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Jeffrey Frankel (intro):  I think that countries all over the world are taking steps to make themselves less dependent on Russian oil and gas especially, but also wheat and other minerals and agricultural commodities. And that is going to weaken the power of Russia long-term, and it's not going to be reversed even if, say, we were to have unexpectedly rapid settlement of the war, that's not going to be reversed soon and Putin ought to be alarmed at that.

Meghan O’Sullivan (intro): I think there's an equally compelling national security narrative about why we need to shift away from oil and gas as soon as possible, because really the only way that you're going to ensure that there isn't the kind of, I don't know if blackmail is the right word, but there isn't the kind of empowerment of natural gas producers or energy superpowers like Russia is if the world is meeting its energy demand from other sources. So, I think that this national security narrative, I think moves constituencies in both camps, if I can speak about that way in a direction where there might be more common ground.

Ralph Ranalli (intro): Welcome to the Harvard Kennedy School PolicyCast. I’m Ralph Ranalli. In a nuclear-armed world where direct superpower conflict can have apocalyptic consequences, the proxy battlefield has become economics and finance. Instead of firing missiles, combatants lob sanctions to inflict pain and achieve strategic goals. Rather than cutting off supply routes, opponents cut off access to markets, capital reserves, and financial transaction systems. And during the first weeks of Russia’s war on Ukraine, developments on both the physical and economic battlefields have been swift and unpredictable. But now, with an international sanctions regime against Vladimir Putin’s Russia taking shape with a depth and a breadth that took many analysts by surprise, it’s possible to widen the lens on the war in Ukraine to explore not only how it may shape the conflict, but also its potential to disrupt the world economic order and even create a new one. Harvard Kennedy School Professor Meghan O’Sullivan is Director of the Geopolitics of Energy Program at ����vlog���� and a former Deputy National Security Advisor under President George W. Bush. Professor Jeffrey Frankel is an international economist and a former member of the Council of Economic Advisors under President Bill Clinton. They’re here today to discuss sanctions, the future of globalism, and what the global economic order could look like in a post-Ukraine War world. 

Ralph Ranalli: It feels to me like up to now, we've all been kind of playing catch up in terms of the big picture repercussions of Russia's invasion of Ukraine, and that maybe along the way, we've crossed the rubicon on economic fallout from sanctions without quite realizing it as it was happening. As the bigger long-term picture is starting to come in to focus, it looks like we're really an uncharted territory here, we've never really seen a comprehensive sanctions regime against an economy and a country the size of Russia, their share of global GDP is about 3%, making it the 11th largest economy in the world by that measure, 25% of the world's wheat comes from Russia and the Ukraine, 17% of global fertilizer. So, I guess my first question for you both is how would you describe our current level of understanding about how much the sanctions and the economic and financial upheavals that are going along with them are going to reshape the world economic order? Meghan, maybe I'll let you take this one first.

Meghan O'Sullivan: Yeah. I would say that we're certainly further along than we were two weeks ago, but I think we'll look back at this particular moment and say that we were in very early days. So, as you have pointed out, this is an unprecedented move in the sense of trying to more or less isolate an economy of this size from the global economy. This is the 11th largest economy in the world, and as you pointed out, it's an incredibly important exporter of commodities in particular, the largest exporter of oil and refined product, the largest exporter of coal, the largest exporter of natural gas. This is a huge economy. It also is responsible for about a third of the enriched uranium that's used in the world, including about a fifth of what the United States uses. So, there are a lot of linkages that I think we haven't seen the full repercussions of being severed.

We're also seeing something that's prevalent in a lot of other sanctions regimes, but I think it's particularly pronounced when it comes to Russia and this war of Ukraine, which is seen as such an egregious war, such an unprovoked war, and so many atrocities that people are seeing unfolding on a daily basis. And that is the idea that even if something is legal, some way of dealing with a Russian economy that is still permissible under law, companies and individuals don't want to have anything to do with that.

