Storing financial reserves

The first bet comes from the lessons learned in Moscow in 2014 when the annexation of Crimea by Russia led to sanctions from Western countries. Though not perfect, these measures had a certain impact on the Russian economy.

The lesson Vladimir Putin learned from this reaction is the same that Asian countries drew from the 1997-1998 Asian financial crisis, which was caused by short-term capital flight. To respond, the International Monetary Fund (IMF) imposed an inappropriate rigor on the affected countries in East and Southeast Asia (Thailand, Philippines, South Korea, etc.), which deepened the recession.

These countries, and others like China, came to a simple conclusion: if you want to protect yourself from the IMF, you have to accumulate trade surpluses to build up a financial reserve.

Rising oil and gas prices

Also after 2014, Vladimir Putin bet that Russia could break free from its dependence on Western capital. Accounts were kept with an iron fist with positive results: public finances were in balance last year, public debt was less than 20% of GDP and foreign exchange reserves exceeded $600 billion.

Higher-priced oil and gas, which account for more than half of the country's exports, were of great help to the Russian president. The money flowed. In the past five years, Russia's GDP has registered a growth roughly similar to the United States in volume (9% against 10%) but superior in value (42% against 23%, according to IMF figures). Enough to fill a substantial kitty!

But having cash in stock is not enough. You need to be able to use it. At first, the Europeans showed no agreement on the subject. While Italy wanted to maintain the export of its luxury goods, Germany won the gold medal with an environmental minister refusing to consider any measures that could deprive the country of Russian coal.

Annihilating Putin's efforts

Zelensky is not an oligarch

In a second step, the Europeans eventually agreed on measures that would have formidable effects: the eviction of Russian banks from the international payment system Swift and blocking the assets of the Russian central bank. If they are really implemented, they could annihilate the efforts of Vladimir Putin to avoid the financial strangulation of his country.

The second wager is of a different nature. Vladimir Putin believed his adversary would put the economy first. He thought the President of Ukraine, Volodymyr Zelensky, was an oligarch like those around him, or a leader of a former Soviet republic like many others. A man driven by money, with billions sheltered in a Swiss bank, and ready to flee his country at the first sign of trouble.

Zelensky's thing is not economics, it's politics.

But Zelensky did not leave. His thing is not economics, it's politics. He is not fighting for his fortune, but for the freedom of Ukraine. If he dies in this fight, he will become a martyr whose memory will long galvanize opponents of Russia. Putin thought he was arriving in Abkhazia (recognized by most countries as part of Georgia), but he landed in Afghanistan.

Of course, Vladimir Putin probably still has the military means to win the war. He might be able to appoint a puppet government. And he may succeed in making Ukraine a satellite of Russia again.

But it also becomes possible that Putin will be swept away by the very storm he has created. The billionaires who support him may not appreciate seeing their fortunes blocked. The military could not bear being ridiculed in Ukraine like the Americans in Vietnam. And even Russians might grow weary of the price to pay — dead soldiers and increasingly expensive lives.

Two dangers for the West

The storm will not stop at the borders of Russia. With unprecedented and courageous measures, the West runs the risk of amplifying the effects. Two dangers are already in view.

The first danger is commercial. One way or another, Russia will no longer be able to export its gas, its oil, its wheat, and its metals like aluminum or titanium.

On already very tense markets, where the pandemic delivered a gigantic blow to supply and demand, prices are likely to soar even more. And to embed inflation even more in people's minds.

The second even greater danger is financial. Even if Russian finance only represents a tiny part of global transactions, blocking it could cause formidable side effects to fragile markets, which have been puffed up by very low-interest rates for a long time and weakened by their recent rise.

If he loses his bets, Vladimir Putin could precipitate a huge financial crash. The same crash other enemies of Western civilization dreamt of by sending planes to hit the two tallest towers in New York, a stone's throw from Wall Street, on September 11, 2001.