Thread by @jsuedekum

Good news! Putin's war machine is NOT autarkic, but relies on imported components. Hence, Putin cannot simply sustain the war by "printing Rubles"

But that doesn't mean an EU energy embargo is the best (or only) option to force a ceasefire by drying up €$-flows. Some thoughts🧵

Sure, 🇷🇺 needs hard currency ($/€) to pay for imports. Noboby, not even China, accepts Rubles

And since the central bank's FX reserves ("Putin's warchest") are largely frozen, energy payments are the only source to get $€ to afford Western imports

Popular logic then runs as follows:

EU imposes embargo -> no more $/€-flows -> all Russian imports dry up, incl. military components -> war machine stops, stores turn empty -> 🇷🇺 people start a revolt against Putin

Maybe that logic goes through. But here're my concerns: /3

A) Only 1st step in the above chain of events is sure. As you go along, every consecutive step becomes less certain

Maybe military keeps going for some time without imports. Maybe any revolt gets suppressed by brute force, despite hyperinflation & empty stores. Who knows? /4

B) Imposing an energy embargo not only hurts the 🇷🇺 economy, but is (very) costly to us, too.

How costly? Great research 👇suggest ~3% of GDP. Maybe a bit more.

That's not the end of the world, but it would surely not be an easy ride at all. /5

As economists, we should ask:

1) what's the goal?

2) which instrument achieves this goal in the most efficient way, i.e., with the highest probability and at the lowest costs?

Answer 1 seems clear: force Putin into a ceasefire, better a full resignation. But what about 2? /6

I don't think the embargo is the most efficient instrument

I'd first go for something different: sharpen the export ban of crucial components

We wanna make sure Putin doesn't receive those parts needed for producing tanks etc. -> for keeping the war going /7

Hence, we wanna make sure those parts never arrive in Russia again. Neither directly, nor indirectly via third countries (or black markets).

In other words, we need a powerful export ban with two crucial features:
i) dual use restrictions
ii) secondary sanctions /8

On i) the black list of banned export articles must include not only outright military components, but also stuff like semiconductors, which is useful for civilian purposes as well

List must be strict&extensive: exclude everything of potential value for Putin's war machine /9

On ii) 🇨🇳🇮🇳🇸🇦 etc. must not act as Russian agents. If needed, they must be forced to play along by sanctioning them if they help out Putin.

Is that easy? No! But remember: 🇨🇳 & 🇷🇺 aren't really "best friends" and 🇨🇳 has more to lose from pissing off 🇺🇸🇪🇺

economist.com/china/chinas-f…

Some good news: focussing on goods trade is already working

@VincentStamer shows that both, import and export quantities at 🇷🇺 ports are going down dramatically over the last 2 weeks. Many people just don't wanna do business with Putin anymore. /10

That's where the action ought to be. Make sure those trade flows go down even further, and DO NOT include anything of any use for the military.

Will we be able to control it perfectly? Probably not. That's never the case. But we can hit Putin where it hurts him the most. /11

Thinking ahead: once the export ban strategy succeeds, Putin may just stop the energy flows to Europe himself.

After all, why would he supply gas, oil, coal, if the FX flows turn out useless, as we refuse to export all our "nice" stuff in return?

If that happens, so be it. /12

We have to calculate with that possibility, and be prepared for "day X" where all 🇷🇺 energy flows drop to 0

(Be assured, Berlin is already preparing for that day at highest urgency, but doesn't talk about it all the time, which is smart) /13

Point is, in that scenario, we don't pull the emergency brake ourselves, but shift it to Putin. And before that decision is actually taken, some time will elapse during which we can fill up our gas storage for next winter.

I'd consider that a "smart sanctions strategy (SSS)" /14

Summary: Putin's criminal war and his killing of innocent people in 🇺🇦 must STOP! We must act to defend our values and freedom!

But we should act in the smartest way that is most painful to him, and least painful to us. Here, the export ban trumps the energy embargo. /END

This excellent & knowledgeable thread by @kamilkazani confirms my intuition

Trade sanctions deeply affect Russian ppl and military already. To push further, let's make those export bans even more watertight. Seems much more effective than a gas #embargo

Let's face it: if there're countries left willing to supply military tech to Russia at this point, they'll continue even when Putin has no FX left

There're other means of payment: commodities, real 🇷🇺 assets, other forms of credit

Better dry up those goods flows directly.