US May Have Found a Way To Topple Vladimir Putin

Stripping Russia of most favored nation trade status is part of a campaign aimed at overthrowing the Kremlin regime.

Joe Biden announced the decision this weekend, but the other Group of Seven major industrial economies — Japan, Germany, France, the U.K., Italy and Canada — immediately followed suit. So far, only North Korea and Cuba have not benefited from having any standing within the World Trade Organization, which allows them to avoid high tariffs in trade with the West.

Biden is due to announce on Friday that the U.S., along with the G-7 and the EU, will call for stripping Russia of its most favored nation trade status. The United States’ decision will need congressional approval.

The American president also announced that he would suspend the sale of luxury goods to Russia, including the most expensive watches, clothes, cars and jewelry. In turn, the Russians will no longer be able to export vodka and strong spirits, jewelry, diamonds and seafood to Western markets, trade that brought Russia $1 billion a year in foreign exchange income.

South African Pattern

The latest decisions are just part of the campaign, now in its third week, seeking to stifle the economy of the authoritarian regime in the Kremlin. Because the events are highly dynamic, it is risky to assess the impact they’re having. However, the International Monetary Fund believes that this year, Russian national income will shrink by 15% — or all the growth Russia has gained since Vladimir Putin took power at the end of 1999. Since the imposition of sanctions following the annexation of Crimea [in 2014], Russia’s economy has stopped growing.

Among the most drastic restrictions imposed on Russia is the freeze of approximately half of the $640 billion in foreign exchange reserves of the central bank of Russia. For this reason, it is difficult for Moscow to halt the collapse of the ruble, whose exchange rate fell from 80 rubles against the dollar on the last day of peace to 133 rubles to a dollar last Friday. This in turn drives inflation, which, despite doubling the interest rate to 20% will amount to at least 30-40% this year.

In 1986, despite resistance from Ronald Reagan, who feared further impoverishment of Black communities, Congress pushed through sanctions that prompted 230 of the world’s leading corporations to break off relations with South Africa. The isolation of the Pretoria regime led to the election of Nelson Mandela in 1994. Today, the White House reasoning is similar: Although Biden carefully avoids stating that his policy is meant to remove Putin from power and restore democracy in Russia, this is the logic driving Washington’s policy. This is especially true as the list of the world’s largest companies withdrawing from the Russian market under public pressure has grown to an impressive number.

But the Kremlin does not intend to stand by and watch this spectacle. Russia’s key weapon is its huge share of the raw material markets, primarily oil and gas, but also grain and essential components for the production of electronic products. The surge in energy prices is comparable to the shock that OPEC caused when it drastically reduced oil supplies in the 1970s. It took many years for the West to overcome the resulting economic collapse and increased unemployment.

Moscow is hoping to benefit from the spike in oil and gas prices that has resulted from political change in the West. While it is true that the scandalous ties of France’s extreme right-wing and left-wing presidential candidates to the Kremlin may ensure that Emmanuel Macron is reelected in April, the U.S. congressional midterms could have dire consequences for Biden’s team.

Back to 1917

In recent days, Biden has suspended oil imports from Russia, and the U.K. has followed suit. Both the U.S. and the U.K. import relatively little Russian fuel. Yet the EU did not suspend oil imports, which analysts say would lead to a hike of up to $200 a barrel in oil prices, plunging the global economy into an extremely serious crisis.

Putin also sent a signal of how he might respond on another level: nationalization of assets belonging to Western companies that withdraw from Russia. It would take the form of “external management” of companies that — as the Russian dictator put it — “do not intend to work with us any longer.”

The proposed bill, now pending before the Duma, gives Western companies five days to change their mind about leaving the Russian market, after which the management of remaining property is to be taken by a “guardian” appointed by the court for three months.

The final stage of such a response would be the sale of assets, presumably for a price, to an entity affiliated with the Kremlin. The New York Times reported that Vladimir Potanin, one of the richest Russian oligarchs, considered it a “return to 1917“ — that is, a return to the Bolshevik revolution. In the short run, the move may bring important resources to Moscow; the exit of BP from Rosneft, where it had almost 20% of shares, could cost the British around $25 billion.

But nationalization will ultimately make Russia a pariah to the world economy, and virtually no country or company will want to cooperate with it in the future.

The sanctions imposed to date offer a foretaste of what this could mean for the Kremlin. For example, the suspension of aircraft parts supplied by Airbus and Boeing, which will probably paralyze air transportation within Russia soon. In the eyes of many Russians, the closure of approximately 850 McDonald’s restaurants symbolizes the end an era in which they derived some benefit from a Western lifestyle.

And the CIA campaign to track bank assets and capital holdings of Russian oligarchs is shaking the foundations of Putin’s regime. But, as the Financial Times points out, this strategy is not risk-free either. It could consolidate Russian society around the Kremlin if people believe the official narrative that the West is not about defending Ukraine, but about the “ultimate destruction of Russia.”