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HOW US SANCTIONS TORPEDOED KAMALA HARRIS  
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Arun Gupta
November 19, 2024
Jacobin
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_ The Biden administration’s sanctions on Russia didn’t just tank
global markets; they also helped Kamala Harris lose the election. The
Democrats’ fate was sealed by a Wall Street–fueled commodity
frenzy that sent gas prices and grocery bills soaring. _

,

 

The warning signs that the Democrats were in deep doo-doo
[[link removed]] on the economy were
clear for years. In 2021, CNN described
[[link removed]] inflation
as a “political nightmare for [Joe] Biden.” By the fall of 2022,
the “Biden–gas price index
[[link removed]]”
showed his popularity
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moving in lockstep with the price of a gallon of gasoline. As gas
prices rose, Biden’s ratings fell — and when prices eased, his
numbers improved. By December 2023, NPR reported
[[link removed]] that
Americans were in a sour mood because of the high price of groceries
and gas. A month before the election, a majority of Americans — 52
percent — said they were worse off
[[link removed]] than
they had been four years earlier.

Nothing is deadlier to incumbent presidents and parties than economic
woes. The early 1990s recession sent George H. W. Bush packing after
one term. Barack Obama trounced John McCain in 2008 after eight years
of GOP rule led to the Great Recession. Jimmy Carter was kneecapped by
inflation fueled by the Iranian Revolution, which knocked out
[[link removed]] 4.8
million barrels a day of oil production and sent prices skyrocketing.

Days before the 1980 election, Ronald Reagan famously asked
[[link removed]], “Are you better off
than you were four years ago?” The resounding “no” carried him
to victory against Carter, ushering in the Reagan Revolution. Days
before the 2024 election, Donald Trump reprised Reagan’s question at
Madison Square Garden and was greeted by a chorus of “nos.”

The Sanctions Spiral that Doomed the Democrats

Kamala Harris, like Carter, was torched by conflict-fueled inflation
[[link removed]].
Historian Adam Tooze, a rare voice of clarity among today’s
journalists, points out
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the spike in food and energy prices in 2021 and 2022 was worse than
the inflation caused by the 1973 oil embargo triggered by the
Arab-Israeli War and “second only to the Iran-crisis shock of
1979.”

History appears to be repeating itself with Trump lining up
cabinet-level wrecking balls for an unprecedented counterrevolution.
But Harris’s downfall was not caused by a Middle East war, even
if evidence
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her embrace of Israel cost
[[link removed]] her
Michigan and possibly
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swing states.

Harris lost because of the Ukraine War. Or more precisely, she lost
because of sanctions
[[link removed]] the
White House imposed on Russia in response to Vladimir Putin’s
illegal invasion of Ukraine on February 24, 2022. While the sanctions
largely failed to weaken Russia, which shifted its economy to China
and India to escape US pressure, they enabled hedge funds and Wall
Street to place bets that sent commodity prices soaring. Inflation was
already heating up in late 2021 from lingering supply-chain shortages
and oil prices rebounding from the pandemic. But the speculative
frenzy proved lucrative for big traders and turned smoldering US
inflation into an inferno.

The effects pummeled Western consumers and brutalized low-income
countries. By January 2024, the cost of groceries had soared 22
percent for Americans, spelling doom for the Democrats. If not for
inflation, Harris would have likely glided to victory.

How did sanctions affect inflation? It starts in the Clinton era, when
deregulation hollowed out safeguards. In 1999, Congress passed
[[link removed](12-5-14).pdf] the
Gramm-Leach-Bliley Act. It blew up Glass-Steagall
[[link removed]],
the Depression-era law that erected barriers between commercial and
investment banking. For 150 years prior to the repeal, goods like
wheat, pork, and copper were traded on exchanges like the Chicago
Mercantile Exchange. Exchanges reduced risks, tamped down price
swings, and smoothed the chaos of local markets and events by building
national and international markets. Farmers, millers, warehousers, and
food processors could bank on predictable prices and feed a rapidly
growing nation. Speculators played only a modest role, providing
liquidity and bridging gaps between buyers and sellers. This system
enabled the United States to become an agricultural powerhouse, even
if it didn’t prevent the wipeout of Dust Bowl farmers during the
Great Depression.

