How Much Financial Damage Could Russia Do to the U.S.?

A woman walks in front of an electronic panel displaying the dollar sign at an exchange office in Moscow. Photo: Maxim Shipenkov/EPA-EFE/Shutterstock

This week, Russia characterized the harsh U.S. sanctions against Vladimir Putin’s government as an “economic war.” Despite some backtracking from the French, that’s a pretty good description of what’s going on. Dmitry Peskov, a spokesperson for the Kremlin, hinted at retaliation, saying, “If you are asking me what Russia is going to do — Russia is going to do what is necessary to defend its interests.”

This is not a fair fight; the punitive measures put in place by the Biden administration and other G7 governments demonstrate the lopsided power of the United States. Russia’s central bank is essentially frozen out of most of its own money, and its commercial and investment banks are cut out of the global financial system. The U.S. has banned all Russian oil imports.

Private industry has largely gotten onboard, too. Brand-name business after brand-name business is exiting the country or temporarily suspending operations. Even McDonald’s — a symbol of Russia’s integration into the globalized world after the fall of the Soviet Union —  is backing out of the country. Clearly, a united western front can do a lot of damage to Russia economically. But is there really anything Russia could do to seriously harm the U.S.?

To put things into perspective, Russia was, until recently, a $1.5 trillion economy. The U.S. is a $21 trillion economy. Russia has no way of freezing assets held by the Federal Reserve banking system, and Russia’s most important export — oil and gas — well, the U.S. doesn’t really need it. We’re a net exporter of oil and gas, and most of the energy commodities that do come into the country arrive from Canada. Russian oil and gas made up about 8 percent of what the U.S. does import, and earlier this week, the Biden administration went ahead and banned imports on that. The move has resulted in a gas-price hike, but it does not amount to an existential crisis.

And then there’s the currency. “The United States, as issuer of the major global reserve currency, has a power that no other country has currently,” said Nigel Gould-Davies, senior fellow for Russia and Eurasia at the International Institute of Strategic Studies. The Russian ruble just doesn’t rate when compared to the U.S. dollar, which is not only a reserve currency for central banks around the world but serves as a denomination for most petroleum trades (hence the term “petrodollar”). Beyond limiting Russia’s use of dollars, the U.S. Treasury and other regulators can impose penalties on companies that use the currency to do business with Russian entities. This essentially cuts off the country from the vast financial system that depends on the American economy. “That’s a totally asymmetrical weapon,” Gould-Davies said. “There’s nothing proportionate, nothing conceivably approaching that, that Russia can inflict in response. Russia’s only effective response is to stop the outflow of things that other countries buy and value, and that’s essentially stuff you get out of the ground — oil, gas, metals, and minerals and so on.”

To some extent, that’s already happening. On Thursday, Russia made two broad moves in an attempt to fight back. The first was a ban of certain exports through the end of the year, including “telecom, medical, auto, agricultural, electrical and tech equipment, as well as some forestry products,” per Reuters. In addition, Russia will stop exporting some of its sugar and keep foreign ships out of its ports. The U.S. doesn’t import many of these goods directly from Russia; the effect will be much more deeply felt in Europe, which is far more dependent on the country. Inflicting pressure on U.S. allies like Germany or Poland could lead to significantly higher prices at a time when inflation is already running high. “Russia’s main economic weapon is cutting off energy flows to Europe, which would also harm Russia. So far, that system remains mostly intact,” said Noam Chomsky, the leftist intellectual, in an email.

Then there’s nationalization. With so many corporations exiting Russia, what’s left behind are the things that make those businesses tick: buildings, equipment, technology. Russia’s Economic Ministry outlined a plan on Thursday that would take control of whatever was left behind by companies that are more than 25 percent foreign-owned, according to Bloomberg. Thelist of companies this rule would apply to includes heavy hitters like Goldman Sachs, ExxonMobil, Coca-Cola, Caterpillar, Starbucks, and Burger King. The hit to corporate bottom lines could have a residual impact on the U.S. economy. But again, the impact in Russia will be far bigger. The market economy, such as it’s been since the end of the Gorbachev administration, is likely to weaken further, with the government rolling back the clock to the communist era. “We are going to see a growth in terms of state powers,” Gould-Davies said.

This all points to further economic isolation for Russia, even if the Ukrainian war ends quickly. And really, is there any path back to the pre-invasion world order? Now that Putin has exerted more power over the economy, would he give it up just to lure McDonald’s back? Would Russia want to resume trading with countries that rendered its central bank functionally inert? If the rifts in the global trade and financial systems are more or less permanent, that could have a broader destabilizing effect on the rest of the world — the repercussions of which would be hard to predict. Chomsky said that the war could increase global hunger. Food staples like wheat are more expensive as a result of the invasion, and countries like Egypt have banned exports of staple foods. “Russia and Ukraine were major food exporters,” Chomsky noted. “Cutting that may be devastating for the global South.” Russia may not be able to punish the U.S. severely, but the second-order effects of its invasion are already wreaking global havoc.