New Articles
  June 3rd, 2022 | Written by

The Fallout of Putin’s Sanctions: What You Need To Know

[shareaholic app="share_buttons" id="13106399"]

The Russia-Ukraine war has caused sanctions to be leveled from both sides of the conflict. Sanctions began when Russia increasingly mobilized its military along its border with Ukraine. Since the invasion, Western states have responded with additional sanctions, and Russia has retaliated. The exact outcomes of the conflict and the sanctions are likely to continue to materialize over the remainder of the year. This article will look at the sanctions, their fallout, and just what you need to know.

Ukraine Invasion Triggers a Global Response

On February 24, 2022, Russia attacked Ukraine, undertaking a total invasion of the country. The invasion was set off after years of escalating military conflicts in Ukraine and a military buildup by Russia. As Ukraine announced its intention to join NATO, and after talks broke down, Russian President Vladimir Putin announced the recognition of two pro-Russian breakaway regions in eastern Ukraine on February 21, 2022. The next day, the first round of economic sanctions by the U.S, the U.K., and the European Union was announced.

What Sanctions Are in Place?

Before diving into how Russia has replied to western sanctions, let’s look at what sanctions have been put in place so far. Currently, Russia is experiencing economic, energy, and individual sanctions. Additionally, many private companies are also making their own business decisions to impact Russia.

  1. Financial Sanctions: Russia’s central bank assets are frozen, bringing a halt to $630bn of foreign currency. As a result, Russia has seen a 17.8% rise in inflation, and the rouble has lost 22% of value. Additionally, most Russian banks have been removed from the international financial messaging system Swift, which is used for many types of payment processing. Finally, the U.S. and the U.K. have both taken actions to prevent Russia from utilizing funds in their banks.
  2. Energy Sanctions: The U.S. has banned all Russian oil and gas imports. Similarly, the U.K. has begun phasing out Russian oil imports and expects to be done by the end of 2022. Germany, which depends on Russian natural gas, has put a stop to the opening of the Nord Stream 2 gas pipeline from Russia. Finally, the E.U. has pledged to stop Russian coal imports by this August.
  3. Individual Sanctions: The U.S., E.U., U.K., and other countries have also begun sanctioning many Russian individuals and businesses. The most well-known of these include Russian oligarchs. Russian oligarchs wield tremendous power and wealth in Russia and are often closely associated with the Kremlin. Oligarchs aren’t the only ones being sanctioned, as many government officials and their families have also been sanctioned.
  4. Other Actions: Over 1,000 international companies have suspended operations in Russia, including McDonalds, Coca-Cola, and Starbucks. Russian flights have been banned from Western airspace. Dual-use goods (that is, items that can be used both for civilian and military purposes) have also been banned from export to Russia. Even Bitcoin wallets aren’t safe right now, with Russian bitcoin miners being put under sanctions.

The Russian Reply to Sanctions

With so many sanctions being imposed on Russia, it would be hard to believe if they never replied. Next, we’ll look at how Russia has reacted to the sanctions imposed by Ukraine and its allies.

Russian Export Bans

The most recent wave of Russian bans included more than 200 products after the West enacted its own sanctions.

A non-exhaustive list of products banned for export includes:

  • telecommunication, technological, and medical equipment;
  • vehicles;
  • agricultural machinery;
  • electrical equipment;
  • railway cars and locomotives;
  • containers;
  • turbines;
  • stone and metal cutting machines;
  • video displays;
  • projectors; and
  • switchboards and consoles.

The ban was put into effect until the end of 2022. Russia suspended the export of the goods to all countries except for members of the Eurasian Economic Union (EAEU) and the Russian-recognized separatist states of Abkhazia and South Ossetia. The Eurasian Economic Union includes Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia. Cuba, Moldova, and Uzbekistan are member-observers.

No Indication of Energy Sanctions

Interestingly, Russia did not go as far as to cease energy and raw materials sales. Russia’s raw materials and energy sales are the country’s largest contribution to the global trade by far, and Russia remains key to the continuous flow of energy to European nations. In March, Russia threatened to cut off natural gas supplies via the Nord Stream 1 pipeline.

In 2019, Russian raw materials included $123bn in crude petroleum, $66.2bn in refined petroleum, $26.3bn in gas, $26.3bn in iron/steel/aluminum, $17.8bn in precious metals and gems, $17.6bn in coal briquettes, and $9.7bn in cereal products. Despite reluctance to reduce raw materials exports, Russia has suspended the export of some types of timber and timber products.

What Will Happen Because of Russian Sanctions?

The key to the Russian economy is the export of its raw materials. Not only do Western countries depend on these goods, but they are also the backbone of the Russian economy. This means that goods like oil and gas and metals such as steel and nickel are of key importance. 

As stated before, none of these materials appear on the materials banned for export. If any of these goods end up being blocked from export, many consequences could follow, including the cost of cars and other vehicles going up.

However, items like railway cars and locomotives will likely not suffer much harm. Additionally, agricultural machinery primarily exported to former-Soviet bloc countries like Belarus and Kazakhstan will not be impacted. 

Vehicles may be an issue for the company Stellantis, which owns Vauxhall, Peugeot, and Citroen. Related is that Russia recently announced the nationalization of Renault’s Russian assets. How all of this will play out in the long run is hard to say, but regardless, Russian vehicle exports do not make up as large of a slice of the global economy as their raw materials.

In the end, Russian bans on export appear to be symbolic in nature and designed to send a signal to countries that Russia views as a threat.

One area of possible concern, however, is how the Russia-Ukraine war will impact global food costs. Both Russia and Ukraine supply large amounts of grain to the world. In addition, Russia exports large amounts of agricultural fertilizers, including potash and phosphates, which are used as ingredients in fertilizers. The disruption of Ukrainian crop production during the summer growing season could lead to potential food shortages. Additionally, President Vladimir Putin warned there would be “negative consequences” for the world’s food markets.

Conclusion

Russian sanctions and sanctions on Russia are both bound to have an impact on the global economy. At this stage, Russia has not cut off its supply of raw materials, but that could change. For now, Putin’s sanctions may just be posturing on Russia’s part, but real threats like food shortages could be lurking in the shadows.