Economic Sanctions on Russia and their impact
Four weeks have passed since Russia began its military invasion of Ukraine. Over the last few months in 2021, Russia was building up its military presence along the border with Ukraine in an overt response to increasing NATO expansion eastwards. It was late in the evening of February 24 when the Russian President announced a special military operation to ‘demilitarize and denazify’ Ukraine. Within minutes of this public declaration, Russian airstrikes struck throughout Ukraine followed by a ground invasion.
In no time this outrageous act was condemned internationally. The UNGA adopted a resolution demanding full Russian withdrawal, however, many countries abstained from the voting process. Council of Europe expelled Russia and the International Court of Justice ordered Russia to suspend its military operations immediately. There was a widespread international response to the invasion, further, various countries imposed new economic sanctions upon Russia.
SANCTIONS ON RUSSIA
In the words of Vladimir Putin, “Sanctions against such country as Russia are unlikely to be effective” and Sergei Lavrov, “Sanctions are a sign of irritation, they are not the instrument of serious policies.” However, western nations have made it clear that joining in firefights against nuclear-capable Russia is not deterrence instead an economic blockade and sanctions of an unprecedented scale will cripple the Russian economy and a lesson will be taught. There are a series of sanctions targeting individuals, banks, businesses, imports, and exports. Several countries have decided to isolate Russia from the global economy and cut off its financial nexus completely [1].
Following is the list of sanctions imposed on Russia since the commencement of the invasion.
a) The US was the first country to announce a slew of measures including asset freeze of banks as well as restricting individuals and companies to gain access to western exports. The sanctions were aimed at damaging the shipbuilding, aerospace, and defense industries. Further, a ban on all oil and energy imports from Russia was announced. Also, various American conglomerates such as Starbucks, MasterCard, McDonald's, etc. summing up to 40 companies have decided to exit from Russian grounds. Even social media giants including Facebook have declared to suspend their operations affecting the 21st-century lifestyle of the Russian youth.
b) European Union followed the American sanctions with more specific asset and travel bans on hundreds of Russian political figures and entrepreneurs.
c) The UK government denied Russia and Belarus access to Most Favoured Nation (MNF) tariff depriving both countries of the key benefits of global trade. Also, it banned exports of high-value luxury goods to Russia.
d) German Chancellor announced to suspend Nord Stream2 project and stated their decision to overcome dependence on Russian energy sources.
e) Even the countries who have been historically neutral such as Switzerland and Singapore have shown support towards sanctions.
f) Group of countries comprising of Australia, Canada, Japan, and Taiwan mainly those who have close ties with the west have adopted severe sanctions reinforcing the burden on the Russian economy.
The act of inflicting economic sanctions upon Russia is not a new story. After the Crimean annexation by Russia in 2014, there were a number of sanctions in place and are in effect since. Experts suggest that the current round of sanctions is stricter than ever before [2]. Economic sanctions on major Russian banks impede other countries from actively using them for transactions. Another huge blowout was the exclusion of Russian banks from the SWIFT system i.e. the global messaging network for international payments. The economic decoupling of Russia from global economic chains will have a major impact. To put it simply, Russia currently is the world’s most sanctioned country more than other blacklisted countries such as Syria, Iran, and North Korea.
CONSEQUENCES
The expectation behind such unprecedented sanctions on Russia is to immediately halt the bombing of Ukraine and withdraw troops from the country. Moreover, the impact will not be short-term but will have a long-lasting effect. Though President Putin has denied extreme repercussions due to an ‘economic blitzkrieg’ of the Western sanctions in a televised government meeting [3].
a) The government has indicated the possibilities of a high level of inflation and unemployment, however, it will be a temporary phenomenon. Amid this scare, consumer spending in Russia has witnessed a surge as people are in a rush to stock up on food and other staples. The purchasing power of the people is depreciating. Russians are prevented to withdraw more than 10,000 USD as well as can no longer use financial cards issued by MasterCard and Visa as they have suspended their operations [4].
b) The economic fallout is rendering the Russian Ruble quite inferior receding by 40 percent. Russian companies are losing their stock value on the international markets. The situation will turn far worse as long as the global economy is prolonging Russian isolation.
c) Dramatic move to exclude Russia from the SWIFT electronic system will reduce transferring payments time consuming and inefficient.
d) Moscow Stock Exchange remains shut for the third week running to avoid sudden collapse in equity prices [5]. On the other hand, the Russian central bank declared to increase the base interest rate to 20 percent which in turn will make borrowing unprofitable and enhance gold purchases to curb volatility.
e) Economic sanctions are primarily symbolic in nature condemning Russian aggression having a long-term tangible impact on the Russian economy. Russian markets are closed for two weeks now facing extreme shortages of goods. Additionally, the majority of foreign companies are reverting their business from Russia affecting the service industry and the number of jobs available.
f) Russia is a major oil-producing country, hence, the additional sanctions are going to have a negative effect on the Russian oil supply. Especially absolving the operations of the Nord Stream2 from the German side to make Russia accountable for its actions in Ukraine would reduce the export of natural gas from Russia to Europe.
In general, Russia would have anticipated financial hardships in form of economic sanctions, however, what the country could not calculate was that such tough actions will be taken so swiftly. People are living in austerity since the 2014 sanctions. The current economic crisis is so far the most damaging one. The government is obstructing spending on social and physical infrastructure and civilians are the worst sufferers. As the currency plummets, the commodity prices skyrocket disturbing the everyday lives of the people. There are sanctions of different nature causing harm to Russia and its economy such as EU has banned access to its airspace and state-owned Russian media outlets are suspended in many countries.
Russia has retaliated by banning exports of more than 200 products until the end of this year [6]. The basket of goods includes telecom, agricultural products, electrical equipment, timber, and medical commodities. Further, interest payments to foreign investors who hold government bonds are blocked and Russian firms are restricted to pay overseas shareholders. The Russian government has also threatened to seize the assets of the companies leaving Russian markets.
Sanctions make up a powerful technique to curb the aggressor, albeit it severs the economy but does not bring much of a political change. The western countries are practically going all out to restrain Russian devastation but the ignorance and intransigence on part of the Russian leaders will result in wrecking the Russian society.
References
[1]https://www.thehindu.com/news/international/sanctions-on-russia-what-is-the-impact-on-india-worldview-with-suhasini-haidar/article65217129.ece
[2]https://www.gov.uk/government/news/uk-announces-new-economic-sanctions-against-russia
[3]https://www.businessinsider.in/politics/world/news/putin-says-russia-has-survived-the-wests-economic-blitzkrieg-of-sanctions-but-admits-unemployment-and-inflation-will-rise/articleshow/90287757.cms
[4]https://knowledge.wharton.upenn.edu/article/economic-sanctions-affecting-russia/
[5]https://news.vcu.edu/article/2022/03/impact-of-sanctions-on-russias-economy
[6] https://www.bbc.com/news/world-europe-60125659
Image Courtesy: Ria Novosti
(The views expressed are those fo teh author and do nto represent views of CESCUBE.)
Poonam Jindal is post graduate in International Relations from O.P. Jindal Global University. She did under- graduation in Political Science from Delhi University. She has experience in primary and secondary research and has done a certificate course on Conflict Management from Bar-Ilan University in Israel. Ms Jindal has studied East Asian Politics at National Chengchi University in Taiwan and co- authored a paper on China Military Modernization. Her research interests include China Studies, Geo-politics in Asia, Diplomacy and Security Issues. She is Research Assistant with CESCUBE.