I was on a webcast with some senior officials in Ukraine's energy order today, and they said, "It should be considered immoral to purchase any form of Russian energy, and all forms of Russian energy should be considered toxic by the entire international community." And so, that has taken hold, and I think we're seeing that that is getting public opinion out ahead of policy. So, I don't think at all, we are in the final stages, I don't even think we have a good sense of what the entirety of the sanctions regime is going to look like when it's finished. So, I would say we're still early days.

Ralph Ranalli: Was that a surprise to you, how quickly public opinion got out ahead of policy? I ask because from what I read the assumptions were the opposite, especially in Europe, where Germany and Russia were essentially frenemies when it came to natural gas, and the Germans were supposedly going to be reluctant to participate in sanctions. Now it seems like the opposite has been true and that a lot of players inside and outside of Europe have been unexpectedly all in on sanctions. Does that square with what you're seeing?

Meghan O'Sullivan: It definitely squares with what I'm seeing. And I would say there, it's not just public opinion, but it's also the reaction of governments. And you mentioned Germany, and I think that has been one of the areas, I wouldn't say, it's the most surprising, but it's the most transformed. And I think this really speaks to the nature of the shock that Europe is experiencing. We, in America are shocked by what we see on our screens, but we're not in Europe where I think the real true feeling is this is as it is, the biggest upheaval to the security and political order since World War II. And so, we're talking about a large ground-based war in continental Europe with a credible threat of the use of nuclear weapons. This is transformative. And so, we've seen how Chancellor Scholz has come forward and changed some things that have been part of Germany's political and economic and energy orientation for decades. He's changed those in what seems to be virtually overnight in face of the Russian threat.

So, I think this over sanctioning that we see, this self-sanctioning that we see is really a result of the shock of the change, and I think it will take time for everyone to appreciate how dramatic that is. There's also another issue, and that is just that already, we have communities that are very active in the ESG movement, very active in holding companies responsible for what they do that affects social well being , governance matters, political matters, the environment. And so, these people are well mobilized and they understand how to put pressure on companies to do things that maybe are in their commercial interests, but are not in the wider interest of the planet in many cases, but in this case, this is going to be not in the interest of the Ukrainian people or others.

And I think those same groups mobilize to put pressure on companies very quickly, and I think those CEOs were very responsive. So, we saw that there was a very brief moment where Shell bought a cargo of discounted Russian crude, and there was outrage, Shell ended up apologizing about it, simply because no one, including the CEOs of these companies want to be seen as profiting from Russia's war in Ukraine.

Ralph Ranalli: Jeff, how would you describe your sense of how much we understand about the big changes that might be coming?

Jeffrey Frankel: Well, given how much has changed over the last two weeks, I think we'd be sort of foolish and Meghan was sort of hinting at this, sort of foolish to try to make longer term predictions, but let me say just a few points. The invasion of course, is shocking and in retrospect, Putin has been getting ready for this for a long time, I don't mean just moving the troops there, but piling up foreign exchange reserves, running a big current account, surplus piling up foreign exchange reserves to a very high level and much more than any other country, shifting them out of dollars into other currencies and gold, which he would've certainly thought that would protect him. Meanwhile, Europe has made itself more dependent on Russia over the last 10 years by a couple of mistakes, I'd say phasing out nuclear power, I'm thinking in the Germans, as Meghan said, and being so dependent on Russian natural gas.

So, given all that, it's just really amazing. All the resistance of the Ukrainian people is amazing, but our topic here is the sanctions, and I agree, it's relative to expectations, the amount that has been done, so the banning Russian banks from SWIFT, which was originally thought to be like the farthest we could possibly go, and we'd be lucky to get that, that's almost been the beginning point, the freezing of the Central Bank of Russia's international reserves and the sovereign wealth funds, assets abroad, and a whole bunch of other things that we might get into have gone farther, have involved more countries. And that's really important, because sanctions are a lesson that does carry over from the past on sanctions is that they tend to be effective when they're multilateral, and especially if they're enforcing some agreed upon norm or rule where it's often, if the US starts it or some other country does it unilaterally and seemingly as a whim almost or idiosyncratically, they tend not to be effective.

