Finance

The Strong U.S. Economy Can, And Should, Weather Sanctions On Russian Oil And Gas

It seems extremely callous to discount even the possibility of sanctioning Russia’s energy sector.

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dollars and rubles US RussiaDespite widespread pessimism, the U.S. economy ended last year in great shape.

In 2022, despite a volatile start to the year for the stock market and relatively high inflation, the fundamentals of the American economy continue to show strength.

According to the Labor Department, jobless claims are still declining in the New Year. The number of Americans on unemployment reached a 52-year low in late February.

The U.S. Commerce Department reports swelling corporate profit margins. Corporate profit margins are now the largest they have been in 70 years.

Wage earners haven’t been left behind either. Over the last year, workers have seen their average hourly earnings increase by 5.7 percent. Average hourly earnings for nonfarm employees in private companies grew by 23 cents in January alone, reaching $31.63.

For all of 2021, the U.S. gross domestic product increased by 5.7 percent — the largest GDP gain since 1984. Continued economic expansion is expected in 2022 (albeit at a slower rate).

Despite a few challenges, like inflation, the U.S. economy is on a solid footing. The question is whether we are going do anything meaningful with all this economic strength.

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Unless you’ve been living under a rock, you know that Russia has launched an unprovoked invasion of Ukraine. The U.S. is not going to intervene militarily, and perhaps that is wise.

But the U.S. has economic weapons at its disposal. On February 24, the Biden administration hit Russia with a bevy of new sanctions. The White House froze Russian assets, cut off some of the largest Russian banks from the U.S. financial system, and sanctioned a number of individual Russian oligarchs.

While the newest sanctions aren’t exactly going to be a picnic for the Russian economy, one very specific segment of economic activity is apparently sacrosanct: the energy industry.

Sanctions are reportedly not going to target the Russian oil and gas sector. This is kind of a problem, because oil and gas provide 39 percent of the federal budget in Russia.

Western Europe is especially dependent on Russian oil and gas. In the U.S., the Russian invasion of Ukraine has already disrupted the energy sector and caused higher prices at the pump. But unless we do something about Russia’s most important source of revenue, economic sanctions are going to be ineffectual in actually stopping the conflict.

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Nobody likes to pay more for gas. But people are dying. And this is not a war characterized by murky moral quandaries. Vladimir Putin wanted Ukraine, so he decided to take it.

Ukrainians are reportedly putting up a fierce resistance. They are fighting, and dying. While it is understandable why NATO allies might not want to get directly involved in combat and risk a broader war with Russia, it is nonetheless the duty of every free, independent, and peace-loving democracy to support Ukraine in any other manner possible.

It seems extremely callous to discount even the possibility of sanctioning Russia’s oil and gas sector. People are putting their lives on the line to defend their homeland and we can help them. We have the ability to meaningfully squeeze off the flow of money to the dictatorial regime that is solely responsible for starting this war, and maybe by doing so we could even end this conflict before more lives are lost. Who cares if that increases the price of a gallon of gas by a dollar, or two dollars, or three dollars?

Many energy analysts are predicting that the national average price for gasoline will soon top $4 per gallon in the U.S. Some analysts worry that we could even reach $7 per gallon. Yet, most economists say we are well-positioned to weather any resulting economic storm. If it costs an extra $20 to fill up your gas tank, you’re going to get through it, unlike a great many brave fighters in Ukraine who have much bigger problems right now.

The United States is supposed to be a world leader, and a beacon of freedom. We’re not living up to that if we fail to hit Russia where it really hurts economically. What’s more, given the current strength of our economy we can do this without suffering much economic fallout ourselves. There is no reason that sanctions targeting Russia’s oil and gas sector should be off the table.

Jonathan Wolf is a civil litigator and author of Your Debt-Free JD (affiliate link). He has taught legal writing, written for a wide variety of publications, and made it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

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