Vladimir Putin’s Russia, ancient in many ways, has been notably modern in the centralized management of money. Elvira Nabiullina, the longtime governor of the Russian Central Bank was Europe’s 2017 “Central Banker of the Year,” according to the Banker magazine. Russia’s treasury recoups about twenty per cent of its G.D.P. as tax revenue, a figure far exceeding most other petrostates and on par with the United States. Moscow enjoys both fiscal and trade surpluses, and its debt load is low. Every attempt to make sense of Putin’s ambitions in Ukraine has seemed obscured in an incense haze of past tsars, imperial designs, and Russian military history. But, to practitioners of economic statecraft, the situation is as clear as looking in a mirror. “It’s a pretty solid, talented group of technocrats there,” one senior Biden Administration official told me, of Russia’s central bankers. In any economic crisis, “we expected that they would respond smartly.”
What modern Russian economists have done is assemble an immense stockpile of foreign currency and gold: six hundred and thirty billion dollars, thirteen per cent of it in renminbi, twenty-two per cent of it in gold, and much of the balance in the major currencies of the economic West—euros, dollars, yen, pounds. The Russian currency stockpile eventually grew so vast that some Western financial analysts described it as “Fortress Russia”—if Russia were to be isolated in the event of a war, and the value of the ruble were to degrade, the foreign currencies could be used to stabilize the Russian economy and prevent a crisis. In the medium term, at least, these reserves seemed to provide an economic buffer for Putin. Even if Europe were to cut off all imports of Russian energy, depriving Moscow of its main source of revenue, one analyst at the Atlantic Council told the Times, the reserves would allow Moscow to fill the gap for “several years.”
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The proficiency of the Russian bankers posed a particular challenge to their Western counterparts. Authoritarian regimes are supposed to have the advantage of long-term planning, since their policies do not need to change with elections. If Russia, like China, was managing its economy as expertly as we could, then where was the advantage? When the G-7 gathered in Cornwall, in June, 2021, for its first in-person summit since the pandemic, President Biden tried to summon a sense of renewed post-Trump urgency, of liberal democracies uniting against authoritarianism, but there were still more basic doubts about the efficacy of the Western system. “We’ve been reflecting a lot on this discussion in the G-7, on how strong are democracies,” a senior E.U. official told me. “Sometimes, the feeling is that democracies are having a bit more challenges—sometimes, they’re cumbersome, and slower.”
Among the American delegation in the room was a figure who surely flew below the radar of Russian intelligence: a forty-six-year-old North Carolinian named Daleep Singh, who had recently been appointed as Biden’s deputy national-security adviser for international economics. Singh, who spent part of his early career at Goldman Sachs, had made his name as a market technician, having joined the markets room in the Obama Treasury Department, and then spent part of the Trump years as the vice-president for markets at the New York Fed. Singh had watched, with some skepticism, the growing esteem in which Russia was held on Wall Street, which hinged on the idea of its economic foresight. “I grew up in financial markets. I often hear from people in financial markets,” Singh told me last week. “And one of the myths I felt like they held—and it was kind of perpetrated by the Russian government—was that it had built an economic fortress around its economy, and that it was due to years and years of genius planning by Putin himself.”
The two great surprises of the first month of the war have been the strength of the Ukrainian resistance and the severity of the Western sanctions, which seem likely to prevent Russia from accessing its currency reserves. The effects of economic sanctions are just now beginning to be seen, but Sergei Guriev, a professor of economics at Sciences Po, in Paris, told me that he foresaw “Soviet stagnation, Soviet decline.” (There was a slight Soviet ambience this week, as viral videos showed Russians fighting over sugar in grocery stores, and a Russian government minister appeared on television to urge the public not to panic-buy essentials such as buckwheat.) If Russia’s misestimation of the Ukrainians was psychological, then its misestimation of Western sanctions was political and technical. The sanctions have a complex architecture—based on rules, economic levers, and the responses of Western companies and investors—but they also have an architect, a former Obama official told me. “The architect of these sanctions was Daleep Singh.”
Singh’s generation of liberals—those who graduated college around the time of 9/11—have returned to power from a very tense, four-year hiatus with two entangled challenges: to embody a return to sober order, after the mania of Donald Trump, and to pursue a bolder and more expansive response to the pressures of inequality and authoritarianism, problems that have come to seem far more acute since the Obama years. Singh himself has a slight throwback quality, to the manner of late-twentieth-century American liberalism—the casual language and formal suits, the Sorkinesque quickness, the tendency to talk about human mechanisms with the simplicity of economic graphs. When it came to sanctions, he had a characteristic mission: to expand on an Obama-era project. Run that scene again, but different this time.
