TIPP Insights: An eye for an eye – the many facets of the Ukraine war

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Is Russia weaponizing food because America is weaponizing the dollar? The short answer is yes.

Of course, the precarious situation that the world is in today was started by Russia. The last three months have proven that Russia and the West do not seem to have a well-formulated vision, considering the risks of their actions and counter-actions. But we are coming perilously close to needlessly realizing Mahatma Gandhi’s prediction when he said, “An eye for an eye will leave the whole world blind.”

Speaking to elitists in Davos, Switzerland, at the World Economic Forum, Ursula von der Leyen, the president of the European Union, seemed shocked. “Russia is now hoarding its own food exports as a form of blackmail, holding back supplies to increase global prices, or trading wheat in exchange for political support.”

There are several things wrong with this charge.

The proverb, “All is fair in love and war,” attributed to John Lyly, the 16th century English writer, dramatist, and parliamentarian, suggests that Russia will use its assets as leverage to further its interests when the country is facing a threat. Its tactic will create famine and untold misery in third-party countries, but that is precisely the point of the hoarding and blackmail: to weaken the West’s resolve.

It is the same proverb under which America has inflicted severe pain and suffering on the Russian people by weaponizing what it controls: the dollar. America’s tactics have not been limited to denying Russian entities access to credit markets in the United States. America has frozen Russia’s dollarized assets and cut it off from the global financial system, initially driving the Ruble down to record lows.

This week, the Treasury announced that it would block Russia’s ability to pay interests on its sovereign debt. The move would make Russia default on its obligations for the first time in one hundred years, earning the pariah nation an ignominious badge as a failed debtor. But does the shame stick? The debtor has a vast reserve of dollars in America and is eager to service its debt but is prevented from operating its bank accounts so that it can be deemed to be in default, hurting American investors like Pimco that bought Russian bonds.

The West’s revulsion toward Vladimir Putin has been tempered by its love of Russian energy. Initially, Europe wanted to continue consuming Russian natural gas until it could transition to other sources. This approach put Europe in the uncomfortable position of a buyer openly signaling to the evil seller that it will not be a long-term customer but demanding that its needs be nevertheless served on its terms.

Russia’s position has always been that it did not attack the West, but the West was attacking it out of spite and making it irrelevant. This fear was confirmed when Defense Secretary Lloyd Austin said in Germany: “We want to see Russia weakened to the degree that it can’t do the kinds of things that it has done in invading Ukraine.” Further, the West is on record insisting that sanctions are a form of warfare.

When Western actions weakened the Ruble, Russia was in serious trouble. The Ruble closed at 84.05 to a dollar on February 24, the invasion day. As sanctions took hold, the Ruble fell to 143 to a dollar at the closing on March 7, a remarkable drop in value. Russia reacted to defend itself by demanding that countries buy its energy in Rubles. Other moves that the country’s central bank imposed, such as preventing foreign currencies from leaving the country by tightening capital controls, also helped. Countries targeted by the worst economic sanctions in history don’t expect their currencies to appreciate significantly. But that has precisely been the result. On Wednesday, the Ruble closed at 59.33 to a dollar, defying all expectations. In the chart below, the higher a point on the curve, the weaker is the ruble and vice versa.

Furious at Russia’s reactions, the West cried foul, arguing that its contracts required Russia to accept payment in dollars or euros. Yes, the same kind of contracts that Russian entities signed with American banks that permitted unlimited access to the depositors’ funds until the Russians found out that the American government had the power to overrule such contracts and freeze those assets. Remember, all is fair in love and war.

Reacting to Russia’s brutal invasion of Ukraine, we joined the Editorial Boards of the Wall Street Journal and the New York Times and cheerled economic sanctions and harsh punitive measures. But newsrooms are rethinking their approach as the war drags on.

On Sunday, the Times’ EB abruptly recalibrated its position, saying that there are limits to how far the United States and NATO can go to confront Russia. The Wall Street Journal went the other way. Its Editorial Board suggested a new tactic that could potentially escalate the dimensions of the war multifold: form an international coalition of warships to escort commercial vessels safely out of Odesa and the Black Sea to prevent a global food shortage.

The West should listen to seasoned stalwarts like Dr. Henry Kissinger rather than political operatives like Anthony Blinken at State or Jake Sullivan at the National Security Council. Dr. Kissinger’s advice: “It would be fatal for the West to get swept up in the mood of the moment and forget the proper place of Russia in the European balance of power.”

President Biden has not clearly defined our objectives, and Ukraine is becoming an open-ended mission. It’s time to define our mission clearly, while also considering the global risks, such as food insecurity, and what America is willing to do to prevent it. We should swallow our pride and immediately start peace discussions with Putin to guarantee food and grain safe passage to the world’s most impoverished nations.

The West should not trigger famine and death in parts of the world with no stake in the war.



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