Sony Kapoor Profile picture
Feb 28 29 tweets 12 min read
I have got many questions abt policymaker logic behind #Russia #sanctions, their impact on Russia, EU, global finance, & the economy

Their scope, potential 4 evasion, deterrence, potential long-term impact & possible next steps.

1 Pls read 🧵 ⬇️ 2 I will answer Q in a new🧵👇
When #Russia attacked, policymakers faced a hard choice. What could we do to deter and dissuade #Putin short of a risky military confrontation between nuclear powers?

We primarily had large financial sanctions that front loaded the pain, ideally narrowly targeted towards Putin!
But in authoritarian Russia, where #Putin could potentially command any state-owned, oligarch or private assets for his objectives, any effective sanction could either be large, or be narrow (a few banks, Putin´s assets) but not both.

Sadly, Broad Sanctions = Collateral Damage!
That is why we successfully argued for the narrow 1st and second set of sanctions announced Fri & Sat to be expanded dramatically.

In particular we looked at the #Iran, #NKorea, #Venezuela precedents to look at #SWIFTban #BlockingSanctions #CentralBankSanction #TradeEmbargoes!
In addition 2 being big, sanctions had to be front-loaded 4 maximum impact now, rather than 6 months or a year from now

#Ukraine is being bombed now, so #Russia must face immediate consequences or too late 2 dissuade #Putin

Hence prioritizing Financial over Economic Sanctions
Why? Becoz financial sanctions, such as asset freezes, can target the far larger stocks of existing assets, whereas economic sanctions, such as trade embargoes affect the smaller flow of future income, which does add up over time, but is much smaller in size than stock of wealth!
Folks say, the #SWIFTban & #RCB asset freeze is one thing, you should really target the oil & gas.

Russian official reserves, + foreign assets of banks + oligarch foreign assets + corporate assets abroad etc.

Easily more than $ 1 trillion!

Daily export income 1-2 billion!
The math is clear. To front load pain for #Putin, being able to devalue or seize even 20% of $1 trillion is much better than choking off fresh flow of export income.

It made no sense to prioritise targeting exports first. Sanctions concentrated to devaluing and freezing assets!
A multi-pronged approach is being followed. It can (& will) be expanded.

Freeze legitimate FX assets, Seize illegitimate FX assets, Penalise X-border transactions, Force Devaluation of #Russian assets, Cut off Access to FX funding, Limit Ability 4 Counter Measures, Induce Panic
1) Devalue the FX denominated assets #Putin has access to 2) Limit his ability to draw on this lower amount of wealth 3) Limit his ability 2 borrow FX against the value of residual wealth (assets) or future income 4) Induce a huge Russia Risk Premium

These Reinforce each other!
Russia´s actions and the sanctions and clear messaging from the West have turned it overnight into a Pariah state. The legal, financial & repetitional risks of holding Russian assets have skyrocketed

The flip side of this high risk premium is the precipitous fall in their value
The second action has been to freeze (for some assets under the threat of seizure) Russian Central Bank and Oligarch assets that fall under Western jurisdictions.

This is like having money in the bank, but the bank being closed, and not knowing when and if it would open again!
The third action has been to limit #Russia´s ability to borrow against these assets, or against expected future export income, by banning it from raising money in Western capital markets.

You can't touch ur money bcoz ur bank is closed, and you r banned from borrowing elsewhere
The fourth action, which has been part regulatory, part voluntary, part moral suasion has been to make the holding of Russian assets poisonous.

This means not just that you would not lend to, or invest in Russia, but that you will liquidate what you already hold at any price!
The fifth action, of blocking sanctions on many Russian banks, and cutting many others (but not all) off the SWIFT network has got the most attention, but is definitely not the most consequential.