The situation worsened in 2000, when Congress passed the Commodity
Futures Modernization Act — a move that deregulated financial
derivatives
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leading to the banking collapse of 2008 and the Great Recession. That
same year, the Chicago Mercantile Exchange changed from a nonprofit to
a for-profit corporation. In its new guise, it sought “to maximize
trade volume and trading fees in hyper-speed electronic transactions
and trade data reporting,” according
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the Institute for Agriculture and Trade Policy.

With these changes, Clintonian neoliberals cried havoc and let slip
the dogs of war.

Turning Wheat Into Gold

In 1991, Goldman Sachs created a commodity index. It was “a new kind
of investment product, a derivative that tracked 24 raw materials,
from precious metals and energy to coffee, cocoa, cattle, corn, hogs,
soy, and wheat,” according to _Foreign Policy_
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Initially a niche product, it exploded after deregulation. Freed from
trading restrictions, Goldman gorged on commodities, prompting other
banks to follow. From 2005 to 2008, speculators poured $300 billion
into commodity index funds. According to _Foreign Policy_, “The
result of Wall Street’s venture into grain and feed and livestock
has been a shock to the global food production and delivery system.”
As Wall Street inflated food prices worldwide by 80 percent, some 130
million people fell into extreme poverty and 40 million people into
chronic hunger, _Mother Jones_
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Financial regulators and reforms like the Dodd-Frank Act
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rein in commodity index funds. By 2022, markets were poised for a new
round of speculative frenzy. When Russia invaded Ukraine, Washington
and its allies issued twenty-one rounds
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sanctions within one week. Biden crowed
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were “the toughest ever imposed on a major economy.” Except they
bombed. Not only did Russia’s economy and war machine shake them
off, critics argue they have backfired
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“strengthening Moscow’s hardline position, undermining the utility
of alternative strategies, and shoring up the Kremlin against future
international coercion.”

The sanctions wreaked havoc in global markets, with dire consequences
for the US economy. Russia is one of the world’s top producers of
natural gas, crude oil, industrial metals, fertilizers, wheat, and
seed oils. Nine days after Russian tanks rolled into Ukraine, wheat
contracts on the Chicago Board of Trade had leaped 54 percent
[[link removed]].
Within eleven days, Brent crude oil futures skyrocketed to $139 a
barrel [[link removed]]. In three
trading days, nickel soared 270 percent
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the London Metal Exchange. Fertilizer prices surged more than 30
percent
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early 2022.

Price spikes had much more to do with speculation than shortages. For
example, while the war disrupted less than 1 percent of global wheat
supply, one wheat index fund doubled its net assets
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a week of the invasion. One analyst told _Bloomberg_ at the time,
“Wheat futures are in ludicrous mode, there is no other way to say
it.”

Michael Fakhri, UN special rapporteur
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the right to food, blamed
[[link removed]] financial
markets and hedge funds for spiking wheat prices, stating, “Their
fear, their panic, their algorithms cause the price to spike. It
didn’t reflect real world supply and demand, real world readjustment
to find new supply routes, real world concerns — it reflected the
needs, desires and function of the financial market.”

Speculators Win, Consumers Lose

One seasoned oil analyst
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that casino-like bets on ever-increasing oil prices were
self-fulfilling. He attributed the surges to meme-stock herd behavior
and AI trading algorithms that magnified price fluctuations such that
“a change in fundamentals that might have moved prices by 50¢ or
$1/bbl will cause a change of as much as $10.” One economics
institute argued
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“excessive speculation” was responsible for 24 to 48 percent of
the increase in West Texas Intermediate crude price, before and during
the oil bubble inflated by US sanctions.

The story of the rocketing price of nickel, crucial to making
stainless steel and EV batteries, was even more absurd. For
decades soused traders
[[link removed]] at
the venerable London Metal Exchange would strike verbal deals in a pub
next door, but after new owners overpaid for the exchange, they opened
the trading pit to hedge-fund sharks to generate more revenue. Opaque
trading
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big players to acquire huge positions, leading to the meltdown. The
ripple effects spilled over into the real economy. Within days,
producers and sellers of nickel compounds warned
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were reducing production, canceling deliveries, halting new orders,
and facing “huge losses.”

Fertilizer was the one sector hit by shortages due to sanctions on
Russia and its client state, Belarus. But shortages hurt the West more
than Russia. The United States Department of Agriculture says
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two countries are “the world’s top fertilizer exporters,
accounting for nearly 20 percent of the three major types traded
globally: nitrogen, phosphate, and potash.” In 2021, the EU and
United States sanctioned potash from Belarus. The next year, they
imposed Russian fertilizer producers with tariffs, shipping bans, and
penalties on company owners.

