PUTIN'S MAJOR WEAKNESS - THE OLIGARCHY'S OFFSHORE ASSETS

Putin speaking to his boss.

As we have said here at Trad News, Russian President Vladimir Putin is simply too terrified to invade the Ukraine. But there is always the chance that some of his fiercer generals or KGB goons may corner him in the Kremlin washroom, give him a wedgie or a Chinese burn, and force him to give the invasion order. 

So, if the Russian army does invade the Ukraine what will the West's response be?

Essentially it will be to wage "economic war" against Putin and his inner circle of corrupt billionaire oligarchs. Yes, this is Russia's soft spot. And the easiest way to hit this Achilles' Heel will be financial sanctions inflicted on Russian banks and the assets of Russian billionaires overseas. 

Putin clearly doesn't give a rat's arse about his people, or he wouldn't have arranged bombings of apartment buildings to blame on Chechen terrorists back in 1999 to tighten his grip on power. But hurting Russia's ruling elite of financial criminals is a different story, as these are the people who can make or break him. This is something that hasn't escaped the attention of the West.

As reported by Reuters:

For NATO members, the most powerful measure against Russia were it to invade Ukraine would be U.S. sanctions cutting off Russian state banks from the dollar according to Russian executives, bankers, and former senior U.S. sanctions officials. [...]

"Banking sanctions are the most impactful measure the U.S. can carry out in the short term," said Brian O'Toole, a former senior advisor to the director of the Office of Foreign Assets Control or OFAC in the U.S. Treasury Department, which designs and manages the implementation of sanctions.

Proposed sanctions against Russian banks would bar them from making any transactions in U.S. dollars, essentially freezing any dollar-denominated assets or liabilities held by the banks at home and abroad.

One reason why sanctions on billionaires and banking would be so effective is because all Russian billionaires try to park as much of their ill-gotten gains outside Russia as possible.

This is because, in the past, some major Russian oligarchs who were riding high had their assets confiscated or stolen by those more skilled at the tricky game of Russian power politics. Yes, being a big shot in Russia today doesn't necessarily mean that you'll be a big shot tomorrow, and this goes for Putin as well.

Yes, Russia has made a big effort to make its general economy "antifragile" against various Western sanctions. For exampl, it has abundant hard currency reserves – now at $635bn – and it has taken other measures:

Russia has some defences to withstand a U.S.-led attack on its financial stability. The hard currency reserves, high oil prices and a low debt to GDP ratio of 18% in 2021 place it in a good position to weather a further tightening of existing sanctions, said Chris Weafer, director of MacroAdvisory, a Moscow-based consultancy.

But, remember, it is not the general economy that Putin really cares about. He couldn't give a toss if there were a mad rush on the banks and some poor old Russian granny lost her life savings. No, all he cares about are his well-heeled friends.

Squeeze these crooks and Putin will feel the pain. 

The irony here is that Putin actually helped create this situation himself, back when he was popular (thanks false flag apartment bombings!). At that time he helped seize the assets of "uncooperative" oligarchs like Khodorkovsky and Berezovsky.

The other crooks in the Russian regime all took note, and decided that the best thing to do was to offshore as much of their wealth as possible. Noticeably they didn't put this money into Russian "allies" like China, Iran, Venezuela, or Syria. Instead they put it into centres of Western power like London.  

How much Russian oligarch cash is there parked outside Russia? That is a financial question of great technical complexity, as there is direct Russian investment/cashflow/laundering and indirect Russian investment/cashflow/laundering.

For example, according to the Guardian, in 2018  Russian investors held financial assets in the UK worth a total of $3.5bn (£2.6bn). However an Office of National Statistics estimate of all Russian investment in the UK from two years earlier put it at £25.5bn. But in addition to this, over the past decade, £68bn has flowed from Russia into Britain’s offshore satellites such as the British Virgin Islands, the Cayman Islands, Gibraltar, Jersey, and Guernsey. Then there are several other tax havens (Cyprus, Dutch territories, Republic of Ireland, etc.) 

The Guardian again:

The French economist Thomas Piketty estimates that more than half of Russians’ total wealth is held offshore in this manner – some $800bn (£597bn) – and by a tiny number of people, perhaps just a few hundred. “Rich Russians live between London, Monaco and Moscow,” Piketty wrote in a blogpost in April. “Post-communism has become the worst ally of hyper-capitalism.”

This is what makes one so vulnerable to the other, but the balance of power here is clearly with the Western hyper-capitalism which can hurt Russian Post-communism more decisively than anything Russian Post-communism can do driving big bits of metal around Ukrainian villages.

Oddly Putin has put his balls in a vice located in London.