So, with the depth, the extent of the sanctions has been very impressive. And you would think that they'd be too slow to have an effect... It's already have an effect on the Russian economy, but to have a really major effect to force the Russians to back down might seem like too difficult on a timely basis when Ukrainian people are suffering such an onslaught, but the given the U-turn that the Germans have made, and you're asking about longer term implications, I think that countries all over the world are taking steps to make themselves less dependent on Russian oil and gas especially, but also wheat and other minerals and agricultural commodities. And that is going to weaken the power of Russia long-term, and it's not going to be reversed even if, say, we were to have unexpectedly rapid settlement of the war, that's not going to be reversed soon and Putin ought to be alarmed at that.

Ralph Ranalli: Right. It was actually that point about sanctions not being reversed soon that I was hoping we could talk about next. I think both sides are viewing the sanctions and their fallout as essentially permanent in the foreseeable future — Putin I think realizes that the sanctions will lost as long as there is anything short of regime change in Russia, and Europe is certainly not going to think of Russia as a reliable supplier of gas and oil for a long time. While the situation on the ground in Ukraine is still very uncertain, there are some things we can already be somewhat confident in and that have the potential to fundamentally realign the economic relationships between Russia and Europe, Russia and China, Russian and the rest of the world, China and the rest of the world. Globalism in its current state was already under the microscope thanks to the pandemic, but now it feels like its future in the post-Ukraine war world is even more uncertain. Could we be seeing perhaps a fracturing or partial fracturing of globalism ahead because of these big ruptures in economic relationships? And is that necessarily bad?

Jeffrey Frankel: I see a possible silver lining, and I'm curious whether Meghan, what she thinks of this, and we're really in sort of desperate for silver linings in this kind of tragedy, but I think it could help restore a world rule-based multilateral system whereby US and Europeans and other allies are prepared to stand up for rule of law, for international norms and to do it in a multilateral way, the way we had done throughout the late forties and fifties and sixties and seventies, and until the turn of the century. So, that would be a plus if this multilateral effort to sanction Russia formed a precedent. And of course, it's a multilateral rule-based order that gave us a lot of globalization and this big rise in international trade and so on.

Ralph Ranalli: That’s interesting. Meghan, I’m interested in your thoughts on Jeff’s silver lining scenario.

Meghan O'Sullivan: Sure. No, I think it's a very interesting idea, and there are some silver linings which are hard to talk about in the face of all the tragedy unfolding in Ukraine. But I think certainly, one of them, I wouldn't necessarily at this point say, it is a rejuvenation of the global order, because if we're talking about something that potentially leaves out Russia and China, then we're in a different kind of order that doesn't qualify as global, but what is I think very encouraging is that we have seen unity, transatlantic unity, but even beyond transatlantic unity, unity that extends to Japan and Taiwan and South Korea, and other parts of the world. I think we're seeing a real galvanizing of the democratic world in the face of aggression of an autocratic regime and that, I think is very clear. And as you said, Jeff, the feeling among NATO allies is one almost of euphoria in the unity.

It's been a long time since the alliance has been this unified. I was in Germany at the Munich Security Conference a few days before the actual invasion, and while there was a sense of foreboding and dread as many people came to terms with the intelligence and the idea that we were looking at a potential full blown invasion, there was also a sense of elation that Europe had come together as it had, and that the US and Europe had come together, and that the US was playing that once familiar role of really being the leader and being in this position. And so, I think that is a silver lining, but I think I don't see that we're going to go back to the old global order if there's anything to go back to, because I think it's going to look very different. It might have as its core, these democratic countries, but I think we are in a little bit of uncharted territory. 