It makes life difficult, puts sand in the wheels, & reinforces the pariah status!
The sixth action was a messaging strategy that played up the impact of sanctions, talked up the risk of bank runs & market panic (there was not much danger of a bank run on the Rouble deposits of banks, as the RCB can print Roubles) and hence amplified their real world impact!
Taken together these sanctions and accompanying messaging is truly unprecedented and, as I said in this @WSJ interview…, the equivalent of a "nuclear bomb" in the world of global finance

Overnight they have cut Russia´s financial wealth by a third or more!
Overnight, Russia has (temporarily?) lost access to half or more of its public & private wealth stashed abroad

Even under the unlikely scenario of a detente´ & a quick reversal of sanctions, we believe that somewhere between $50 - $150 billion has already been permanently lost!
R these sanctions perfect? No

Could we have done more? Yes

Will these b leaky? Mostly depends on China

Can #Putin still fund his war? Sadly, Yes

Should we now go to economic sanctions now? Yes, that is the next step

Will Putin Stop? I don't know

I need to sleep, TBC tom
Sanctions had 2 inflict large & immediate economic pain 2 #Putin & cronies.

But they can mobilise any resources in #Russia, so broad sanctions, with economy-wide impact, despite collateral damage.

Financial better than Economic 4 speed & size. Stock vs Flow. Wealth vs Income.
Besides size and speed, the third criteria 4 "effective" sanctions here is that they need to be asymmetric.

They need to hurt Putin´s #Russia & its economy more than they hurt the #EU & the world economy.

Financial sanctions are much better than economic ones 4 that asymmetry.
Broadly Russia´s main exports to the world are 1) oil 2) gas 3) commodities 4) food and in each of these, it is a major actor on the global stage so much so that if exports were to dry up, it would cause a HUGE supply shock that would take away 5%-15% of the supply immediately!
The demand for oil, gas, metals & in particular food, is relatively inelastic. You gotta eat what you got to eat.

Thus even a relatively small reduction in supply would lead to a huge increase in price.

This would put fuel on the fire in a world struggling with high inflation
Do the math & trying to deprive #Russia of the $1-$2 billion of daily export revenue by cutting off oil, gas, commodity and fuel exports, will impose a first order cost that could easily be 10-100 times bigger than that on the rest of the world.

The poor would suffer the most!
Financial sanctions on #Russia also impose a cost on the rest of the world, particularly for anyone that owns Russian assets.

But on average, these are entities that belong to the upper echelons of the income strata so the impact on the poor & vulnerable outside Russia is low!
So we find ourselves in the bizarre situation where trade with the "enemy" continues with some disruptions & import restrictions.

But this is the "goldilocks" of the sanctions regime in the present context.

Costs 2 Russia are large, immediate & punitive.

Costs 2 ROW limited
But this "goldilocks" sanctions regime is not a stable equilibrium and may not last.

(In my opinion misinformed) moral pressure I building up to cut #Russia´s exports, & with trade finance drying up and Russia´s pariah status, many bottlenecks are building up in supply chains.
#Putin knows that cutting off Russian exports will hit the world asymmetrically & induce serious economic pain, particularly in the EU on gas, in the US on oil (potentially affecting mid-term elections) & to developing economies (India) on food.

So he can do it anytime at all!
THAT is what we need to be "worried" about & "prepared" 4.

1) Tighten financial sanctions further 2) DO NOT touch exports of Oil/Gas/Commodities/Food 3) Impose restrictions on arms/other exports 4) Tighten import restrictions on Russia 5) Contingency plan 4 Putin 2 shut exports

• • •

Missing some Tweet in this thread? You can try to force a refresh

Keep Current with Sony Kapoor

Sony Kapoor Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!


Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @SonyKapoor

Feb 26
Understanding the #Russia #sanctions debate in brief!

Financial and Economic Sanctions against #Iran cutting it off from global finance and trade rank 9/10

#Russian sanctions only 5/10 for now.

A lot of room to tighten the noose, of which cutting off #SWIFT is only one part
ALL #Russian banks, big and small, need blocking sanctions. This needs to include the Central Bank of Russia, mirroring the case with current sanctions that operate against #Iran, which has also been kicked off #SWIFT. Only humanitarian, medical & food import funds to be allowed!
The ONLY remaining reason the #EU countries are resisting cutting off #SWIFT and going as far as in the case of #Iran, which is what we need to do, is because we fear (know) #Putin will immediately cut off gas supplies.

