Russia can withstand Western sanctions
Russia is a vast country with huge amount of natural resources. It has strong capacity and resilience to withstand the blackmailing sanctions of US and EU. The Russians have a well diversified economy and close trade relationship with India, China, Central Asian Republics and many other countries who do not bother about the American sanctions.
Russian economy has been buffering the impact of Western Power sanctions for years. In fact energy exports from Russia won’t encounter difficulties amid global energy shortages. Though Europe itself will get badly affected as now it has to look for other suppliers.
Europe imports around 40 percent of its gas supply from Gazprom and Russia is one of the world’s largest oil and natural gas producers. Global oil prices rose on fears that the Ukraine situation would disrupt global supplies. The price of benchmark Brent crude reached a seven-year high of $97.76 a barrel on Tuesday.
Observers said it would be a mission impossible for Europe to shed its overreliance on Russia’s natural gas, considering the persisting global shortage. Such ability also depends on the extent to which the US is able to replace Russia’s natural gas exports.
However Russia needs to prepare for being cut off from SWIFT, which has been described as a “nuclear option” in sanctions packages that could deprive it of 40 percent of its revenue from energy exports and have long-term repercussions on its economy, even though the likelihood of such a move is extremely slim.
After Russian President Vladimir Putin on Monday signed two decrees recognizing “the Lugansk People’s Republic (LPR)” and “the Donetsk People’s Republic (DPR)” as independent and sovereign states, the US and Europe announced immediate sanctions against Russia.
US President Joe Biden issued an executive order on Monday to “prohibit new investment, trade, and financing by US persons to, from, or in the so-called DNR and LNR regions of Ukraine.” The EU’s top officials said the bloc will impose more sanctions against those involved in the recognition of LPR and DPR.
This marks the first wave of sanctions against Russia from the West after tensions between Russia and Ukraine flared for months. Biden has pledged that Russia will face “swift, severe and unified” consequences from the US and its allies.
Germany, Britain, Canada, and Japan soon followed the sanctions. Japan will ban the issuance of Russian bonds in the country and will freeze the assets of selected Russian individuals, Japanese Prime Minister Fumio Kishida said on Wednesday.
Britain announced plans to target Russian elites and banks, while Germany put the brakes on a major gas pipeline project from Russia, the new Nord Stream 2 pipeline.
Canada will prohibit Canadians from buying Russian sovereign bonds, Canadian Prime Minister Justin Trudeau announced on Tuesday.
The sanctions sent global stocks and the ruble tumbling. The Russian RTS index, which tracks the 50 top Russian stocks in US dollar terms on the Moscow Stock Exchange, was up 1.59 percent on Tuesday after Russia’s central bank said “it was ready to take all necessary measures to support financial stability,” recovering from a precipitous 17 percent fall on Monday.
Chinese observers said that the sanctions so far are more symbolic than anything likely to inflict substantial harm on the local economy, and capital market moves reflect transitory investor nervousness.
The first batch of sanctions is not targeted at either specific industries or the core of the Russian economy, so the impact is minimal. The follow-up measures, if they will be taken as threatened, could be more concrete and wide-ranging, involving energy, finance and military dimensions.
The Biden administration has proposed expanding a new technology export ban and cutting off Russian companies’ access to dollars, Reuters reported.
On Sunday, European Commission President Ursula von der Leyen warned that Russia would “in principle be cut off from the international financial markets” and denied access to major exporting goods if it “attacks Ukraine.”
In several interviews, von der Leyen also hinted at the possibility of imposing sanctions on Russia gas giant Gazprom and targeted the Nord Stream 2 gas pipeline connecting Russia to Germany.
Russia has been making diversification efforts to explore alternative markets. For example, Russia used to mainly export products to Europe, but now its exports to China, like oil and natural gas, are also rising in scale.
In February, China National Petroleum Corp (CNPC) and Russia’s Gazprom signed an agreement on the purchase and sale of gas from the Russian Far East, and under the agreement, Russia will increase gas exports to China to 48 billion cubic meters (bcm) per year.
Though the US’ potential new tech export ban may restrict the supply of raw materials and equipment to Russia’s military, aerospace and energy sectors. But the West has blacklisted Russian military and high-tech enterprises since 2014. So it remains unclear that the US could leverage its embargo to heap pressure on Russia.
As to whether the US will play the ace card of removing Russia from the SWIFT system, which has serious implications for its foreign trade. However the West is itself deeply divided on this issue due to Europe’s immense trade volume with Russia, partly driven by energy.
Russia has long been taking steps against such a possible move, including avoiding the US dollar in some trade settlements, and clearing US debts and its foreign reserves. Russia has developed an alternative messaging system called SPFS since 2014, which now reportedly handles about one-fifth of its domestic payments.
Russia has been running pressure tests of how its economy would run in extreme cases, which must have included being cut off from links to the outside. But even in such a case, Russia is able to secure its own supplies as it has a large territory and ample resources.
Russia’s reliance on the external market is “limited” except for the energy and military sectors, which speaks volume to its ability to offset the fallout of Western sanctions. In 2021, Russia’s GDP grew 4.7 percent, the fastest in more than a decade, due to a surge in oil prices and consumption expenditures.
