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Russia’s ongoing invasion of Ukraine is starting to cause turmoil in Europe and around the world as gas pipelines are restricted and sanctions are placed upon Russia.
Is It Really Possible to Isolate Russia from the Global Economy?
So far, the gas cut-off hasn’t caused too much disruption but it will be in the winter months when it really hits hard. This is because the time to fill up the reserves in readiness for the winter is now, but that is difficult when Russia is closing the pipelines amid claims of necessary maintenance work.
The sanctions imposed upon Russia so far also don’t seem to have persuaded Vladimir Putin to call off the invasion, and it looks like he is settling in for an occupation that won’t be ending anytime soon.
So what can the world do about it, that doesn’t involve escalating the violence even further?
Economic Sanctions to Avoid Military Conflict
A number of sanctions have already been imposed that will cause the Russian economy to contract by 15% if they continue throughout 2022. These sanctions include many Russian banks being removed from the cross-border payment platform SWIFT. Russia has also had much of its foreign reserves frozen. The country holds a total of $630 billion in reserves, with half of that held abroad and now inaccessible.
The United States has also applied a series of banking restrictions such as banning Russia’s largest bank from making most transactions in U.S. dollars. They have also been banned from accessing their U.S.-based assets.
A lot of technology exports have also been prevented from arriving in Russia, which could restrict their intelligence services, defense industry and oil drilling and refining capabilities. The U.S. has banned imports of Russian gas and oil, while countries like the U.K. have pledged to phase out Russian oil and gas imports by the end of the year. If the E.U. joins in the ban, then the Russian economy could retract by 20% this year.
Other sanctions include many U.S. companies suspending operations in Russia. These include Coca-Cola, Disney, Google and Microsoft, among many others.
Russia’s Reaction to Sanctions
Russia has received sanctions many times before, though these latest ones cut a little deeper than the previous ones. This time the sanctions are affecting the major Russian banks as well as the secondary capital markets. This kind of economic isolation could impact Russia severely as they are deeply integrated into global markets.
In response, Russia has raised gas prices as its main retaliation, and it is also expected to raise grain prices as much of it comes from occupied Ukraine.
Another reaction to the sanctions was to strip intellectual property rights from all U.S. companies. This resulted in the immediate filing of new fake Russian versions of Instagram, McDonald’s, and Starbucks.
Russian investors have reacted by investing in gold as it is considered to be a lower-risk investment during market volatility. This has resulted in the price of gold hitting an 8-month high.
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