Kudlow: We need to stop financing Putin's wars and dreams

"A Rogue Russia Tries to Reset the World Order." That's the title of a brilliant op-ed piece by Walter Russell Mead in Friday's Wall Street Journal.  

Mr. Mead will be a guest on this show a bit later, but he also writes, "He (Putin) aims to topple the U.S. from its global position, break the post-Cold War world order, cripple the European Union and defeat NATO." 

I think this is very realistic thinking by Professor Mead. He offers a seldom-seen clarity on the Putin-Russia upheaval. My thought? The best way to slow down Putin or even stop him is to end his means of war finance. Historically, money plays a huge role with dictators. 

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In Putin's case, for example, there's a correlation between high oil prices and bad Russian behavior. In March of 2014, when WTI crude was at $99 per barrel and Obama was in office, Putin reclaimed the Crimea. But during the next couple of years, as the U.S. fracking revolution developed beyond all expectations, despite opposition from the Obama administration, a huge increase in oil supplies knocked down the price to as low as $27 in early 2016. Nobody heard from Putin. 

During the Trump years, as the frackers continued to drill, drill, drill, and U.S. oil production moved toward 13 million BPD and the U.S became the swing world oil player with energy independence and prices stayed low around $60, we saw no risk of Putin-Russian invasions in Europe or elsewhere. 

So, money matters to Putin. I suggest right now the simple strategies to stop Putin's war finance. First, drill, drill, drill. Open the oil and gas spigots to full throttle. Stop the illegal federal restrictions on leasing, drilling, pipelining, and LNG export. Call the regulatory dogs off. Stop attacking the industry. 

President Biden's attack on the industry Thursday was a huge mistake. Drill, drill, drill, now more than ever. Bring us back to 13 million BPD and let the industry take us to 15 million BPD in the next 18 months. Encourage pipelines and LNG exports to help drive American costs down and to show Europe they can rely on the U.S. rather than Russia. 

According to TIPP insights, the radical-left Biden assault on fossil fuels caused the average oil price last year to go from $53 a barrel to $76 a barrel, a $23 increase in price that translated to nearly $84 billion in cash to Russia. 

So, I say: Save America, stop Putin's energy-driven war finance. This is not hard. 

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Then, second point: Sanction the central bank of Russia. It's their Fed. This, along with sanctioning all the Russian banks, will prevent Russian sales or purchases of anything, especially the oil markets and the commodity markets, which are dollar-denominated. 

If the U.S. sanctions the Russian central bank, no dollar-related payments will be permitted. That would include secondary sanctions among other commercial banks around the world, but we, the U.S., can do this on our own. We will actually stop payments. 

Now the SWIFT system— the Society for Worldwide Interbank Financial Telecommunication— is important, but it is not a transactional payment system. It's a communication system that payments have been made to so and so for such and such reasons. 

You could take Russia out of SWIFT, and I'd have no problem with that. But that still leaves payment systems available to Putin to finance his war. 

If you sanction the Russian central bank, then there will be no payments, and as I said, Russian exports are primarily energy and commodities, which are over 90% denominated in dollars. So, we will really stick it to them. Money matters, even to megalomaniacal authoritarians with romanticized, ahistorical dreams of empire. To knock Putin out of play, we need to stop financing his wars and his dreams. 

Two simple ways. Drill, drill, drill. Export, export, export. Watch world oil prices come down, then so will gasoline prices at the pump. Save America.  

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Then cut off the central bank's payment system—no more transactions, no more export sales, no cash coming in because all those payments run through the central bank. Yes, we should target all the Russian oligarchs. Yes, we should sanction Putin. 

Yes, we must prevent any investment capital from stock and bond markets from going into Russia, but just sanction the central bank. That will do the trick. Think of it. End Putin's war finance. 

This article is adapted from Larry Kudlow's opening commentary on February 25, 2022 edition of "Kudlow."