Ralph Ranalli: I’m with you on it being hard to talk about upsides when we see the daily toll of death and destruction from Ukraine and grapple with the possibility of a nuclear conflict. But the reality is that we are also facing multiple other world crises with potentially catastrophic outcomes, so we really have no other choice than to talk about the bigger picture. Do you see anything else? 

Meghan O'Sullivan: I'd love Jeff's reaction to this, one thing that I think might be productive that comes out of this, I think is this is the best opportunity I've seen in a very long time to integrate our energy policy with our climate policy, that both of these things, there are people who are deeply knowledgeable in both areas, but the policy areas have really been in silos almost to some extent. And what I have really seen over the last couple of weeks is an awakening to the idea that energy security actually has to be tended to, and that in the short-term, for most of the world, energy security involves oil and gas. There's a very, very real role for oil and gas.

And I think many of us, particularly in Europe have been so focused on the energy transition that we've given short shrift the idea that we have to focus on energy security, but now, we realize both have a role in the coming decades and that we can't have a successful transition unless we have energy security, because when faced with an either or proposition, the desire for security tends to win out over the desire to make a clean energy transition. So, what we really need now is a strategy that's put forward which articulates the role of oil and gas in the overall climate transition, and doesn't demonize it, but says, "It has a role in this transition, it has this..." And it actually involves more investment in the short-term.

And we've heard that from Europe leaders, we actually heard that from Secretary Granholm and from the United States just the other day in Houston, but we also have to think about some new creative policy models, because what we are recognizing is we need more investment in these fuels, but we don't want that investment to preclude our ability to shift away from those fuels as quickly as is actually manageable. So, the question is, is there some kind of model where you can encourage the private sector to make substantial investments that they normally would be reaping the benefits of for decades and say, "Actually, this is a shorter term investment than it might be otherwise?" And so, I'm looking to super smart economists like Jeff to kind of let us know what are the models for doing that? How can we meld these two things so that we have an energy policy and a climate policy, neither of which undoes the other?

Ralph Ranalli: How do you merge those two ideas? Because to my mind, that's what it’s really going to take to develop a consensus behind, "Okay, let's take advantage of this moment and create a forward-thinking energy policy that marries this idea of energy security with this shift to renewables.” 

Meghan O'Sullivan: How I would answer that Ralph is I think they're united in a national security argument. And of course, I'm biased because I'm coming from the national security world, but I think people have started to think differently about both components of this transition in national security terms. So, I think there is an awareness on the part of people who would prefer never to see another dollar go into investment in oil and gas, that a failure to invest adequately in those resources before we bring down demand for those resources, and before we adequately scale up alternative sources of energy leaves us in a very vulnerable position. And it's that position that empowers traditional producers of oil and gas like Russia, and potentially others further down the road.

So, there's a national security consideration, I think that's forcing people to realize, "As much as we might like to dispense with those fuels at this point in our history, we're not yet there." And then on the other side, I think there's an equally compelling national security narrative about why we need to shift away from oil and gas as soon as possible, because really the only way that you're going to ensure that there isn't the kind of, I don't know if blackmail is the right word, but there isn't the kind of empowerment of natural gas producers or energy superpowers like Russia is if the world is meeting its energy demand from other sources. So, I think that this national security narrative, I think moves constituencies in both camps in a direction where there might be more common ground.

Ralph Ranalli: Jeff, what kind of concrete polities would it take to essentially put our drive toward energy security into harmony with the need to stave off the worst scenarios of the climate crisis? 

Jeffrey Frankel: Number one, virtually all economists think the way we should address global climate change is through a carbon tax, which they'd say it's politically impossible, but we would've thought it was more impossible in Europe than in the US, and they've done it with their emissions trading system. That would be the best way of addressing the climate issue, and would also reduce the demand for fossil fuels from Russian and all that. Let's say we can't do that, let's say that's politically impossible, subsidizing renewables and facilitating nuclear power would accomplish both goals, environmental goal, and reducing dependence on Russian oil. More specifically, putting a tariff on oil imports from Russia would be the most effective way of addressing the invasion of Ukraine to inflict maximum damage on Russia at minimum cost to the rest of us provided, of course, it isn't just the US, we got to get Europe as the main market and as many other countries as possible.