Europe compounded [[link removed]] its
woes by trying to wean itself off Russian gas. Gas is essential for
fertilizer production and forgoing Russian supply further crimped
supplies and sent prices soaring further. The White House claimed
carve-outs in the sanctions allowed for the free flow of Russian
fertilizer and grains. But shipowners, ports, bankers, and insurers
shunned Russian goods for fear of being caught in the US sanctions
net, again adding to price increases.

On top of these challenges, the fertilizer market’s oligopolistic
structure magnified the crisis. The handful of companies that dominate
the market “caused prices for chemical fertiliser to double and in
some cases even triple” in a two-year period, according
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Agriculture and Trade Policy. For the first half of 2022, the nine
largest corporations recorded an increase in profits of more than 100
percent over all of 2021.

The Sanctions-Sponsored Cash Cow

The story of US sanctions is simply that of modern finance, where
speculation and profiteering is the only
imperative. _Bloomberg_ reported
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commodity exchange–traded funds hauled in $4.5 billion in new
investments the first week of March 2022. It was “an inflow that
would normally be seen over the course of a month.” Wall Street
banks nabbed $20.1 billion
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commodity trading profits in 2022, three to four times the amount they
made in a typical year before the pandemic.

All told, commodity traders hauled in a staggering $150 billion
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2022, triple the amount in 2019. It was a corporate orgy all around as
Big Oil doubled profits
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racked up profit gains as high as 73 percent in 2022.

One industry paper
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a smoking gun for how speculators drove trading and profiteering. It
gushes over how “sanctions on Russian energy” created “extreme
volatility,” redirected oil and gas flows, and “triggered a
dramatic rise in electricity prices and a rush to renewables.” This
volatility sparked a dramatic expansion of trading energy–related
commodities, generating 74 percent of all commodity trading profits in
2022. The paper also noted a surge in “non-asset-backed traders”
who accounted for more than 60 percent of all trades that year.

In short, deregulation of commodities and derivatives in the 1990s
opened the door for pure speculators — independent traders, hedge
funds, and big banks — to exploit uncertainty in commodity markets
caused by US sanctions on Russia in 2022. The speculators fueled
volatility and inflated prices, profiting from chaos that left
inflation and shortages in their wake. In the Global South, the
fallout manifested as rampant
[[link removed]] hunger
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numerous countries near the brink of collapse
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The role commodity speculators played in inflation is
straightforward. Dave Whitcomb
[[link removed]],
head of Peak Trading Research, which specializes in commodity trading,
blamed “momentum traders,” who chase market trends, for propelling
prices, explaining that because

they’re buying wheat, or buying coffee or buying corn, that buying
interest will drive prices higher than where they might otherwise be.
So, for consumers who are buying pasta, or cereal, or anything made of
wheat, in the spring of 2022 — they were paying higher prices
because of momentum traders.

Others point to commodity index funds as additional culprits.

Weapons of Financial Destruction

Apaper
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by former Fed chair Ben Bernanke confirms the link between sanctions
and inflation. For the first six months of 2022, food and energy
accounted for about half of inflation, which topped 8 percent
[[link removed]] month
after month. Supply-chain shortages added nearly another point to
inflation, which were also caused by sanctions. _Reuters_ noted
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“sanctions against Russia are battering the global aviation
industry” with costlier jet fuel, less air cargo capacity
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and longer and costlier
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paths, causing air freight rates to spike. Sanctions roiled seaborne
cargo
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insurance and fuel prices went up, payment mechanisms were frozen, and
hundreds of Russian ships were denied entry or stuck at European
ports, squeezing capacity still sluggish from the pandemic.

Sanctions could not have been more ill-timed. Inflation had climbed
to 7 percent
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largely driven by energy prices and supply-chain shortages. But for
most of 2021, Fed chair Jerome Powell argued
[[link removed]] inflation
was limited to a few sectors, big price surges in automobiles were
receding, and supply-chain kinks were untangling. But as Russia began
amassing forces on Ukraine’s borders, oil, gas, and wheat
prices spiked
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December, feeding inflation two months in advance of the invasion.

