Part II: The most sanctioned country in the world
The second in a series of articles exploring the global economic and geopolitical fallouts of Russia’s war on Ukraine.
In the wake of its invasion of Ukraine, Russia has become the most-sanctioned country in the world with 5,581 sanctions currently in place.
Russian billionaire Roman Abramovic, valued at about $11 billion, has been instrumental to the unprecedented success of Chelsea Football Club for almost two decades now. But much of this is set to change.
Amongst a slew of western sanctions being imposed on Russia and its residents in light of the ongoing war in Ukraine, the U.K. government recently announced major sanctions against seven Russian oligarchs believed to have close ties with Russian President Vladimir Putin’s ‘murderous’ regime, and Abramovic has fallen right on top of the list.
ESPN reports: “Abramovich — along with Igor Sechin, Oleg Deripaska, Dmitri Lebedev, Alexei Miller, Andrei Kostin and Nikolai Tokarev — has had his assets frozen and faces a ban on all transactions with U.K. individuals and businesses. Abramovich, who bought Chelsea for £140 million in 2003, has always denied links to Putin’s government, but the U.K. government offered a comprehensive and damning alternative view in a document accompanying the decision published by the Treasury’s Office of Financial Sanctions Implementation.”
And it isn’t just billionaires and oligarchs, of course. Check the tracker maintained by Reuters for a complete list of sanctions here.
Economic isolation against the historical context of the current crisis in Ukraine started as early as 2014, where then-US president Barack Obama had kicked off a series of sanctions against Russia as a response to their annexation of Crimea. Fast forward to today, and BBC News states that the measures being undertaken now are far from normal sanctions – “better seen as a form of economic war”.
The objective is to bring about a deep economic recession with mass bank runs and hyperinflation. As of now, BBC reports, “the cost of smartphones and televisions has increased by more than 10% and an average vacation to Turkey has increased by 29%. Major brands like Apple, Ikea, and Nike no longer sell their products in Russia.”
Russia today faces ‘ deeping isolation and economic turmoil’ as an array of sanctions effectively seeks to cut off Moscow’s major financial and corporate institutions from participating in western markets. It is not just the west either, sanctions have been placed from a number of countries such as Serbia, Brazil, Mexico, South Korea, Taiwan and Singapore as well. In fact, in doing so, Singapore became the first country from Southeast Asia to impose sanctions on Russia – a move the South China Morning Post called ‘almost unprecedented.’
The Peterson Institute for International Economics(PIIE) opines that “since Russia’s invasion of Ukraine started on February 24, much has happened in the financial sector, and events keep unfolding at a rapid pace. (..) Russia is reeling from the impact of massive financial sanctions inflicted by a very broad pro-Ukraine coalition. The Ukrainian financial system is battered but remains functional; and the European Union (EU) financial system has rather easily absorbed the initial shock, as has the global financial system more broadly.”
The unprecedented financial penalties being imposed along with the long list of corporates pulling out of the country have had an immediate effect on Russia’s economy amidst rising costs of basic products, a looming risk of job losses, and an increasing sense of isolation for its residents.
The preferred gauge to measure Russian inflation, the consumer price index, jumped an astounding 2.2% within the very first week of the invasion; with a report from Reuters citing inflation set to accelerate to almost 20% and the shrinking of Russian GDP by almost 8% this year. Restrictions on the sale of staples, reports of hoarding, and major shipping companies suspending services could seriously hurt the Russian economy in the months to come.
The Russian rouble too has remained extremely volatile through the course of the war, falling by almost 45% against the Indian rupee at trough during the first week of March. Although it has recovered considerably since then, it is still down over 20% and continues to remain extremely sensitive to events taking place through the course of the war.
Having fallen almost 50% from last October at the start of the war, trading on the Russian Stock Market has been halted till at least March 18; and with increasing debt and central bank hikes looking large, the pressure on the Russian economy is only set to increase over the coming months.
Although the global economic system seems to have, so far, absorbed the shocks of war rather well, it would, however, be prudent to remember that sanctioning Russia’s major banks and corporations as a means of financial warfare aimed at crippling an economy deeply integrated into the global financial system may have disruptive repercussions for the global economy.
(Continue reading Part III for a broad overview of the global economic repercussions of war)