Our colleague, Ricardo Hausmann, has a proposal that to be more effective rather than just the US banning the import of Russian oil, which we've already done, but that's pretty small potatoes and oil has a fungible market, so it wouldn't by itself have much effect. So, clearly we'd want the cut back in Western demand for Russian oil to be as widely spread as possible, including as many oil importing countries as possible, but Hausmann says we should do it by a tariff in which case, or he says a tax, but politically, in the US at the moment, tariffs are in and taxes are out. And that way, you hurt Russia, but the bonanza, the windfall, it goes to Western governments who can then recycle money, return the money to people to make up for higher gas prices, if that's what happens. And instead of the windfall going to Russian oil producers, because there's danger that if we reduce the quantity of oil exported, the price goes up and it benefits the Russians.

Ralph Ranalli: So we are seeing this moment of international cooperation, but is a similar thing happening in American domestic politics, albeit in a small way? Although former President Trump and some of his most fervent supporters seem loath to break from Putin, we are seeing bipartisan backing of sanctions on Russia and support for Ukraine that go even beyond what the Biden administration has proposed. Is this a rare political moment, even though what precipitated it is truly awful, where you can make that national security argument about energy security and climate and get past the problem of how paralyzed and polarized American politics is right now?

Meghan O'Sullivan: I would say this, certainly is a rare moment. I wouldn't necessarily predict it will get us over the political polarization problem, but I do think it's an opportunity to put forward new ideas or old ideas with new rationales. And so, I've always been a big believer that there are not necessarily these great new ideas out there to solve existing problems, but there are old ideas whose times have not yet come, and I'm still hopeful that a carbon tax will be among those. And it's interesting listening to President Biden the other day when he announced the ban on US importation of any forms of Russian energy. As Jeff pointed out, this is a small thing, America's consumption of Russian energy is about 3,5% of our consumption and it's about 1% of what Russia exports. So, it's a small thing.

But I would say two things, first, President Biden said, "This is going to cost us. This is going to come with a cost." And I think that is a message that Americans at this moment are willing to hear. They look at the costs that the Ukrainians are bearing and this is small potatoes. So, I think there's a willingness for now, which I hope continues to bear some costs for doing what Americans perceive to do the right thing. And then secondly, and this, I think we have to keep in mind when we talk about tariffs or taxes on Russian oil, this is happening in a context that again, is so dynamic that if I had to put my money down on it, I would bet that Europe will not be importing Russian oil in the coming weeks.

So, I think that this action, which seems like a relatively small, is actually adding fuel to the fire of this cascading sanctions regime that has the intention of really penalizing Russia's economy. The big question is what does this do to the global economy? And that's really a question for Jeff. And my concerns are that we are looking at something that could be an energy shock that could be akin to that of the 1970s. This is a massive energy shock already. I heard from a very credible source this morning that 4 million of Russia's barrels of oil which is of exports, which is usually around 7 million are not making it to the global market right now, 4 million out of 100 million of daily consumption in a very, very tight market where there aren't a lot of other places to bring quick oil online is problematic for the economy.

So, the question is what is this going to do to the economy? I want to ask this to Jeff. And what does this mean for, for example, the developing world, which is going to be facing much higher energy prices, but also much higher food prices, because of the role that Russia and Ukraine play in the international wheat market, the fertilizer market, a number of places? I am concerned that the big story coming out of this is going to be what it does to the developing world a few months down the road.

Jeffrey Frankel: Well, I agree with that, about what the cost will be to Africa in particular, both North Africa and Sub-Saharan Africa for the reasons you said. I also agree that it's important that Biden said this, "We will have to bear a cost for this." The cost will be much smaller to the US and other Western … even Europe is going to be much smaller than the economic damage that's being inflicted on Russia, which is really going to be quite severe, I think. But that appears to be a majority of Americans so far as we can tell, and I don't know about poll results yet, support this and are willing to pay a higher price for gasoline if it'll help support the Ukrainian against Russia.

