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  • Writer's pictureRichard Murff

Cry Havoc!

Mobilizing Markets for Battle

All wars have an economic element, but it’s hard to think of one where the markets and economies have been mobilized and sent into battle with the gusto as with the current scrap. The unprecedented Western sanctions against Russia and Moscow’s economic counter-offensive have turned a baffling, almost-ethnic tension behind the old Iron Curtain into a financial World War III that has derailed a solid global economy and sent it down the can.

It has been noted that as Russia’s forces falter, the risk of miscalculation rises – true enough. But the whole war is a delusional miscalculation with cartoonish military planning. The economic planning for the war was more meticulous because Moscow needed Europe to sit out the war. Putin needed his Munich and didn’t get one.

The Russian “fortress economy” has been able to largely withstand the sanctions without too much obvious pain – there were never really a lot of Western goods on the Russian shelves beyond Moscow and St. Petersburg in the first place. With only about 40% of the world on board with the sanctions they didn’t really put a dent into Russian oil and gas production, just shifted the destination from Europe to Asia where China and India began to buy Russian oil at a tremendous discount. So massive amounts of oil didn’t come off the global market, it just shifted the buyers and sellers around. Until Chinese purchases collapsed in the face of a slowing global economy abroad and crippling lockdowns. What was engineered to be a drought of hydro carbons became a glut.

Since brutal spikes following the invasion, energy prices have broadly fallen: Brent crude was at $120 per barrel in July, $90 in early September and $80 last week. Enough of a drop that OPEC+ countries have decreased production quota to stabilize the price. Liquified Natural Gas (LNG) has been re-routed from Asia to top up European gas reserves to 85% capacity as of September, beyond the goal of 80% for late October. Europe and the world have paid a fortune for it, but the supplies have been re-routed. The danger for Russia is that they stay that way.

The old USSR – of which Putin was a creature – were masters of subversion and sewing chaos amongst its enemies. The main point of cutting off Europe’s energy was to foment chaos and drive a wedge between the population and their governments – always a chink in the democratic armor. The problem with psych-ops is, of course, the “psych”part. Once Ukraine’s forces began to experience success, and Vladimir Putin began to deliver national humiliations the public can’t ignore, the psychology turns the other way, fast. The ordered Russian mobilization – meant to enable him to stretch out this war through another summer - has only aggravated this rash the body politic can’t reach.

Even in the Cold War, the old USSR was non-political regarding its energy imports, it had to be because they needed the money. Whatever happens in Ukraine, his weaponizing energy will be hard to walk back. The old Soviet hacks in the Kremlin just can’t get their heads around a consumer driven market. “Now that they are using it, not just as a political weapon, but a weapon of war…” Daniel Yergen, Vice Chairman of S&P Global told the Wall Street Journal, “It completely obliterates their credibility as a reliable supplier.”

Putin has turned the Nord Stream taps off believing that he could simply turn them back after he got what he wanted. With Europe refitting away from Russian energy, turning the taps back on is less leverage than it was without customers on the other end. Once the spring of 2023 arrives, Vlad the Bad will have shot his wad and he knows it.

The real question is what the Kremlin plans to do about it.


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