[Skybird]

Marcus Matthias Keupp heads the Department of Military Economics at the Military Academy of the Swiss Federal Institute of Technology in Zurich and analyzes in depth what is happening in Russia and Ukraine. He sees many misguided plans and explains in an interview with Der Tagesspiegel why the war could reach a turning point for Russia in seven days.

Mr. Keupp, Vladimir Putin wants to provide gas supplies to "hostile states" such as Germany only in exchange for rubles, what is his purpose in doing so?


I would call this a verbal intervention, for one thing. This is something that central banks, for example, like to do. Mario Draghi stood up in 2012 and uttered the famous phrase "Whatever it takes." He managed to stabilize the euro exchange rate just by saying that. And something similar has happened with the ruble now. So just because Putin said that, the ruble exchange rate has already stabilized somewhat. That is one side, this verbal intervention.

So far, the supply contracts are in euros and dollars, what else is behind that?


The largest market for rubles is in Moscow, and these transactions would ultimately always have to be settled at the Russian Central Bank. In other words, this is an attempt to circumvent the sanctions against the central bank, whose euro reserves are frozen abroad. But now you also have to consider that some of the supply contracts for gas are very long-term.

So you can't imagine that you go to the weekly market and say, today I need so and so many cubic meters and I'm going to buy that quickly, but these are contracts, some of which run for 10 or 15 years. And they are negotiated in euros and US dollars. If he wants to enforce that, he would have to break the contract. I can't imagine how that would work. That's why I would call it more of a verbal intervention.

In principle, he is trying to blackmail the West: Rubles and euro foreign exchange for Moscow or gas freeze - but the German government, for example, says that would endanger hundreds of thousands of jobs.


Of course, politicians stand up and create such pictures now. But first of all, we have to get away from this view, according to the motto Europe needs so and so much Russian natural gas. In Switzerland or Sweden, for example, it doesn't matter at all. There, you can replace the share of natural gas in the energy mix quite quickly. In Western Europe, Italy or the Netherlands in particular are now experiencing problems. So you have to take a close look at each country: How important is natural gas in the energy mix, and what percentage of natural gas comes from Russia? Then the situation is put into perspective. Under no circumstances should we make the mistake of simply buying into these excited images that politicians are conveying.

Putin's announcement has already caused the price of gas to rise by around 25 percent.


Yes, but that's a risk premium, so to speak, because the market expects the supply to tighten. But so far there is just as much oil and gas flowing out of Russia as there was before the war. But it's not like there's no natural gas in the world now, or that the world is dependent on Russia or at Russia's mercy, for better or worse. Now we should move to a globalized, or LNG, gas market. The U.S. has already signaled that it wants to supply Europe with LNG tankers.

Can this really circumvent the sanctions?


Well, to bring in the foreign currency to Russia, we don't need the central bank in principle; they still have non-sanctioned banks that handle the business of gas payments. The best example would be Gazprom Bank. So this step that Putin took yesterday, I don't really need it. I could also collect the foreign currency normally, i.e. through normal commodity trading. But of course, when you look at the Russian economy, the Russian government now has a lot of problems to solve at the same time.

Which ones in particular?


It has to slow down the currency devaluation, it has to plug the holes in the bank balance sheets, because the companies are slowly starting to collapse. And Russia will have to intervene very deeply in its national welfare fund. And on the other hand, it's not selling oil or gas anymore.

It's about cushioning the economic consequences of the sanctions for the real economy and for the financial sector. And this balance, it's getting worse by the day.

And at some point, the national welfare fund will be empty. Then the state will have to keep the country going with the money printing machine. And that is the great tragedy of this story. The war doesn't end, but the Russian real economy, it will completely decay.

But you say an energy boycott would not stop Putin's war machine.


Exactly. It wouldn't stop the war. That's because of two things. The Russian war machine is independent of the export business. We talk a lot in the West about exporting oil and gas, and that is also significant for the Russian economy, but not for the Russian military. If you look at the war in military economic terms, you have to look at two things. One is the defense industry, where the weapons and the vehicles are manufactured. And that is completely self-sufficient in terms of raw materials.

