The US and EU member countries have imposed and are considering more sanctions that are targeted at the Russian economy. They are aimed at limiting the country’s ability to fund the existing war with Ukraine, where the Russian administration is considering annexing some of the regions in Ukraine. Western nations have prevented Russian oligarchs from traveling to their countries while also freezing assets held by Putin and other wealthy Russian. Also, Russian banks have been excluded from the swift international system and UK financial system. Another economic sanction is banning Russian products such as oil, gas, and coal in US and European imports (BBC News ). Moreover, Western companies closed business in Russia, leading to huge job losses, and various Russian businesses related to wealthy Russians in Western countries have been sanctioned. These sanctions have a big negative impact on the Russian economy and are within the specifications of international law. It is expected that the Russian GDP will fall by over 7.8%; other impacts include 17.1% inflation, a reduction in retail trade by about 9%, and 83.5% reduction in the sale of cars in Russia (BBC News ). The paper analyses the various sanctions imposed by the European countries on the Russian economy and their impacts on the economy.
One of the sanctions Russia faces is against political and security leaders as well as rich Russians close to President Putin and his administration. Based on an EU report, over 1241 individuals and 118 entities have faced sanctions in the EU. The action aims to compel these elites to ask Putin to abandon the war. The list starts with Vladimir Putin, Russian president, members of the Russian State Duma (lower house of parliament), National security members, tycoons such as Ibrahim Abramovich, military personnel that is ranked high, and selected people associated with Russian oligarchs as family or business (Concilium.europa.eu). These sanctions are accompanied by travel bans; this individual cannot enter the EU by air, sea, or land, and asset freezes, where funds and assets belonging to these individuals cannot be transacted. It has been implemented under the “freeze and seize” action by US and EU governments. EU and US have seized private jets, real estate, luxury mega yachts, and money held in US and EU banks. With this, money held by these individuals cannot be used to support the Russian government or fund the existing war with Ukraine while exempting these individuals from enjoying safe havens provided by the EU countries. Wealthy Russian individuals are attached to successful companies within Russia and the West, and this has affected the functioning of these companies (Harrington). In turn, it will affect money remittances to Russia from the west, which is likely to negatively affect the country’s GDP, which is significantly driven by these elites who have huge political and economic control in Russia.
Another sanction placed for Russia is the exclusion of its banking system from the international SWIFT system. About 10 Russian banks have been excluded from the international payment system that adopts SWIFT. This cuts the Russian banks from communicating with other 11,000 financial entities across the globe, which negatively affects its economy. With these restrictions, these Russian banks lack access to foreign currencies that require an intermediary bank in western nations. This makes it slower and more expensive for Russian banks to engage in international payments. There are also further sanctions on the country’s central bank that negatively affects the management of its assets and international reserves. The restrictions bar the Central Bank of Russia from accessing assets and reserves stored in other EU central banks and other private financial institutions. With about $643 billion of the country’s reserves being seized by western nations, the stability of the country’s currency is at risk because these reserves are crucial to enhance the stability of a country’s currency. It makes up about 50% of Russian foreign reserves, and the country cannot caution its currency using foreign assets that have also been seized. Moreover, the EU has banned the transfer and sale of various EU currencies to Russia to ensure there is limited access to the euro by the Russian administration and/or its Central Bank.
There are various import and export restrictions that have been made by the West against Russia that have largely affected the country’s economy. These trade restrictions have a negative impact on the Russian economy because it reduces exports and also bar the country from accessing essential products required by the manufacturing industry and other sectors. There is a ban on various Russian products such as crude oil and petroleum products (limited exceptions), gold, steel, cigarette, and steel. Recently a cap on the Russian crude oil prices was fixed at $60 per barrel to ensure that the west continues to get reliable oil supply and stabilize global fuel prices while reducing revenues Russia gets from selling its major export (Shankar). On the other hand, the EU has banned countries from exporting various products to Russia that, including; aviation goods, luxury products, cutting-edge technology, and certain oil refining equipment. These restrictions negatively affect the Russian economy by hitting major industries such as aviation, transport, technology, energy, and marine time that are essential for the success of the country’s economy (consilium.europa.eu). With these sanctions, the EU aims to maximize the negative economic impact on the Russian economy while minimizing the negative effects that will be felt by other citizens from other EU countries. Essential products such as food, agricultural products, and pharmaceutical drugs have been excluded to reduce the impact on the Russian population, which is not the target of the sanctions.
Another economic impact is the loss of employment by Russian citizens, and the loss of revenues by the government and Russian citizens after the mass exit of western companies. Following the Ukrainian invasion by Russia, many multinational companies opted to cut their ties with Russia. This was as a result of increased pressure from consumers and investors in western countries making these companies stop or halt their business in Russia. Despite the high financial cost related to a move from Russia, many companies opted for the move because they do not support the actions of Russia in Ukraine. Over 1000 companies have expressed interest to either end or reduce their operations in Russia. One of the companies is Nissan, a Japanese automaker that opted to stop their operations by selling their business to NAMI that is backed by the Russian government (New York Times). They made an option to buy back this operation after a period of six years has elapsed, French dairy company, Danome, also sold their operations in Russia that held 5% of their total revenues. Moreover, Western sanctions led to a reduction in revenues for Russian companies to reduce. For example, the Russian aviation industry, the western countries banned Russian airlines from entering western airspace, and also the sale and transfer of planes. Most Russian planes are now engaging in domestic travel. The repercussion as a result of this move by western companies are huge. Many Russian citizens have been rendered jobless and if these measures continue more Russian citizens will lose their jobs. There has been reduced demand for skilled workers in various sectors such as finance, marketing and other sectors and those that lose their jobs cannot find new ones (Sokolova). Moreover, the isolation of Russia from the rest of the globe reduces its access to the global supply chains and some of the industries might collapse. There is likelihood for reduction of demand of goods and services which will lead to collapse of companies and a poor population due to spillover effects in other sectors such as small businesses.
Economic sanctions by western nations have a great negative impact on the country’s economy. These sanctions include banning of visas and passports of Russian oligarchs, wealthy Russians, political elites and national security members and import and export restrictions to Russia. Other restrictions include the exclusion of Russia from the international SWIFT system and the closure of international businesses with western ties. These sanctions have negative economic implications such as an increase in unemployment levels, an increase in inflation, instability of Russian currency and loss in revenues. There is the likelihood that the country’s economy will shrink through the decrease in its GDP. There is need for Russia to ease its involvement in Ukraine war to reduce the impacts of these sanctions.
References
BBC News . What are the sanctions on Russia and are they hurting its economy? 30 September 2022. Web. 7 December 2022. <https://www.bbc.com/news/world-europe-60125659>.
consilium.europa.eu. EU sanctions against Russia explained. 2022. Web. 3 December 2022.
Harrington, Brooke. “The Russian Elite Can’t Stand the Sanction.” The Atlantic 5 May 2022. Web. <https://www.theatlantic.com/ideas/archive/2022/03/russian-sanctions-oligarchs-offshore-wealth/623886/>.
New York Times. “Companies are getting out of Russia, sometimes at a cost.” New York Times 22 October 2022. Web.
Novatti. How the Swift Ban on Russia will Affect the Global Economy. 2022. Web.
Shankar, Priyanka. “Russian oil price cap: Five things you need to know.” A Jazeera 5 December 2022.
Sokolova, Kira. “As Western companies disappear from Russia, so do jobs.” DW 5 May 2022.
US Department of Treasury. Treasury Sanctions Kremlin Elites, Leaders, Oligarchs, and Family for Enabling Putin’s War Against Ukraine. 11 March 2022. web. 8 December 2022.
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