"Is All-out War Next?"
by Jim Rickards
"Developments are happening fast in Ukraine. Russia has now recognized the breakaway "Donetsk People’s Republic" and "Luhansk People’s Republic" in eastern Ukraine, which are strongly pro-Russian. Vladimir Putin also pledged military support for the breakaway republics. And just hours after issuing a formal recognition, Russia dispatched “peacekeeping” troops to these areas.
Ukrainian President Volodymyr Zelenskyy said today that Putin's action is a violation of its sovereignty and territorial integrity. We’ll have to wait and see what happens next, but the odds of a greater conflict are higher than they were a week ago. That doesn’t mean it’s inevitable though.
The Biden administration says they have excellent evidence indicating that Putin plans a wider invasion. Well, here’s how I see it: U.S. intelligence is good, but not this good. If we have such detailed intel, it's because Russia is feeding it to us. That's disinformation, a subset of counterintelligence. The Russians just have to wait a bit and Biden looks like a fool.
Again, we’ll have to wait and see. But today Joe Biden announced new economic sanctions against Russia for its incursion into eastern Ukraine. He unveiled the “first tranche” of new sanctions, which will target two Moscow-backed banks and restrict Russia’s government from borrowing in Western financial markets.
Biden also threatened additional sanctions against Russian oligarchs and their family members: “Starting tomorrow, and continuing in the days ahead, we will also impose sanctions on Russia’s elites and their family members,” he said. “They share in the corrupt gains of the Kremlin policies and should share in the pain as well.” (Just like Hunter Biden and the corruption of the Biden family? China must have had a good laugh over that one.)
Denying Russian banks access to the U.S. dollar payments system run by the Treasury and the Federal Reserve is problematic because Russia is one of the three largest oil producers in the world (along with the U.S. and Saudi Arabia) and produces about 10% of all the oil produced on a daily basis. Since oil is almost 100% priced in dollars, does this mean Russia can’t sell oil? The U.S. seems to believe the Russians are helpless and will just stand there and take the pain. That’s a ridiculous assumption.
In the first place, Russia has spent 13 years building up its gold reserves, until they are now over 20% of the total Russian reserve position. This gold is worth about $150 billion at current market prices and is safely stored in Russia. It cannot be hacked or frozen by Western sanctions.
Russia produces 10 million barrels of oil per day. Russian gold reserves are 2,300 tonnes. If oil goes up $10 per barrel, Russia adds $3 billion per month. If gold rises 10%, Russia adds $15 billion. In other words, Russia feels no pain, just profit.
Besides, physical gold can be used to satisfy external financial obligations either with a simple transfer or by using it as collateral for hard-currency loans. The other aspect the U.S. seems not to consider is the Russian response to U.S. sanctions. I actually warned the Pentagon in 2009 that Russia would use gold to evade U.S. financial sanctions.
Russia will also launch financial and economic sanctions of their own. Russia will shut down energy deliveries to Western Europe that will cause those countries to freeze in the dark (Germany actually shot itself in the foot by blocking operations of the Nord Stream 2 pipeline. Where’s it going to get the energy?) Russia will simply increase its energy sales to China, which will defeat the purpose of U.S. sanctions. If Russia cannot use U.S. dollars, they can begin to use Swiss francs and other non-dollar hard currencies.
This sanctions war will do more harm to the global economy and Western interests than it will to Russia. And in the event of an invasion, you should expect skyrocketing natural gas and oil prices, a shutdown of European industry, disruption of supply chains as the U.S. tries to surge natural gas to Europe and the breakdown of critical infrastructure in the U.S. due to Russian cyberwarfare. Stocks will crash and commodities like oil, natural gas and gold will soar.
Perhaps someone in the White House should give Joe Biden a clue about how sanctions actually work in a full-scale war scenario."