The West Will Freeze, Starve and Become Impoverished from Anti-Russian Sanctions*

*Editor’s Note: On March 4, Russia enacted a law that criminalizes public opposition to, or independent news reporting about, the war in Ukraine. The law makes it a crime to call the war a “war” rather than a “special military operation” on social media or in a news article or broadcast. The law is understood to penalize any language that “discredits” Russia’s use of its military in Ukraine, calls for sanctions or protests Russia’s invasion of Ukraine. It punishes anyone found to spread “false information” about the invasion with up to 15 years in prison.

Upon Russia’s launch of Operation Z and the collective Western sanctions that followed, the United States and European Union were confident that Russia would readily collapse under their weight. But it turned out to be exactly the opposite. Sanctions do impact the Russian economy, but according to the boomerang principle, the results are even worse for those who imposed them.

On March 8, Joe Biden announced a total ban on Russian oil and gas imports to the United States. After that, the cost of gasoline at U.S. gas stations began to rise. According to the U.S. Department of Labor, on March 10, it exceeded $4.31 per gallon of regular grade (corresponding to our Ai-92). Inflation broke a 40-year record. Attempts by the U.S. to convince OPEC to expand oil production failed. The government’s strategic oil reserve had to be unlocked.

On March 31, Biden decided to send to the exchanges an average of 1 million barrels of oil a day from the U.S. strategic reserves over the next six months, thus reducing the oil reserves by 180 million barrels. In the words of the 46th president of the United States, “This is the largest release of oil from the national reserve in history.”

The biggest, but utterly useless. The release of 1 million barrels to the market is only 5% of total consumption. It won’t do anything. According to Goldman Sachs Group analysts, the government’s political intervention in the energy market panic, aimed apparently at avoiding a Democratic Party defeat in the midterm elections, will hinder any rational investment in oil supplies by major American companies.

The sanctions against Russia will first and foremost impact the initiators — the U.S. and the European Union. This is such a basic economic truth that it is surprising U.S. strategists don’t know it. Warren Buffett, who one would not suspect of being a Russia sympathizer, advises that only in peacetime can the aggregate strength of a government be measured by its market capitalization and gross domestic product. But in a crisis, and even more so in a sanctions war, the replacement value becomes decisive.

Well, the replacement value of what Russia supplies to the world market is much higher than its modest 3% of world trade turnover. It is impossible, upon Washington’s command, to instantly replace Russian energy carriers, metals, ultra-pure materials, grain and mineral fertilizers traded on global commodities exchanges — as America and Europe have already seen. And in the future, the replacement cost will be so high that the collective West will most likely freeze, starve and become impoverished. The process, as they say, has begun. They are already freezing, starving and impoverished.

Octopus Energy, a British company, has begun handing out electric heating blankets to financially struggling customers to help them survive soaring heating costs. Last week, energy prices in the U.K. jumped 54% because of a massive increase in gas prices. The rate hikes hit millions of households across the United Kingdom. Residents’ energy costs will rise by 700 pounds a year (approximately $912).

British households have been hit by the rising cost of a wide range of goods, from food to toys, as well as by sharp increases in energy and fuel prices, according to The Guardian. Many Britons are struggling to make ends meet. Some households turn on the heat for only two hours a day and use flashlights.

E.ON, one of Germany’s main electricity suppliers, has warned its 14 million customers of a sharp rise in electricity and gas prices. According to E.ON’s lead manager Filip Thon, wholesale prices for natural gas will be 20 times higher than during the spring of 2020. Electricity prices will increase eight-fold.

This happened because E.ON stopped purchasing new batches of Russian gas due to the conflict in Ukraine. Anticipating the worst, 1 in 10 Germans has reduced energy consumption. This is according to the results of a survey conducted by the research institute YouGov. They want to prepare for the fact that Germany may not be able to get gas and oil from Russia at all. During March of this year, the price level in Germany rose by 7.3%, compared to February, writes Handelsblatt. Inflation in Germany reached a record high since 1981, when the war between Iran and Iraq triggered an oil shock. The main reason for the inflation growth in Germany in March is the threat of stopping oil and gas supplies from Russia. According to German economist Michael Heise, such significant inflation figures will lead to a massive reduction in income in the German economy, a drop in consumer and investment demand and a negative adjustment in growth forecasts.

More than 40% of Europe’s total natural gas supply comes from Russia, as does 50% of its coal supply. After Russia made some unfriendly countries pay for gas in rubles, the price of natural gas in Europe rose by 34%; the ruble has strengthened and appreciated. Food prices in Germany are expected to rise by 50%, which has caused a real panic among the population. According to the Belgian professional association Fevia, 3 out of 10 food companies in Belgium are considering reducing or even stopping production. In the context of price hikes and supply problems, this is the only way to avoid production at a loss. Sanctions against Russia have inflated vegetable oil and grain prices and pushed Belgian food producers to the brink of bankruptcy.

French President Emmanuel Macron announced the possible introduction of ration cards. Macron is confident that the country will be hit by a food crisis. In a month in France, prices of wheat rose by 40%; meat, sunflower oil, milk and honey by 50%. Anti-Russian sanctions have jacked up fertilizer prices in America, which have jumped 2.3 times and 43% since Operation Z began, reaching an all-time high. Prices of diesel fuel, livestock feed, herbicides and seeds have risen. American farmers are beginning to complain about fertilizer shortages. They put considerable pressure on the White House, which quickly removed Russian fertilizer imports from the sanctions. Russian supplies account for 6% of potassium carbonate, 13% of urea and 20% of diammonium phosphate in the U.S. alone.

At the same time, 35% of Americans are holding back on purchasing food and household goods, due to record inflation and soaring fuel prices. Biden openly calls for preparations for shortages. Polls show that 70% of Americans disapprove of his economic policies. Despite Biden’s attempts to blame Russia, the people blame the Washington establishment for the economic crisis. Respected economists are advising Americans to save money on food.

The International Energy Agency advises all citizens of the collective West to work from home three times a week, to give up business trips, to take night trains instead of planes, to use public transportation and to give up private cars. So it turns out that it is possible to do without American social networks and smartphones, without Hollywood movies and the other delights of Western civilization, but it is much more difficult to do without the Russian oil and gas, grain and other resources protected by the military might of the Russian Armed Forces.

You should have listened to old man Buffett. Everything listed above is the replacement cost of Russia. The planet cannot afford the price.