Just as far as the economic impact, as Meghan said, it is unfortunately reminiscent of the 1970s, the end of 1973, the world price of oil tripled after the Arab oil embargo at the end of 1979, it doubled again after the Iranian Revolution. And this has the potential to bring that back again to cause a major recession. I would still would say the odds, I wouldn't bet on it, I would say the odds are slightly less than 50% of it happening. But there still will be a cost most obviously in the form of inflation led by energy prices and food prices, which had already become economic issue number one within US politics.

Meghan O'Sullivan: Mm-hmm (affirmative). A 50% chance of a major global recession is pretty high enough to make me uncomfortable.

Jeffrey Frankel: Yeah. But the recession will be far worse in Russia. And you said, Russia is the-

Meghan O'Sullivan: Well, yeah. This is true. This is unquestioned.

Jeffrey Frankel: ... 11th largest world economy. Well, wait a few months, I think it's no longer going to be the 11th largest world economy.

Ralph Ranalli: That's a good segue to a point I wanted to bring up about sanctions is they're fundamentally about pain tolerance, right? Russia is in for some serious pain, the world economy's in for some serious pain. How would you gauge... And I guess, this is to you, Jeff again, how would you gauge the relative ability of Putin's Russia to absorb pain versus the West and these countries that are imposing the sanctions? And have we learned anything from previous long-term sanction regimes like the one that's been put on Iran?

Jeffrey Frankel: Well, one thing, the very long-term lesson about sanctions when they work and when they don't is they have to be multilateral, ideally getting everybody on board. So, a classic case is the sanctions against South Africa, because they were so universal, they eventually worked. 

Ralph Ranalli: So what’s your thinking about who’s going to have greater pain tolerance?

Jeffrey Frankel: Well, the pain inflicted on Russia is going to be many orders of magnitude greater. Even if we do have a recession in the West, it's going to be much, much worse for Russia. And Russia may be 11th biggest world economy, but it's only, I think it's less than 3% of the world economy, and with half the world reigned against it, there's no, or more than half. It's no contest in terms of who's going to inflict the most pain on whom, and we're discovering that our ability to do that through freezing the foreign exchange reserves and through the Europeans, particularly the Germans changing their views on these things is greater than expected.

Now, we do have a democracy that anyway was finally balanced as to who was going to... Democrats versus Republicans in terms of electoral votes or congressional representation versus Russia which is an autocracy and one where Putin appears to have complete control. I'm sure there are plenty, I would guess, there are plenty of people in the Russian military who think it's a terrible idea, but are afraid to say so. And I'm far from an expert on Russia, but I don't see a lot of scope for popular discontent with the war itself or with the economic effects in any time soon leading towards a regime change or pressuring Putin enough to make him back down.

Ralph Ranalli: Right. I think like you just said, it’s important to remember that an autocracy's ability to absorb pain is different from a democracy's.

Meghan O'Sullivan: I agree with a lot of what Jeff said. And one estimate I heard yesterday was that the Russian economy is expected to contract by 15% this year. That is massive, and that's going to create all kinds of pain across Russia, not just for the Russian people, but this will have an impact on Putin's inner circle, and I think it's really hard. I've been talking to my Russian really expert friends, and it's very hard for people to know what kind of impact this is going to have on Putin, his inner circle and the regime, if it's going to be sufficient to mean something consequential for Putin, I don't think anybody expects it in the short-term, but over the long-term, it's going to be hard to imagine this country staying politically stable, if not, because of just that there will be people who will recognize that this isolation has a lot to do with Putin being in power, and that Russia probably won't get out from under these sanctions soon until Putin is gone one way or another, no matter how long that takes. But also because a lot of the Russian system is constructed in a way that the revenues that are spent in the many, many provinces and autonomous regions of Russia are come from the central government, and if the central government isn't able to make those transfers, I think we could see some political instability on the periphery of the country. 

