March 5, 2022 | Reading Time: 5 minutes

The more pain Russians feel, the more incentive Putin has

Check your expectations. Sanctions yield complex results.

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Editor’s note: I usually send the weekend edition on Saturdays. But today, I’m sending this interview, with an expert on European and Russian economics, because it adds a layer of complexity we haven’t heard so far. The hope is sanctions will give Putin a reason to stop. They might give him a reason to keep going. A lot depends on what happens on the ground. While I have you, now’s a good time to subscribe. Just $6 a month! Join us! — JS

Ukraine’s president, Volodymyr Zelenskyy, called for the establishment of a no-fly zone over his country. In a press conference Thursday, he called on NATO member nations to “close the sky.” He asked how many mothers and babies have to die before that decision is made. “If you don’t have the strength to close the sky, give us planes,” he said.

Garry Kasparov, the Russian chess master who’s become a democratic reformer, called for intervention, too. “We are witnessing, literally watching live, Putin commit genocide on an industrial scale in Ukraine while the most powerful military alliance in history stands aside.”

“Putin has built a system that introduces a disconnect between the public’s unhappiness and pressure of that unhappiness on politicians.”

It seems like a good idea, right? Shoot down anything airborne. Give Ukrainian troops on the ground a chance to beat the Russians. 

But the conventional wisdom, believed since the Cold War, is that military intervention would provoke the leader of a nuclear power. After all, the would-be czar failed to make up an excuse to invade. If the US and NATO get involved, Putin wouldn’t need to make up anything to do whatever else he wants to do to eastern Europe.

The US and European allies have chosen to squeeze Russia’s economy, which in turn squeezes ordinary Russians. It’s going to get bad fast, said Maxim Mironov, a professor of finance at the IE Business School in Madrid. “The inhabitants of Russia, even the educated, for the most part do not understand what awaits them,” he said Wednesday.

“Many people ask me to comment on the sanctions,” he said in Russian, according to Google Translate. “In short, my scientific conclusion as a professor of finance, doctor of the University of Chicago is FUCKED.” 

Mironov said employment will fall while prices rise. Meanwhile, he said, “the Russians will face a shortage of basic products. I’m not talking about all kinds of iPhones, the import of which has already been banned, but food, clothes, cars, household appliances, etc.”

As one wag put it, it’s “Back to the USSR.”

It’s no joke, though. The point of sanctions is to punish Putin for invading Ukraine. Moreover, it’s to create conditions by which ordinary Russians can agitate for reforms even more than they already are. (Another theory is that those conditions might spark a coup d’etat.)

But what if they don’t work? What if we should prepare for all of this to get much worse, especially for the Ukrainian people? 

To find out more, I got in touch with Sergei Guriev, a professor of economics at Sciences Po in Paris. What he told me, after explaining the effects of sanctions, is they won’t do what we hope they will. 

In fact, it’s the reverse. 

We hope Putin will stop now that his economy is facing collapse (according to a new report by JP Morgan). He won’t, though, said Professor Guriev, because his economy is facing collapse. 

The more pain ordinary Russians feel, the more incentive Putin will have to continue prosecuting the war in Ukraine, because only by winning will ordinary Russians feel their suffering was worth it.

“He needs to win it and tell the public he has won.”

Can you explain how sanctions affect ordinary Russians?

Much higher prices. Therefore, lower purchasing power of their incomes. No access to many digital services. Drastic reduction of air transportation. A majority of the air fleet are Boings and Airbuses. In a couple of weeks, they will be grounded due to lack of maintenance.

Can you characterize the impact of, for example, BP pulling out of Russia, and Apple stopping all sales? How much will that be felt?

BP exiting Russia will reduce Russian oil output in the long run, as BP has superior exploration and production technology. Apple and Google? Just imagine your life without Apple Store and Google Play (as for the devices themselves, there are Chinese smartphones.)

Most Americans have no idea what SWIFT is. First, can you spell out what it is. Second, why does it matter to stopping a war?

SWIFT is an interbank messaging system. It allows fast and reliable execution of payments. Without it, payments are much slower and more expensive. Cutting Russian banks off SWIFT hits their profits. 

But sanctions on the Russian Central Bank are more important.

Please continue.

Russia has $630 billion in foreign exchange reserves that defend the stability of the ruble. Now they are frozen, so the ruble lost 30 percent when these sanctions were announced.

Nominally, only about a half of these reserves is frozen (those in dollars, euros, yens and pounds) but the other half (gold and yuan) is also hit – as the Central Bank is sanctioned. Nobody will transact with the Central Bank fearing “secondary” sanctions.

The government is stopping people from leaving with money, no?

This is correct. Russia introduced many restrictions on taking currency out of the country. You can leave with no more than $10,000 in cash. You cannot wire dollars outside Russia.

How about unemployment?

Russia traditionally has low unemployment (for demographic reasons and because unemployment benefits are very low). But we will see at least a temporary increase in unemployment – eg, employees of Ikea, carmakers etc. The airline sanctions will also result in redundancies.

So Professor Mironov is correct: “We will face the shutdown of entire industries with all the ensuing consequences – a shortage of goods, mass unemployment, respectively, a fall in tax collection.”

Yes, absolutely. 

We are likely to have a recession comparable to 1998’s. But whether it results in the immediate change of Mr. Putin’s behavior, I cannot say.

Jobs down, prices up, shortages. Can Putin withstand this?

Yes, but this requires much tighter domestic repression. 

In the last two days, all independent media has closed. The one remaining, Novaya Gazeta (led by the Nobel-winner Dmitry Muratov), announced that it will stop covering the war in Ukraine. 

There is a brand new law criminalizing dissemination of information different from the official position – with jail terms up to 15 years.

A big internet provider to Russia, Cogent Communications, is about to pull the plug. That would deepen the domestic repression, no?


If the US economy collapsed, there would be hell to pay. That’s not how things work in Russia, though. Is a coup likely? 

Putin has built a system that introduces a disconnect between the public’s unhappiness and pressure of that unhappiness on politicians. 

Regarding the coup, potential coup plotters are scared that they are listened to and can be killed first. There are people around Putin with KGB backgrounds who agree with him and are very happy now. 

He is thinking about his personal security all the time. 

It is not easy to prepare a coup.

Is it accurate to say Putin has incentive to keep the war going?

He needs to win it and tell the public he has won. 

The sooner, the better – and with minimal losses

John Stoehr is the editor of the Editorial Board. He writes the daily edition. Find him @johnastoehr.

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