Our need for #Russian gas and the #SWIFT issue inseperable
Read 14 tweets
Feb 24
Thoughts on how we got here in #Ukraine, what is happening, & what we in the #EU & #NATO need 2 do now

#thread 🧵1/n

Bon courage 2 all #Ukrainian friends & citizens

Admiration 4 journalists on the ground - stay safe

Understanding for #Russian citizens who did not want war
First we need to hang our head in shame. The US was explicit in intelligence readouts saying what has happened would happen. So it's not like we were not warned.

From early December onwards the playbook #Russia has followed was clearly laid out and this was brushed off lightly!
The unified stance of #EU member states, #NATO and the #US looked good, but only because we had been pathetic.

#Russia has been very successful in infiltrating western democracies.

Russian footprints all over, especially on the far right, right, and the @GOP especially #Trump
Read 19 tweets
Nov 1, 2021
#Norway´s #ClimateShame and the impossibility of getting a good and just #COP26 outcome ... a brief #thread

Accounting for exported emissions, #Norway has fourth highest per capita emissions in the world after Kuwait, Brunei and Qatar.

Much higher than Russia, USA, China, UK!
Norway also happens to be one of the richest countries in the world with a GDP per capita that is in the top 3 or top 10, depending on which ranking you look at.

In addition, it has an #OilFund with money in the bank worth more than 300% of GDP, the largest #SWF in the world.
We have a (temp) seat in the UN security council, fancy iourself as a major player in foreign affairs, have tried our hand at peacemaking with moderate success & are, on a per capita basis, one of the biggest contributors to development aid

We think we are fair-minded & benign!
Read 18 tweets
Oct 31, 2021
In this reed boat made without the aid of any modern tools, #ThorHeyerdahl crossed the Atlantic making the journey of 5,200 km from Safi to Barbados in just over 50 days with a 7 man crew from 7 different countries in the year 1970!
I took the kids to learn about his adventures
In 1947 #ThorHeyerdahl and crew sailed from Perú to Polynesia, a journey of 6,900 km in 101 days on a craft made entirely of balsa wood! The wonderful #KonTiki museum in #Oslo where I took Darius and Irya yesterday has the original boats that made both journeys and is a must see!
The Fram sailed with Nansen on a drift over the Arctic Ocean 1893-96, with Sverdrup to the arctic archipelago - 1898-1902, and with Roald Amundsen to Antarctica for his South Pole expedition 1910-12.

The Fram is now exhibited in the #FramMuseum in #Oslo. The kids loved it!
Read 4 tweets
Sep 12, 2021
As I catch up on a rich, moving, diverse set of reporting and stories about 9/11 in a very emotional morning full of sobs, anger and vivid memories here is my recollection of the day’s events. My girlfriend at the time, Vibeke Fonnesbech and I had just come back from NYC where
We had visited my old offices, met friends and dined at the word trade centre where I had been working a few months before. I was at work, trading derivatives, on the phone to a broker in the WTC, when the first plane hit. He did not make it
We watched in horror the scenes from NYC when someone in the room screamed at the sight of the second plane headed straight towards the WTC and the sickening - let the ground swallow me - moment that followed when the plane hit and many of our lines with colleagues went dead
Read 11 tweets
May 31, 2020
The #GeorgeFloydMurder is the latest in a long history of #racist atrocities visited on Black people & minorities in the US & elsewhere.

If u are in some position of authority, power, privilege & have a public platform you need to speak up and be counted. A v personal #thread
I am brown of Indian origin, but when asked, I always say I don't really know what #racism looks like, I have almost never experienced it, and I am in a position of power and privilege so I don't think its appropriate for me to speak about it. But today, I write about it here ...
I grew up in India, when to the @LSEnews & took a investment banking job at #Lehman. When I flew back to #India, I went to the UK embassy in Delhi to get my work visa. That was my first #racist encounter. He barked at me, said he could turn me down coz "too many of us in the UK"
Read 43 tweets

Did Thread Reader help you today?

Support us! We are indie developers!

This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Don't want to be a Premium member but still want to support us?

Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal

Or Donate anonymously using crypto!


0xfe58350B80634f60Fa6Dc149a72b4DFbc17D341E copy


3ATGMxNzCUFzxpMCHL5sWSt4DVtS8UqXpi copy

Thank you for your support!

Follow Us on Twitter!