The effectiveness of the economic sanctions against Russia after its leader, Vladimir Putin, ordered the invasion of Ukraine has provoked much debate worldwide raising doubts that this will force the Kremlin to end the war. At the same time, the economic impact of the financial sanctions on Russia has apparently proved to be greater than previous estimates. Imposing sanctions on a country also affects the economy of the imposing country to a degree. We discussed these consequences with several international financial experts. Check out their opinions below.
How are the sanctions on Russia affecting the global economy?
“Sanctions on Russia are affecting the global economy by weakening the fragile recovery after the COVID-19 pandemic. In fact, global economic growth and inflation are expected to be 1% lower and 2.5% higher than predicted without taking into consideration the war (OECD). Sanctions make the resolving of this dire situation even harder, especially for countries that import Russian oil and natural gas. Indeed, the countries backing the sanctions are currently exploring ways to replace their imports of 4.8 million barrels of oil per day and so far, only five countries (Saudi Arabia, UAE, Iran, USA, and Venezuela) have the potential to boost their oil production to compensate for the cut in Russian supplies (Washington Post). Russia, on the other hand, will easily find other buyers amid the shortage and the increased demand in Asia with countries like North Korea and China that will agree to pay with their home currencies instead of in US dollars as the sanctions also affect the SWIFT payment system. As for natural gas, the European Union is yet to find a replacement for the 155 billion m3 it imports from Russia, accounting for 45% of EU gas imports (IEA). But the biggest threat is going to come from hedge funds as they are facing uncertainty as to whether they can honor their existing insurance contracts on thousands of billions of dollars of goods delivery when due. Buyers will then have to turn to the markets to acquire the needed goods which will exacerbate inflation otherwise we could face a crisis worse than the one in 2008 following the collapse of Lehman Brothers.”
“Russia’s invasion of Ukraine has cast a shadow on the outlook for the global economic recovery. Although Russia plays a very minor role in world economics (despite its huge energy exports), the financial sanctions imposed on its economy have severely affected the global economy and international trade as well. The applied sanctions were in principle planned to avoid any energy bottlenecks in the EU and the U.S. regions. However, they could not prevent the “grotesque rise” in global energy prices, especially of oil and gas. Furthermore, problems with logistics and supply chains all over the world have arisen too. Moreover, the prices for other commodities exported by both Russia and Ukraine, such as wheat and corn, have increased as well thus affecting consumer prices. Additionally, a significant increase in the prices of aluminium and nickel could particularly affect the automotive and telecommunication sectors. The sanctions imposed on Russia also affect the volatility of the global economy and the roadmaps of decision-makers. In conclusion, the war in Ukraine raises questions about the continuation of globalisation and the capability of any country to act against the wishes of the international community with impunity. These issues will definitely be on the agenda of many governments in the forthcoming months and years.”
“Since there does not seem to be any rational logic to sanctions ever stopping war or influencing elite behavior (for almost a century we have known that embargoes led Japan into WWII and the continuing evidence elsewhere is that they harm civilians in a way that is not effectively criminalized under international law), the question needs to be whether or why harm to the Global South, and particularly in this case to sustainable development policies (in a war that is really over Ukrainian gas/oil and Ukrainian-Caspian gas/oil pipelines) everywhere, is part of a pernicious cultural logic (a vicious rationality). Naomi Klein would likely argue that Western countries now have a cultural logic of creating disasters as a means to consolidate and expand economic power (and in this case, military and political power) by targeting the weak and that this has now been reinforced over generations, perhaps dating back to the 1930s, whereby major firms and families withstand the shocks of war, embargoes, and sanctions and may actually benefit.”
“My opinion is that the sanctions have an equally negative effect on both Russia and all its economic counterparts especially the EU and the former “Soc-bloc” because of their resource dependency. But Russia has been increasing its gold reserves for the past five years which will give it an advantage should there be hyperinflation. From my point of view, the sanctions are more or less media propaganda since the big treasury departments of top multinational companies will still undertake transactions to and from Russia/Belarus as long as they have sufficient funds in their rouble bank accounts.”
How do sanctions on Russia affect foreign aid budgets in developing states?
“Foreign aid budgets in developing states should not be affected by sanctions on Russia. In fact, Russia is not a big player in foreign aid. With only a little over US $1 billion per year in bilateral and multilateral contributions combined (World Bank), Russia’s contribution can easily be compensated for should there be a need to do so. In addition, Russia has offered reassurance that it has the means and is going to honor all its international commitments. Moreover, foreign aid to developing states mostly comes from rich countries and international organizations with a pre-set disbursement schedule to be honored, except in exceptional circumstances, which is not the case here. However, inflation is going to alleviate the impact of foreign aid in developing states as we see the prices of commodities such as oil, wheat, corn, and fertilizers increase. The hardest hit will be the weakly mechanized agricultural sector in sub-Saharan Africa and the subsequent low yields which will result in food scarcity. Another consequence for countries that import most of their wheat from Russia and Ukraine, such as Morocco, Tunisia, and Egypt (OECD), is that they will suffer staple food scarcity.”
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