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Time: Trump May Crash Russian Economy By May

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Time: Trump May Crash Russian Economy By May

The US president has all the necessary leverage.

On his first day as president, Donald Trump showed that he could be closer to fulfilling his election promises than skeptics expected, Jeffrey Sonnenfeld, the President of the Yale Chief Executive Leadership Institute, and Steven Tian, the Research Director of the Yale Chief Executive Leadership Institute, wrote for Time:

As we show in our new, original economic analysis, Trump has the levers to force Vladimir Putin to end the Russia-Ukraine war promptly if he dispenses with the Biden Administration’s tepid, inconsistent economic pressure.

On Trump’s first day in office, he publicly addressed his views on Putin’s invasion of Ukraine for the first time in weeks, during his Oval Office press conference.

“I think Zelensky wants a peace agreement, but I'm not sure Putin wants one either. I think Russia is going to be in real trouble… I think Putin’s destroying Russia,” Trump said.

Trump is right. Putin has not achieved his goals, despite approaching 700,000 casualties, its reliance upon North Korean troops and Iranian drones. Russia's war-fueled economy has drained the nation’s vitality across sectors. As the authors note, Putin has cut reinvestment in its industrial base and seized control of much private enterprise, cannibalizing its once mighty industrial strength:

— In short, he’s kept the furnace of Russia’s energy burning by tossing in the living room furniture.

Russia is in real trouble as its economy implodes, and Putin is destroying Russia. And even more importantly, the return of Trump could send Russia’s economy off the cliff, and Trump’s return could deal the death blow to the teetering Putin regime.

Trump today said his sanctions had cut off Iran’s ability to finance the proxy terrorism of Hamas, Hezbollah, and the Houthis which Biden’s muted sanctions enforcement allowed. Similarly, with proper sanction enforcement, the Russian economy will be circling the drain by Easter.

That Trump’s return could end Putin’s rule seemed unimaginable weeks ago. Many supporters of Ukraine openly feared that Trump might force a bad peace deal on Ukraine tantamount to surrender, amid Trump’s oft-declared intention to “end” the war by his first day in office. He also seems to have reconsidered his stance toward Putin when he realized the real state of the Russian economy.

The authors are convinced that the Russian economy is imploding—with Putin cannibalizing the productive economy to fund his war machine:

— If Putin loses the spigot of windfall oil revenues which has been propping him up the last three years, then the Putin regime will almost certainly collapse. Putin has already drawn down Russia’s rainy day funds by depleting its once-formidable foreign exchange reserves, and nobody is willing to fund Russian government deficits by buying unwanted Russian bonds. Meanwhile, the Russian ruble is depreciating, becoming a currency that even China refuses to accept. Russia's central bank has exhausted its reserves, and Putin cannot cut spending without cutting funding for his costly war machine.

Russia cannot make up for lost oil exports as it has already lost 90% of its erstwhile natural gas exports, thanks to Europe finally moving away from Russian piped gas reliance. The country brings very little to the global economy other than energy exports, economists write:

— Oil revenues represent a potent choke point over the Russian economy, and Trump has grasped the strength of this leverage in a way the Biden Administration did not. The outlook for Russia’s oil sales is now very different, and Russia’s outright economic collapse appears far more likely now. With Trump promising to lower oil prices and increase U.S. production by 3 million barrels a day, the world will no longer depend on Russian oil. Putin will feel it as he will have to sell at either low or break-even prices.

According to Saudi Aramco, the breakeven for drilling Russian oil is a whopping $44 per barrel, the highest of any major oil producer. This is double that of Saudi Arabia, the UAE, Iran and other countries, in part due to hard-to-reach Russian deposits in the Arctic.

As the authors note, between his elevated breakeven cost of $44 per barrel to drill oil, and expenses which we estimate to be around $20-$30 per barrel to get that oil to market, Putin will be losing money when the price of oil falls below current levels:

— Even beyond any pain Putin suffers from the price of oil falling organically; if Trump imposes any additional sanctions and export restrictions on Russian oil companies, as Treasury Secretary nominee Scott Bessent advocated for during his confirmation hearing, then Putin will be all but begging for relief as his economy implodes with export revenues throttled.

History reminds us that this playbook of economic pressure on Russia has worked successfully before. Cold War ended largely through the unexpected implosion of Russia’s economy—which many experts did not see coming, but a vulnerability which Ronald Reagan, a leader defined more by intuition than careful analysis of the issues, grasped. Now, Trump has an opportunity to puncture Putin’s propaganda balloon and suffocate Russia’s economy to the point of collapse, if he chooses to do so.

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