02 Mar 6 Ways International Sanctions Will Impact Russia’s Economy
First of all, sanctions have sought to reduce foreign funding for the Russian government, banks, and companies. To do so, allies have approved limitations on debt purchases and have applied sanctions against the country’s major banks. For example, the United States has blocked, among others, the country’s two main banks, Sberbank and VTB, which together control almost 60% of the Russian financial system; this means they can no longer operate with U.S. banks. They will not be able to make transactions in dollars.
It should be noted that the expulsion of many Russian banks from the SWIFT system, which is a Belgium-based international messaging system by which most banks across the globe are connected, will make it impossible for Russia to make high-value cross-border payments. This system processes more than 40 million financial messages every day among more than 11,000 financial institutions worldwide.
Is important to pinpoint that foreign banks (most of them are European and North American) want Russia to pay for its external debt, which is $121 billion. The thing is, Russia will have a hard time trying to pay for it and they will do so under a context of sanctions and blockades. In addition, the European Union, Canada, and the United States have blocked the Central Bank of Russia, through which most of its international reserves are located.
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Russia’s president had more than $600 billion in reserves that his country has amassed over the past few years in the form of dollars, euros, gold, and yuan. It should be noted that these reserves are no longer there. Someone will have to pay for imports and to support the local currency, so, he will find a hard time trying to satisfy the needs of the citizens while the Russia’s international savings are gone.
For example, faced with the flight of capital and the outflow of investments that they are provoking, together with wars and sanctions, the Central Bank of Russia no longer has the necessary resources to support the ruble, which is the official currency, which will cause it to collapse. Inflation will skyrocket, the incomes of Russians will plummet, the savings value will volatilize, etc…
Companies such as Volvo, Disney, Jaguar, BP, Shell, Intel, FedEx, among others, have announced that they will cancel all their operations in Russia, which will make it impossible for Russia to access high technology. Finally, the country is being suspended from all kinds of competitions, from Eurovision to the FIFA World Cup.
During the first 5 and 6 days of the invasion of Ukraine, the Russian military suffered more casualties than the United States in Afghanistan for 20 years. This shows that the Russian military has many holes, and Russia is a poor and backward economy, which is unable to maintain the highest quality standards as well as the highest technology.
Let’s see what will happen in the conflict between Russia and Ukraine and whether Russia will be able to survive this maelstrom of large-scale economic catastrophe that it has never experienced before, due to the decision to invade a sovereign and independent country such as Ukraine.
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