The precedent had taken place in 2014, in the debate about how to sanction Russia after its invasion of Crimea. Beyond freezing the assets of certain oligarchs close to Putin, the Obama Administration designed its sanctions to keep a few large and influential Russian corporations (mostly banks and energy companies) from accessing Western debt. The choice was designed to exploit a specific vulnerability, one that Singh helped identify: in 2014, many of the most important Russian entities were in the midst of a debt binge, and were overexposed. In terms of potential severity, Edward Fishman, a leading Obama Administration sanctions official, told me that the 2014 sanctions had been a “two out of ten.” Still, combined with a bigger bust in the oil market, they caused some trouble. The Russian economy, which had been growing for several years, contracted in 2015. The ruble crashed, and inflation surpassed twelve per cent in the year after the invasion. And yet Putin’s power was largely undisturbed. If anything, the sanctions’ larger effect was to convince the Kremlin that it needed to build its stockpile. “We saw Russia in economic and fiscal vulnerability,” the senior Biden Administration official said. “We saw Russia respond with the central-bank tool, really kind of building up their reserves with the idea that if the U.S. comes after us again, we’ll need an even stronger central-bank backstop.”
Singh started thinking seriously about potential sanctions on Russia in early November, when U.S. intelligence assessments began to warn of a likely invasion of Ukraine. “We put our heads together and figured out where do we have strengths and where do our strengths intersect with Russian vulnerability—where is there an asymmetry,” Singh told me. One area was Russia’s access to Western technologies, such as microchips and software. Another potential vulnerability was the dependence of Russian banks on capital from overseas. Each of these moves exploited certain American advantages, but they did nothing to undermine the reserves Putin had built to make the Russian economy “sanction-proof.” So Singh turned to another point of asymmetry: the currency trade. “It’s true that the global economy has gotten increasingly multipolar over time—you could see that just as a percentage of world G.D.P.,” Singh said. But, when it came to the currency in which countries bought and sold things, saved money, and borrowed money, the dollar’s share was between sixty and eighty per cent. In the world of global finance, Singh said, “the dollar is still the operating system.”
As a technical matter, sanctioning a central bank was within the scope of American expertise: the U.S. developed central-bank sanctions as a centerpiece of its economic war with Iran, and there had been some preliminary discussions of sanctioning the Russian Central Bank in 2014. The real obstacle was diplomatic. The more countries that coöperated, the more comprehensive the sanction—if Moscow could simply sell its assets to German, Swiss, or Japanese banks, a U.S. embargo on Putin’s foreign-exchange fortress would lose much of its impact. Historically, European leaders, more dependent on Russian energy and more entangled with the Russian economy, had little appetite for sanctioning Moscow. “It was important to float this at the right moment,” a senior Biden Administration official told me. “We almost had to wait until there was an emotional valence.”
In the meantime, coöperation with overseas allies had begun. Singh spoke each week with his G-7 counterparts, and his conversations with Bjoern Seibert, the head of the cabinet for European Commission President Ursula von der Leyen, eventually increased to several times each day. A team from the U.S., which included officials from the Department of Commerce, spent a week in Brussels, the senior E.U. official said, to work through the details on the control of high-tech exports. U.S. intelligence had also made the strategic decision to speed up the process through which it shared intelligence with NATO so that the Western allies were “operating from a similar set of facts,” a U.S. official told The New Yorker, in February. In Europe, this caught attention. “We’ve worked with the U.S. on ISIS and other things, and we’ve seen intelligence-sharing,” the senior E.U. official told me. “But never to this extent.”
If U.S. intelligence seemed especially sure that Russia would invade Ukraine, Moscow’s businessmen seemed less convinced. In prior crises, the senior Biden Administration official told me, Russian individuals and companies pulled back assets, investing in gold or foreign currency, bracing. “That was not something that happened in the immediate run-up to this,” the Administration official said. “Big state banks, big oligarchs—we weren’t seeing a lot of pullback. Frankly, I think there was this kind of disbelief, including by much of the Moscow business community, that this could actually come to materialize.”
On February 24th, the Russian invasion of Ukraine began—columns moving ominously across the border, rockets firing into central Kharkiv, a phalanx of helicopters and paratroopers occupying Hostomel Airport just northwest of the capital, only to be repelled. Within hours, Washington and its allies announced the package of sanctions that they had long prepared. Four large Russian banks were made subject to “blocking sanctions,” which froze any assets that touched the U.S. financial system, and several others, including the largest, Sberbank, were made subject to a somewhat less severe suite of sanctions. Export controls were imposed, by the U.S. and many other Western countries, to degrade the high-tech parts of the Russian economy, and a day later came a round of personal sanctions on Putin and several of his senior foreign-policy aides. But the oil and gas sector, which supplies forty per cent of the Russian budget, was left largely untouched, and there was no effort to move against the Russian Central Bank. A. Wess Mitchell, who was the Assistant Secretary of State for European and Eurasian Affairs in the Trump Administration, told me, “A lot of people asked ‘Is that it?’ when they heard the President’s February 24th press conference,” Mitchell said. “After all the Administration’s warnings of catastrophic sanctions in the lead-up to the war, the opening tranche of sanctions was astonishingly weak.” The markets moved on the news of the sanctions, but they did not entirely collapse. Something like this had already been priced in.