Moscow bears plenty of responsibility for the economic turmoil as its
invasion of Ukraine was a war of choice. But sanctions are a choice,
too. The United States currently targets more than thirty countries
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sanctions, pushing hundreds of millions of people into desperation.
Even the _American Conservative_
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sanctions “weapons of financial destruction.” Two weeks after
Russia invaded, it presciently warned that the West has “thrown a
wrench into the gears of important sectors of the world economy. They
are badly underestimating the fallout. Remarkably, they did this
against the backdrop of a worldwide crisis in supply chains. That is
about to get a lot worse.”

The fallout was catastrophic. In 2022, sixty-one million people
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hunger, mainly due to high food prices resulting from the Ukraine War.
In Europe, far-right parties capitalized on sanctions-induced
stagnation, with GDP growth below 1 percent
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and sought to exploit
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against Ukrainian refugees. In the United States, economic frustration
fueled Trump’s rise.

The sanctions also failed to achieve their primary goal. Russia
endured the economic penalties and Trump appears poised to broker
an unfair settlement
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the war, potentially requiring sanctions to be lifted — meaning
Ukraine’s years of death and destruction may all be for naught.

Celebrity Fundraisers Against Inflation

Biden had options for deflating the commodity bubble. Michael
Greenberger, a law professor at the University of Maryland who worked
as a regulator
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and derivatives
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the Commodity Futures Trading Commission in the fateful late ’90s,
says Biden could have closed a loophole in Dodd-Frank that allowed for
unregulated derivatives trading. He notes
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Biden could have signed “an emergency rule [that] would bypass the
usual public comment period for the purpose of perpetuating an
immediate change.”

Instead, the job was left to the Federal Reserve. While it has
received fulsome praise for bringing down inflation without triggering
a recession, its actions contributed greatly to suffering in the
Global South and economic woes for US workers. Three weeks after the
invasion, on March 17, 2022, the Federal Open Market Committee
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raising interest rates aggressively. Over the rest of the year, it
raised rates 4.25 percent. That strengthened the dollar against other
currencies, which for American consumers lowered the cost
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oil, which is traded in dollars. But for debt-laden consumers it
created new pitfalls.

From 2021 to 2023, auto-loan delinquencies surged
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percent for households in the bottom half of income, while monthly
payments increased $100 or more for all income groups. Credit card
delinquencies rose 34 percent
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the war to one month before the presidential election. Mortgage rates
climbed so high that the annual income needed to buy the median-priced
home doubled
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about $70,000 to $140,000 in two years. The monthly mortgage payment
for new home buyers swelled by 52 percent — or an additional $838
— with the result that only 24 percent
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households could afford to buy a home.

Even more damaging to Democrats was daily life. Gasoline leaped
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$3.41/gal in January 2022 to $5.03/gal by June, only five months
later. Since 2020, the price of many fast-food items have shot up
by 50 to 100 percent
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From 2021 to 2024, grocery bills rose
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percent. Biden decided to run on the threat to democracy and abortion
rights. These are undeniably crucial issues, but this past April, 65
percent
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Americans said they were living “paycheck to paycheck.” Every time
they grabbed a burger, filled their tank, or stocked up on groceries,
they were frustrated and upset. Trump channeled that anger. He blamed
“Comrade Kamala
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immigrants, China for the poor economy, and made wild promises to fix
everything.

Harris, meanwhile, ran the “Fyre Festival of campaigns
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spending tens of millions of dollars
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events with Bruce Springsteen, Beyonce, Oprah, and Usher. There are
plenty of other issues that dragged Harris down, whether it was her
past as a prosecutor, embracing Dick Cheney, or chasing after mythical
Republican suburban women. But the economy and inflation defined this
election. When Harris bothered to talk about the economy, she read
from a “Wall Street–approved economic pitch
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It was a fatal mistake.

_Arun Gupta is an investigative reporter who has written for
the Washington Post, the Daily Beast, the Intercept, the Nation,
the Guardian, Yes! Magazine, and other publications. He is a
graduate of the French Culinary Institute in New York and author of
the forthcoming Apocalypse Chow: A Junk-Food-Loving Chef’s Inquiry
into Taste. Read all of Arun’s reports, essays, and criticism
on Substack [[link removed]]._

_Jacobin is a leading voice of the American left, offering socialist
perspectives on politics, economics, and culture. The print magazine
is released quarterly and reaches 75,000 subscribers, in addition to a
web audience of over 3,000,000 a month._

* Sanctions
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* inflation
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* financial industry
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* Ukraine
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* Russia
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* Biden Administration
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* 2024 Elections
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