Opinion | The effect of Russian embargoes on the war in Ukraine

The other day, my colleague from CUNY and Stone Center Branko Milanovic suggested that it would be interesting “to compare Napoleon’s continental blockade against Great Britain with the current sanctions against Russia”. As it happened, I was already on the subject. I had just read Andrew Roberts’ Napoleon: A Life and was thinking about parallels.

The parallels, in fact, are not very good. But defining the differences is in itself, I think, a useful exercise, and there are other historical examples of wartime trade embargoes that come close to what is happening now.

So, for those unfamiliar with the story, a summary: at the beginning of the 19th century, Britain and France were stuck in a peculiar stalemate: the British were unbeatable at sea, France almost unbeatable on land. Napoleon tried to break this deadlock with economic warfare by closing the ports of Europe to British trade. But his blockade had leaked and his attempts to plug the leaks led him to disastrous military initiatives: first a bloody quagmire in Spain, then a catastrophic invasion of Russia.

What does this have to do with the current situation? Not so much. Fast forward to 2022.

The common opinion on February 24, I believe, was that Russia would win a quick military victory in Ukraine, but then face a liquidity shortage as the West placed an embargo on its exports. This did not happen.

On the military side, Russia’s attempt to swiftly seize major Ukrainian cities ended with huge losses and a humiliating retreat. Russia then went into a grinding artillery-led battle of attrition in the Donbas, but gained only a few square miles of land, again at the cost of heavy casualties. That attack more or less stalled in mid-June and, more recently, Western weapons seem to have turned the balance of power in Ukraine’s favor, although the front line remains static, at least for now.

On the other hand, Western attempts to limit Russian exports have been a failure. Russian oil is still finding its way to world markets and, if nothing else, the country appears to be full of cash.

But while Russia has no problem selling stuff, it has a lot of trouble buying stuff. The Russian export sanctions, as I said, have been a failure, but the sanctions on yours imports – refusal to sell essential goods to Russia – have been more successful than, as far as I know, anyone expected. Nations that are not part of the sanctioning coalition, including China, have also slashed their exports to Russia:

None of this would have made sense in the Napoleonic era, because international trade was much simpler then. Sanctions appear to limit Russian industry because much of modern trade consists not of consumer goods but of industrial inputs. This was not true, say, in 1810, with the main exception of cotton, which did not come from areas controlled by Napoleon.

Also, in 1810, there weren’t many multinational companies. Today, a company that produces goods in China, even if it is Chinese-owned, is likely reluctant to sell potentially strategic goods to Russia for fear of being sanctioned in other more important markets, such as the United States and the European Union.

So the economic sanctions against Russia appear to have been surprisingly effective, but not in the way everyone expected. That said, there are no indications that I am aware of that the economic cost of sanctions is leading to restraint in Russian politics. What they are doing instead is restricting Russian military production, which is a real problem for Putin given the continued influx of Western weapons into Ukraine.

But wait, that’s not the end of the story, because there is another de facto embargo underway. At the start of the war, supporters of Ukraine begged European nations, especially Germany, to stop buying Russian natural gas; they didn’t. But now Russia is, in effect, sanctioning its own gas exports. It is not an explicitly announced policy, but Russia has reduced deliveries to European markets, clearly enough in an effort to damage the European economy and increase political pressure for Europe to stop supporting Ukraine.

I find this graph fascinating, which shows the price of natural gas in the Netherlands, the European benchmark:

Gas prices rose in February with the Russian invasion, but quickly dropped to roughly the pre-invasion level. They didn’t start a sustained hike until mid-June. I do not think it is a coincidence that this break to the upside corresponds to the point where even the Russians realized that their offensive in the Donbas would not have produced a decisive turning point.

Everything suggests that this was the time when Russia started limiting gas deliveries. Indeed, Russia, not the West, is now the player seeking to use economic warfare as a substitute for its inability to prevail on the battlefield.

The closest historical parallel I can find is the embargo on cotton exports imposed by the Confederation at the beginning of the civil war, in an attempt to force Britain to intervene on the southern side. This embargo did not last long, but when it was lifted, it was controversial: the Union navy was still blocking the southern ports. It goes without saying that the embargo did not work.

Will Russia’s ploy work better? I wish I could be more confident than I am about European determination, especially given the high inflation and the high risk of recession (which is higher there than in the US). On the other hand, the nations that seem more likely to falter, particularly Germany and Italy, are still lagging behind in arms deliveries; Russia’s stealth gas embargo is unlikely to deter crucial shipments from the US, Britain and Poland, among others.

The truth is, it is difficult to find historical examples of successful economic warfare unless you count the blocs that were themselves a form of military action, such as the US submarine campaign that devastated the Japanese economy during World War II. Eventually, the war in Ukraine will likely be decided on the battlefield.

There isn’t much change in the map, but what’s up happening below?

On the technologically retrograde substitution of imports.

Why are wheat prices falling?

When Ted Cruz thought Russia was strong because she didn’t wake up.

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