Following Russia’s invasion of Ukraine, the international community has rallied behind Ukraine to stop further massive destruction from being inflicted.
Influential nations like the United States of America and the United Kingdom, as well as key unions like the European Union, have established some of the harshest economic and political sanctions on Russia. These sanctions have been implemented as tools to penalize and disincentivize the Russian government following the Kremlin’s decision to advance into Ukrainian territory. The sanctions have further been extended to individuals belonging to the Russian oligarch class. A famous example of such a sanction was one placed on Roman Abramovich, owner of Chelsea FC, by the British government, as the team’s funding had been cut off.
Let’s briefly highlight some of the major sanctions imposed, from the initial sanctions to more recent ones.
To begin with, American president Joe Biden’s administration has banned all Russian oil and gas imports into the United States of America as of early March. This has been followed up by a bill passed in the United States Congress revoking Russia’s trade status with the country. This sanction has put a massive toll on Russia’s economy since the country is the world’s third-largest producer of oil and gas, contributing 11% of global oil production. This industry is heavily controlled by the government, and several countries around Europe rely heavily on Russian energy as well as on their agricultural products—specifically fertilizers. In a similar fashion, the United Kingdom and the European Union have all reduced their imports of Russian energy and have expressed their plans to reduce and eventually wipe out their reliance on Russian energy by the end of 2022 and 2023, respectively.
Furthermore, assets from the Russian Central Bank, like foreign currency reserves, have been frozen by relevant countries storing these reserves. These reserves are estimated to be worth approximately $630 billion. International Russian banks have also been removed from global banking messaging and transfer platforms like Swift, in an attempt to unplug the Russian economy from the rest of the world. In addition, multinational corporations like Visa and Mastercard have suspended operations in Russia, rendering most debit and credit cards unusable. Several of these corporations have chosen to indefinitely suspend their operations, e.g., Apple, Coca-Cola, McDonald’s, and Ikea.
Similarly, Russian flights have been banned from flying over American, Canadian, British, and European Union airspace. So far, these sanctions have not prompted the Kremlin to rethink its decision to advance into Ukrainian territory. Instead, the Kremlin has introduced new restrictions in retaliation against the said sanctions. For example, Russian banks have been banned from paying dividends to overseas shareholders and are only accepting payments for gas exports in Russian Roubles. as a tool to undermine the hegemony of currencies like the US dollar and the Euro in global financial markets.
Nonetheless, the Russian economy has begun experiencing the adverse effects of mainly western-imposed sanctions. According to Sky News, inflation has risen at a standardized rate of 14.5%, a first for the country since 2015. This sharp increase in inflation can be attributed to rising import prices and unemployment, as well as far fewer consumer and company transactions within the economy. Many working-class Russians and business owners are anxious-stricken as many are skeptical of the Kremlin’s withdrawal shortly. With inflation, the prices of basic commodities like cooking oil, sugar, milk, and cereals have increased by up to 20%.
Consequently, stocks of basic commodities have been running low as many opt to stock up, foreseeing tough financial times and minimal imports into the country, with rationing becoming a potential reality. Bank runs have been at an all-time high as many fear for their savings due to the depreciating value of the Rouble and increasingly restricted access to global financial markets. Thus, the unemployment rate has been steadily rising with the exodus of several international companies from Russia.
Ultimately, as the international community continues to monitor Russia as the Ukrainian invasion continues to unfold, many economists and politicians have been quick to ascertain that the economic burden will continue to get heavier as time progresses and market forces move into full swing.