RESEARCH

President Putin's war: stagflation could arrive in 2023

The uncertainty of wars is that you know when they start. But not when they end. If a week ago a quick surrender of Kyiv was expecting, today it is considered that the conflict will be a long. President Putin himself confirmed to his counterpart Macron, in a telephone conversation on Thursday, that "the worst is yet to come" after the failure of his blitzkrieg operation he is ready for anything, as evidenced by the seizure of the Zaporiya nuclear power plant, the largest in Ukraine.

The United States and its European allies blocked last Monday the access of most Russian banks to the Swift international payment system, and tried to sow chaos by preventing the central bank from using half of the 630 billion accumulated in foreign reserves. They also banned the export of many products, especially technology, which provoked a cascading reaction from Apple to the major automotive groups, which stopped operating in the country.
The ruble's value plunged by nearly 50% since the beginning of the conflict, despite the central bank raising interest rates by 20% and banning the outflow of foreign currency.
Economic and financial isolation is advancing by leaps and bounds and will inflict severe punishment on its population, with less than half of Spain's purchasing power. Will the Russian president be able to withstand his offensive on Ukraine under these conditions? Most experts agree that sanctions have rarely made a country's leader change his political objectives.
Saddam Hussein resisted UN sanctions for a decade before the invasion of Iraq; Libyan leader Moammar Qaddafi financed terrorist activities for nearly 30 years before being ousted by a violent civil war; Serbian leader Slobodan Milosevic was deposed after sanctions imposed against his regime in the 1990s failed. The most bleeding cases are those of Cuba and Venezuela, where the United States has failed to depose their leaders after decades of embargoes and pressure of all kinds.
There is only one case of relative success, that of Iran, where the regime of the ayatollahs was forced to come to the negotiating table to halt its nuclear race after the paralysis of transactions through Swift and the trade embargo. Even so, Tehran continued to pay for aggressive war operations in the Middle East.
Sanctions have fostered an unprecedented unity between the United States and its allies after the era of former President Donald Trump and an improvement in the coordination of their defense policies. Europe reacted by increasing its defense spending with little hesitation, as it did during the pandemic. Even neutral Switzerland decided to support Ukraine.

This is the most powerful collective action taken so far and leaves the Russian oligarchs, a key pillar of Putin's support, with hardly any place to hide their money. Abramovich put Chelsea up for sale, and Mikhail Fridman had to step down from the board of his holding company LetterOne, owner of supermarket chains such as Dia.

"This may cause strong clashes and divisions within his regime and will threaten his presidency in the medium to long term," experts warn. However, no one pronounces on the short term. "The effects will be slow in coming," they assure.
The difference with the Iranian conflict is that the purchases of Russian gas and oil are maintained, which provides it with a current account surplus of around 20 billion dollars a month, which will prevent the State from going bankrupt. Russia also has the possibility of converting the gold and currency reserves it has been accumulating into yuan to trade with Beijing, which threatens the hegemony of the dollar in the future. China has 3,300 billion dollars in reserves, which it could now use to purchase raw materials from its unwavering Russian partner.
On the contrary, the set of measures against President Putin may have the greatest effect on the Western economy since the Second World War. Russia produces 10% of the world's oil, supplies almost half of Europe's gas and, together with Ukraine, is the breadbasket for a third of the world's grain harvest.
Even so, gas prices, which have risen almost tenfold, suggest that they may remain high all year round even if a peace agreement is reached tomorrow. The reason for this is Europe's decision to reduce its dependence on Russian supplies for the coming winter and the need to recover gas reserves which are at 15% of their capacity. This week, the megawatt hour of electricity remained on the verge of a record high.
The most visible consequence is inflation, which is close to 6% in Europe and over 7% in the United States. As in Spain, where most analysts predict that it will exceed double digits before the summer.

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