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One of the key features of the globalised economy is the fact that countries depend on each other for various resources. This interdependence is supposed to encourage cooperation over conflict. In some sense, it provides a level of collateral in the face of an impending international conflict and we are getting to observe whether this is actually the case with the ongoing situation in Ukraine. At the time of writing this article, we are 25 days into Russia’s invasion of Ukraine and the international community, with a few notable exceptions, has taken a unified stance in its opposition to Russia’s actions. Unprecedented sanctions have been issued on Russia in an effort to weaken the Russian economy and force the country to retreat.

Double-Pronged Attack On The Russian Economy

The most aggressive sanction that has been imposed is the freezing of Russia’s foreign exchange reserves in the US, UK, and the EU. Russia owns over $600 billion worth of currency in these three regions and the financial markets instantly reacted causing a 30% decline in the value of the Ruble. The reason why Putin built up these reserves in the first place was to protect the Ruble if he were to face any sanctions from the West. He could simply use the money held abroad to buy back Rubles which would ensure that the currency’s value remained stable. As it turned out, however, the US and Europe made the unprecedented move of freezing nearly all of Russia’s foreign assets, effectively rendering Putin’s calculations incorrect. avast anti track premium key

The Russian Central Bank reacted by raising its interest rates by 20% in order to limit the supply of the Ruble within the economy. It has also levied an enormous 30% commission rate on all foreign exchange transactions in order to protect against the possibility of a capital flight. In addition to this, the government is forcing Russian companies to convert their foreign earnings into Rubles, in some cases up to 80% of all earnings. The Ruble has since bounced back by 6% against the Dollar.

The next major sanction has to do with the SWIFT messaging network. The US has successfully managed to convince its Western allies to kick the major Russian banks out of SWIFT. SWIFT, or the Society for Worldwide Interbank Financial Telecommunication, is the primary network through which international financial transactions are completed. It is essentially a messaging service wherein financial institutions send payment instructions to each other. Over 200 countries and 11,000 financial institutions use SWIFT and the network facilitates the exchange of 32 million messages each day. More than half of all cross-border, high-value payments are carried out over the SWIFT network.

How does this affect Russia? With key financial institutions not having access to the network, there will be a massive slowdown in money transfers going in and out of Russia. The most important component of these transfers will be the payments that countries have to make to Russia for purchases of their gas. Europe currently imports 47% of its gas from Russia, which in turn means that the price of energy in Europe is likely to rise. During the first few days of the invasion when sanctions were being discussed, Germany was reluctant to impose the SWIFT measure, but it has since agreed to follow through.

Price in US$ of crude oil (R: by Barrels) and natural gas (L: by BTU)

Can Russia Withstand The Retaliation?

While these sanctions will surely harm the Russian economy, it must be noted that Vladimir Putin has been preparing his economy for this situation. After invading Crimea in 2014, he was faced with weaker sanctions but there was always the threat that the West would react in the way that it has now. He began strengthening his ties with China as he knew he would need a strong ally to act as a counterweight to the influence of the US. While it is not clear in what capacity Xi Jinping is willing to help Russia in the ongoing situation, the mere fact that Russia and China are allied is enough to make the West potentially reconsider some of their decisions. malwarebytes 2.1.8 key

Critics have pointed out that such a move would be disadvantageous in the long run. Russia can rely on other, albeit less efficient networks to carry out financial transactions. One such network is the Cross-Border Interbank Payment System or CIPS which is owned by China. If Russia were to begin using CIPS, it would provide the Chinese government with an impetus to bolster the system. This could potentially threaten the US’ current dominance in world financial affairs as CIPS uses the Renminbi to facilitate transactions. If the network were to grow, the Renminbi would rival the US Dollar as the world’s reserve currency.

The Russian economy is also largely self-suffecient in key areas. They have a strong agricultural sector and are able to meet all their food needs. Their IT sector is well developed and Europe’s reliance on cheap Russian gas gives Putin a reasonable hand to play at the table. Without this gas, countries will have to go to other suppliers which will in turn cause the price of oil to rise (which it already has) owing to the increased demand. These countries will not be able to continue spending heavily on oil and as such will have to find a different solution soon.

In many ways, it feels like we have returned to Cold War era. Trust has completely broken down between Russia and the West and there is even the threat of nuclear weapons being used. The unfortuante victim in all this is Ukraine, who will have to continue their fight for independence as these international affairs play out. The Russian economy has been weakened, but it has been done so at a cost. The next few weeks will be crucial. corel draw 12 crack patch

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