The interest rate defense
Russia raises the policy rate to 20%, from 9.5%, which was itself raised on 2/11. Clearly 20% is not sustainable, argues Menzie Chinn because it either throws the economy into recession (if sustained), or is not considered credible (exactly because market participants don’t believe the government will endure such a recession).
Russia Deploys the Interest Rate Defense (and probably everything else)
By: Menzie Chinn – University of Wisconsin–Madison
The gas war
Poitiers et al. describe Europe’s dependency on Russian gas:
- Belgium, France, and the Netherlands import less than ten percent of their natural gas from Russia;
- Spain and Portugal import none;
- Germany, by contrast, relies on Moscow for about half of its natural gas imports, and Italy around 40 percent;
- For Austria, Hungary, Slovenia, and Slovakia, the figure is roughly 60 percent, and for Poland, 80 percent;
- Bulgaria relies on Russia for all of its natural gas.
Still, even the most exposed European countries have alternatives to Russian energy supplies. Should Moscow turn off the gas, the EU could collectively cope—at least for a time. European commercial gas storage reserves are roughly 30 percent full, and some states also have strategic gas reserves (similar to the U.S. strategic petroleum reserve). Through a combination of more withdrawals from these stores, increased liquified natural gas imports, and limited demand-side measures such as industrial gas curtailments, most states would likely make it to autumn of 2022 without severe shortages.
The Kremlin’s gas wars
By: Niclas Poitiers, Simone Tagliapietra, Guntram B. Wolff, Georg Zach – Bruegel
Tax on Russian oil
The political will of Western countries to continue imposing sanctions will evaporate with time, argues Ricardo Hausman. A tax on Russian oil might be a more credible weapon for the West:
Demand for Russian oil is highly elastic, because consumers do not really care if the oil they use comes from Russia, the Gulf, or somewhere else. They are unwilling to pay more for Russian oil if other oil with similar properties is available. On the other hand, the supply of Russian oil is very inelastic: according to the Russian energy group Rosneft’s financial statements for 2021, the firm’s upstream operating costs are $2.70 per barrel; for Rystad Energy, it is estimated that the total variable cost of production of Russian oil is $5.67 per barrel. Even if the oil price fell to $6 per barrel it would still be in Russian oil producing companies’ interest to keep pumping. Hence, the cost of such tax will be borne, almost in its entirety, by Russia.
But how feasible would a 90% world tax on Russian oil be? In 2019, 55% of Russia’s exports of mineral fuels (including oil, natural gas, and coal) went to the EU, while a further 13% went to Japan, South Korea, Singapore, and Turkey. China got only 18%. If all these countries except China agreed to tax Russian oil at 90%, Russia would try to sell all its oil to China. But this would put China in a strong negotiating position. In such a scenario, it would be in China’s interest to impose the tax, because such an instrument would extract the rent that it would otherwise have to pay to Russia.
The Case for a Punitive Tax on Russian Oil
By: Ricardo Hausmann – Harvard University
The effect on the global economy
In terms of the economy, a global stagflationary recession is now highly likely. Analysts are already asking themselves if the Fed and other major central banks can achieve a soft landing from this crisis and its fallout. Don’t count on it. The war in Ukraine will trigger a massive negative supply shock in a global economy that is still reeling from COVID-19 and a year-long build-up of inflationary pressures. The shock will reduce growth and further increase inflation at a time when inflation expectations are already becoming unanchored.
Russia’s War and the Global Economy
By: Nouriel Roubini – New York University
