Olivier de Berranger

Choice of weapons


During the night of 24-25 February, Russia stunned the western world and indeed the entire planet by launching a large-scale attack on Ukraine, in the Russian-backed eastern separatist regions, but also in the north and south. Few, if any, military analysts expected a war of such intensity or that Russia would deploy so aggressively.

Following the initial surprise of how violent the attack has been, some expressed doubts over Europe’s ability to unite given its reliance on energy supplies from Russia. The initial response – Russia was removed from the World Cup in Qatar by FIFA, excluded from Eurovision, and the Champions League Final was relocated – would have been somewhat comical if it weren’t for the seriousness of the situation.

However, the weekend after the invasion, Europe and the United States coordinated and began to implement an equally stunning unprecedented barrage of sanctions. Embargoes were placed on certain products and technologies; Russia was banned from the SWIFT system; the ECB ordered Sberbank, the country’s largest bank, to close its European arm; assets owned by oligarchs and other high-profile individuals with ties to Vladimir Putin were seized; and, above all, the Russian Central Bank’s international currency reserves were frozen.  This is the first time a central bank of a G20 country has been sanctioned in this way and Russia joins renegades like North Korea, Iran and Venezuela as the only countries to have suffered this indignity.

This is undoubtedly the strongest measure as it prevents Russia from accessing a portion of its currency reserves that it could use to shore up its currency. Under these sanctions, the rouble has plummeted to its lowest level in recent history. At 110 against the US dollar[1], the rouble has declined over 75% in value since Vladimir Putin was “re-elected” in 2012. In addition, the Moscow stock market has dropped 50% from its peak last October. This unusual devaluation and destruction of value will push inflation to extreme levels, forcing the Russian Central Bank to increase interest rates to 20%, instantly making its population poorer. Strong sanctions indeed.

Ultimately, Russia’s commodity-based mercenary model will be called into question. With a trade surplus of close to $200 billion[2], a budget surplus, and a debt-to-GDP ratio under 20%, Russia’s economic metrics look to be more than solid. However, if its currency reserves are no longer accessible, those same metrics will offer about as much security as Trump’s ill-conceived wall.

That could get plenty of exporting countries wondering about the value of building up currency reserves if hard-currency issuers can cut off access to them when a conflict arises, which is when they are most needed. This is certainly being discussed in Beijing. The ability to attract foreign investments is also on the table. BP’s announcement that it intends to divest from oil giant Rosneft, regardless of the cost, could lead many other western companies to withdraw from Russia.

Europe’s response to this war goes well beyond what we could have imagined. If, every time a major crisis occurs, Europe finds a way to strengthen its resolve and unite on both diplomatic and defence fronts, it will have already won a huge battle.


[1]By 2 March 2022 at 16:00
[1]In 2021