$99.50, the highest level since 2014. But oil fell by around three percent as 
it became clear that energy would escape sanctions. No doubt Biden dreads 
putting an embargo on Russian oil. Russia currently supplies around one out of 
every 12 barrels of oil to the U.S., around 700,000 barrels a day. Cutting off 
that supply would likely push up the price of oil, at least in the short run, 
and eventually gasoline prices for U.S. consumers. It would add to the 
inflationary pressures already besieging the U.S. economy and could interfere 
with the Federal Reserve's attempts to bring down inflation.

There's another possibility highlighted by recent history. One of the reasons 
the U.S. currently buys so much oil from Russia is that we have sanctions on 
Venezuela. Russian oil, in other words, is filling the role Venezuelan oil 
once did. Similarly, if the U.S. and a few allies--but not the rest of the 
world--imposed an oil embargo on Russia, the Russian oil would likely be 
bought by other buyers, and the oil producers displaced by Russian oil would 
sell to the U.S. That would be good news for the U.S. economy and the Biden 
presidency. Unfortunately, it would also be good news for Putin because it 
would mean Russia still has plenty of buyers for its oil.

Biden promised on Tuesday that he'd work to make sure the sanction hurt Russia 
but not the U.S. That will be a very difficult trick to pull off.
===

-- Sean

... All's well that ends.
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