In terms of labor, in terms of technologies, in terms of financing, it doesn't depend on foreign exchange earnings. And the second important point, that is the logistics, that is, first of all, the fuels oil, diesel, kerosene. And all this comes from Russia's own production.

Out of eleven million barrels of oil per day, three million per day go to Russia's own consumption. And that includes the armed forces. That's all supplied by Rosneft and invoiced in rubles. Likewise, the armed forces are paid in rubles.

That's exactly why this consideration doesn't work. That people in the West say okay, now we boycott Russian oil and gas and then the war will stop. That is not the case, and I can only warn against uncritically adopting this line of thought. The war will not end because of that.

Economically, you already see a reversion to Soviet times.


Yes, we actually have to say goodbye to modern Russia. Day by day, we are moving more and more in the direction of the Soviet Union, where we say: There is this huge military apparatus that swallows up most of the state budget, and then there is subsidized basic foodstuffs for the population. And besides that, there's nothing else.

And that's why I say it's economic suicide. It is the reversion of an economy to a developing country.

Will there be a switch to a war economy, even with the confiscation of foreign companies?


In principle, it is possible to convert an economy to a war economy, but not overnight. We are dealing with a complete failure of the Russian leadership. This campaign in Ukraine was designed to be an operation of a few days, so maybe four to five days. Then you took Kiev, then you deposed the government and installed a puppet regime.

If you plan with that in mind, then of course you are not preparing the national economy for prolonged armed conflict. But if they now say, we are preparing for a month-long campaign into a country that is one and a half times the size of Germany and has a population of 44 million, then, they have to prepare the national economy for years beforehand.

Putin has already made such approaches, after all, the Central Bank began to build up these reserves back in 2018. And Russia suddenly changed its debt policy and started to reduce its foreign debt. On the other hand, it must be said: of course, this is amateurish. You can't run an operation of this size against a territory of this size with 200 billion welfare funds. So you would really have to rebuild the entire national economy.

Do you see any possible turning points where the price becomes too high for Putin?


A major turning point will certainly come when Russian artillery is exhausted, that is, when it runs out of shells. There comes a moment when the national defense industry has to step in and supply very large quantities. The situation was similar in the first weeks of the First World War.

When the war broke out in 1914, no one expected it to last long. And even then, the national economies and the armaments industry were not prepared for such a thing. As early as the fall of 1914, artillery and shells were rationed, and the troops were told that they could only fire so many shells a day. And that's the big question now; is the Russian arms industry able to deliver supplies quickly? It can produce, that's not the problem.

The problem is more logistical. So it can get its production into the combat zone so that the war continues from that side. That will be the case in about seven days and will become an important turning point in the war.

Putin seems to be cornered, do you fear a widening of the war, even with pulling the nuclear option?


I don't think one should overestimate that. Putin still has enough ways out. For example, he can say: Yes, I have now achieved my war goal. Ukraine declares itself neutral again and will not join NATO for the foreseeable future.

He does not necessarily have to escalate now. It is entirely possible that he will also sell what the West considers a military defeat as a victory at home. As long as he controls the propaganda and the security forces, that is entirely possible. There is then a parallel world of official narrative, as in Iran or North Korea, for example. You don't always have to think about nuclear escalation right away. You have to take into account that Russian rhetoric is very colorful and very self-confident. One should not overstate that.

https://www.tagesspiegel.de/politik/.../28196134.html

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With the last answer I disagree, that is too optimistic and too focussed on rationality.

What drives Putin, whom I diagnose with a narcissistic-psychopathic personality disorder with megalomianc and paranoid delusions, is not so much reality-grounded rationality anymore, but emotion, and last but not least: hate on the West and a feeling of deep own offence for having been rejected when not being allowed to play the first violine as he wanted. Observers say that he had changed in the recent months, two or three years, and his cold facade repeatedly collapsed for a few seconds when talking about people disagreeign with him or about the West which he seems to dispise with a passion, and that then he became loud, used suddenly a rantign, emotionally charged language with juvenile terms and slurs, before his ice-cold facade and pokerface was established again. In the German-languege documentary I linked to two or three days ago, this was also pointed out by people meeting him vis-a-vis. His tone already changed however around 2007, when NATO had moved further east.