Russian Sanctions of Western Food and Possible Intervention in Ukraine

Note: I am traveling this week and only have time for a short note.

A few days ago I noted that Putin was softening his rhetoric on the heat from the west, but now he has imposed bans on the import of food from western nations and appears poised to militarily intervene in Eastern Ukraine. If you recall, the point I was trying to make about Putin was that he has the domestic political freedom to turn on a dime and this makes him a bit unpredictable.

Also, if Russia uses the pretext of a humanitarian intervention in the face of an increasingly deadly Ukrainian offensive against seperatists, this subterfuge will probably be enough to forestall any really threatening response from NATO. Though in the long run Putin may be digging a deeper hole for Russia, it's probably a safe bet that a limited use of force will produce little reaction. And, if something unforeseen happens to make that bet go bad, Putin has the flexibility to pull back. When it comes to making modest opportunistic moves, it's good to be a leader of a small coalition regime and miserable to be in the position of trying to predict exactly what one will do.

Then there are the sanctions on food. While banning western agricultural imports will impose costs on European and US farmers, the bigger impact is likely to be on Russian food prices and, thus, on Russian consumers. However, from Putin's point of view, any problems caused by price increases and shortages will be balanced by the opportunity to intervene in local markets and exert more control on revenue flows.  After all, you can't get extort much out of a market for plentiful and inexpensive goods.

Things change when you have higher prices and a shortage of supply. Increased government intervention in the market will not only be tolerated but demanded. Though Putin isn't particularly sensitive to public opinion, it is always easier to implement a popular policy than an unpopular one. The increased control over the market will make it easier to reward friends and punish enemies, and increased prices will make those rewards and punishments larger. This will in turn enhance Putin's chances of political survival despite the pain inflicted on Russian consumers.