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Russia 'headed for economic stagnation, if not even worse': Brookings Institution senior fellow

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Brookings Institution Senior Fellow and Director of Research in Foreign Policy Michael O'Hanlon joins Yahoo Finance Live to discuss the U.S. issuing new sanctions on Russia and the market plunge following Russia's attack on Ukraine.

Video Transcript

BRIAN CHEUNG: Welcome back to Yahoo Finance Live. Airstrikes hitting Ukraine's capital following Russian President Vladimir Putin's move to invade the country. Things are progressing quickly, so quickly that, in fact, we're actually monitoring tweets from some major politicians based out of Ukraine with the president of Ukraine, Volodymyr Zelenskyy sending this out earlier in the morning, quote, "A package of additional tough sanctions against Russia from the EU is approaching. Discussed all the details with Emmanuel Macron. We demand the disconnection of Russia from SWIFT, the introduction of a no-fly zone over Ukraine, and other effective steps to stop the aggressor."

Let's get a little bit more of a breakdown on what's going on here with Michael O'Hanlon, Brookings Institution senior fellow and director of research in foreign policy. Michael, thank you for jumping on this morning. Obviously, a lot of focus on the sanctions on Russia, but also need to put into focus what Ukraine needs help with in the immediate few hours after that big announcement yesterday. Based off of that tweet that we had just shown, do you see the appetite among the Western Allies of Ukraine to deliver Ukraine the help that it needs right now?

MICHAEL O'HANLON: Greetings, and the answer would be no. I think the request for a no-fly zone was particularly notable as a non-starter because a no-fly zone is a military operation. It's a major military operation. I interpret that to be a request that NATO declare and then enforce a no-fly zone over Ukraine, meaning that NATO would go to war against Russia in the air, which we obviously aren't going to do if we're not willing to use force in any way, shape, or form. So I'm afraid that that is also, however, understandable at one level for a president who is fighting for his country's survival and perhaps even his own life.

Nonetheless, it reflects perhaps the degree to which this is still getting worse, not better, because that sort of public demand by Zelenskyy is only going to incite Putin further. Putin has a contempt for Zelenskyy. This is part of what's driven this crisis. I think Putin not only has a view of history that's based on what countries do to each other, but he also can personalize things. And it's clear that Zelenskyy is one of the people on the planet he doesn't like at all right now.

And so again, I'm not really trying to put the blame on Zelenskyy. I'm just saying that this sort of a tweet is virtually guaranteed to cause a negative reaction from Putin. And whatever other steps he might have been contemplating have become more likely, although I think the big decisions have already been made. And so the tweet is relatively unimportant by comparison.

AKIKO FUJITA: Michael, the last time we spoke, you know, we had raised questions about what exactly the motive was here, whether it is regime change for Vladimir Putin. Based on what we have heard from him in the last 24 hours, based on the actions taken by the Russian military, what's your assessment?

MICHAEL O'HANLON: My assessment is that Vladimir Putin is going to make sure Ukraine never joins NATO and that he can dominate Ukraine to the extent he wants. So I think even just getting rid of Zelenskyy is no longer enough because there would always be the possibility of some future Zelenskyy-like figure coming to the fore. And of course, Ukraine has wanted to be in NATO for a long time under numerous presidents. And it's wanted to consider joining the European Union, or at least, moving in that direction under numerous previous presidents.

So I think Putin is going to want to exercise more direct control. Either he will literally annex part of Ukraine, a substantial part beyond what he's already taken, or he will insist that he creates some kind of a Lukashenko-like figure, the president of Belarus who's been so subservient to Putin for so long and doesn't really run in fair elections and can't really be unseated.

So at least for some foreseeable future of 10, 20, 30 years, what have you, Putin can make sure that any president of Ukraine would not tilt westward. I think he's going to make sure he finds some way to do that. And maybe he changes the constitution of Ukraine as well, to the extent he allows it to continue to survive as an independent country, such that it could not join western states, at least not without Moscow's blessing. So those are the sorts of things that I would expect Putin to consider.

BRIAN CHEUNG: Michael, in the here and now, you talked about the kind of no appetite for that no-fly zone. But how about SWIFT? And I feel like there's been a lot of talking points on this, but we need to zoom out and just kind of review exactly what SWIFT is against the communications channel, essentially, for international transactions.

The foreign minister of Ukraine is sending out his own tweet kind of in the same vein. I won't read the whole thing, but he just said, I won't be diplomatic on this. Ban Russia from SWIFT. But there's an open question, Michael, about how effective that would be, given the central bank of Russia's efforts already to de-dollarize. But how important of a tool do you think that is as part of these discussions?

MICHAEL O'HANLON: Yeah, I don't know how to do a quantitative assessment to link what de-accessing SWIFT would mean for the Russian economy in terms of, let's say, percent of GDP growth or the survival of certain companies or the overall volume of exports. I don't claim enough expertise to know any of that, but I do know that over the last 10 years, the sanctions we had already applied had essentially put Russia into the economic doldrums. And Russia remains in the economic doldrums. And things are only going to get worse.

So whether that means that Russia's expected GDP growth rate goes to 0 or minus 2 or minus 5, I don't know. I would also favor developing a plan to wean ourselves off Russian oil and gas over the next half decade or so. And that could definitely make a major difference. That one, I think we could fairly conclude, would put Russia into negative GDP growth territory. But for the reasons you just mentioned about alternatives to SWIFT, I think it's possible that Russia may have some partial workarounds that would limit the damage.

But again, they're starting from a very unpromising place. They've already lost access to high technology in the west. They've already lost access to a lot of the personal bank accounts of key leaders. And it's just going to get worse. So Russia is now headed for economic stagnation, if not even worse.

AKIKO FUJITA: A quick follow here, Michael. When you say reduce reliance on Russian oil, you're talking specifically about Europe in acceleration to what? To renewables, or what are you specifically saying?

MICHAEL O'HANLON: Well, it's an excellent question. Yeah. Yeah, and I wrote with David Victor on this recently. He's an energy expert at the University of California, San Diego. I think there are a number of pieces. First of all, we actually import Russian oil right now in the United States. So that's one part of it.

But yes, as you say, it's European dependence on Russian gas. And it may require not only an accelerated transition to renewables, which would be great, but at least in the meantime, an increased rate of hydrocarbon production in North America and the broader Middle East.

In other words, we may have to temporarily suspend some of our more ambitious green targets, or at least put them in a certain perspective that they can't be allowed to supersede the importance of dealing with Russia in this crisis right now. So I think we might need to try to produce elsewhere more oil and gas and also help our European friends maybe with NATO infrastructure funds to build more LNG [INAUDIBLE]

AKIKO FUJITA: Michael O'Hanlon, Brookings Institution senior fellow and director of research in foreign policy, good to have you on today.