If I could just make a couple points about sanctions to add to what Jeff said, there's no question that sanctions are going to have a major economic impact, but that's different than being effective. If your objective is to cripple Russia economically, maybe you could be assured of that objective, but that rarely that’s what the objective is. It's usually about changing behavior. And in this case, I think that's clearly what the imposers of sanctions want. They want to change Putin's behavior, they want to get him out of Ukraine. They want to come to some kind of diplomatic understanding about the outstanding sources of grievances. Now, that said, this sanctions regime, to me, looks more and more like a regime-change strategy in the sense that there are sanctions... And it's not that I disagree with these sanctions, but I'm just pointing out that a behavior -hange sanctions regime is one that you are able to manipulate and lift sanctions and impose sanctions to encourage changes in behavior. It's more flexible. It's more centralized. This is a sanctions regime which probably will end up having hundreds of imposers of sanctions, thousands of sanctions, and more specifically, sanctions on Putin himself. And it will be complimented potentially by things like war crimes investigations against him.

None of that really says to Putin there's a door open for his rehabilitation. And again, I'm not advocating for his rehabilitation at this point, I'm simply saying, if we're trying to incentivize him to change his mind, the more and more that the sanctions regimes communicates, you are never going to be accepted back into, I'll say polite society, but I'll use that as like a proxy for generally being back into the international community. I think the less likely it becomes that he would change his behavior.

Jeffrey Frankel: I agree with that. And another point that supports it is … Meghan, I wonder whether you agree that it's much easier to put sanctions on than to take them off again. The US record historically has been better at the stick with the sanctions than the reward of better behavior to remove them.

Meghan O'Sullivan: Yeah, there's no question about that, especially when we look at American sanctions, but this is true for sanctions for other international institutions and other countries as well. It's much harder to remove them than it is to impose them, and part of that has to do with our congressional executive branch dynamic. We certainly see some places where the United States has sanctions on one regime, some of the sanctions come from the executive branch, some come from Congress, the executive branch wants to lift them, Congress says, "If you're going to lift them, we're just going to reimpose them through legislation." You have multiple actors, so it can be quite difficult and can take quite a long time to remove sanctions, particularly if they stem from Congress.

Jeffrey Frankel: Meghan, you said that primary objective was to get the Russians to back down, which is of course is true, but I wonder about another longer term which is signaling even if Putin can't back down, reestablishing a norm that you don't invade another country, that there's a big penalty for it when the Chinese must be watching this. And at first, you might think, "Oh, well, the Chinese will say, 'Oh, now we can invade Taiwan.'" But I think maybe it's the opposite, that when they see how the world closed ranks and is punishing Russia so severely, that that would give the Chinese pause before invading Taiwan.

Ralph Ranalli: And Meghan, you just went to Taiwan as part of a delegation on behalf of President Biden, what's the view from Taiwan and how do you see the China wild card shaking out?

Meghan O'Sullivan: Sure. No, I think Jeff made a very interesting important point. I think nobody is watching this more closely than China, than Xi Jinping in terms of what's the international reaction, but also what's happening on the ground. I don't think Putin had any expectation that he'd be on day 15 or 16 of the war and still be having a lot of pushback from the Ukrainian people. So, I think there is definitely another audience as Jeff points out to these sanctions and to the overall approach. Ralph, I did just get back from a trip to Taiwan which was, as you said, at the request of the White House along with some former colleagues, Admiral Mullen and Michèle Flournoy and Mike Green and Evan Medeiros, and the purpose of our mission, it was called a reassurance mission, because of the somewhat unique relationship between the United States and Taiwan.

It's harder for the administration to send over our secretary of state or somebody at a time when the Taiwanese and actually other of our partners and allies in Asia were feeling nervous, and they're nervous, not just about what does this mean? Is China going to take advantage of this moment and move on Taiwan at this particular moment? I actually found that that wasn't a primary concern, and I don't think anyone who is a close China watcher thinks that Xi Jinping's timeline on Taiwan is going to be determined by Vladimir Putin. However, there were sources of anxiety about other things which I think are legitimate, and that was part of what we were trying to dispel. The most important one is the question, does the United States have the bandwidth to be really absorbed in Europe, and still keep its commitments and its partnerships and alliances in Asia?

And that's something that I think is very important, and the Biden administration, I think is acutely attuned to this that it requires reassurance that, "Although we are going to be deeply engaged in Europe, it is not going to come at the expense of our engagement with Asia." So, that was one of our messages. I also think from the perspective of the Taiwanese ... A lot of them were asking the question, "How are we similar or different from Ukraine?" I heard a number of people make interesting comments about how the Taiwanese are watching the Ukrainian resistance and saying, "Should we be prepared to fight in that way? Do we need to know how to make a Molotov Cocktail?" Because the world is rallying behind the Ukrainians, because the Ukrainians are fighting for themselves. And I think that's an important message for the Taiwanese and for others, but of course, Ukraine is not a member of NATO and the US has a kind of extraordinary relationship with Taiwan with some ambiguities in it, but I do think there is a long standing relationship between the US and Taiwan that Taiwan should take some comfort in at this moment.

Ralph Ranalli: I was talking with Graham Allison on this podcast not long ago, but before the Ukraine war started, about what is China's calculation on whether to invade Taiwan or not to evade Taiwan. Is Xi sitting there thinking, "Is my country going to become an economic pariah if I'm the aggressor in a shooting war where I'm invading another country and causing a lot of casualties?" And I think that scenario has played out in Ukraine and he's sort of gotten his answer.

Jeffrey Frankel: And I think Xi Jinping is more rational. I don't know, it's hard to get information about either of these people, but we've just seen it revealed that Vladimir Putin, either he is not well-informed, or surrounds himself by yes-men, or else he's not rational. I think Xi Jinping probably does better on the competence scale.

Ralph Ranalli: And of course this situation keeps evolving, and today we’re hearing that the US and the G7 are getting set to revoke Russia’s Most Favored Nation trading status. How significant is that? 

Jeffrey Frankel: A week ago, Canada already revoked most favorite nation status for Russia, which allows them to put tariffs on not just oil, but all kinds of other commodities which Russia exports and other major countries are thinking of doing the same. Most favorite nation status could just be called normal trading status, it's the tariff reductions which were negotiated throughout the post-war period, you're part of the club that gets to benefit from the global reduction in tariffs. And it sets the stage for Canada and now other G7 countries to put up tariffs against Russian products and they can do it without violating WTO, World Trade Organization, rules. I'm big on preserving the rules-based multilateral system. So, I think that to sum up, the world outside of Russia and China is finding many more ways to hit Russia very powerfully in response to the invasion of Ukraine. 

Ralph Ranalli: I guess if you're engaging in super power conflict of the non-clear variety, then sanctions in economics and finance are really the battlefield, right?

Jeffrey Frankel: The one sentence summary of the role that sanctions have played historically is it's what countries do when they want to register clear protest about something, but don't feel strongly enough about it to intervene militarily, and that it's more a declaration of your position than something it's supposed to have an effect. Well, this is not the first time that it's had an effect. It's quite relevant for, well, I mentioned South Africa 30 years ago, Iraq ... But this is really beyond those precedents, certainly way beyond the sanctions we imposed on Russia when they took the Crimea, which I think is probably partly what lulled Putin into a sense that the West would talk a lot, but not really do too much.

Ralph Ranalli: Well, thank you, Jeff and Megan for being here. I really appreciate it.

Jeffrey Frankel: Thank you, Ralph.

Meghan O'Sullivan: Thank you, Ralph. It's a pleasure to talk to you, and Jeff, it's always great to have a conversation with you as well.

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