By B. Zarzur
Following the Russian invasion of Ukraine in February, countries of the west didn’t pursue a military war, but much rather an economic one. The US banned the sale of many goods to Russia and imposed serious sanctions. The goal behind this was to send Russia’s economy into spiral, punishing Putin’s aggressive actions and words. Only a week after the invasion, the rouble (Russian currency) fell 1/3 against the dollar, and the world watched as the shares of many big Russian companies collapsed.
The sanction imposed by the US and European allies are seen as the most restrictive sanctions ever imposed against a major economic power. described as an “all-out economic and financial war” by Bruno Le Maire, the French economic minister, the sanctions target the Russian economy, the wealth of high-class individuals, and Russian fossil fuels. Biden comments on the goal behind the sanctions during his state of union address, “We are inflicting pain on Russia and supporting the people of Ukraine, Putin is now isolated from the world more than ever.”
According to JP Morgan estimates, the Russian economy is due to shrink 35% in the 2nd quarter of 2022, leading to an overall 7% annual drop. US banks predict that the impact of the sanctions on the Russian economy to be similar to the 2008 crisis and the covid 19 pandemic. This proves that despite the US and other western allies not getting military involved to stop the war, many believe economic sanctions might do just the trick.
Despite this, chaos in Russian markets seems to have settled down. Many policies should be given credit for this. As the central bank raises interest rates from 9.5% to 20%, people have become encouraged to hold and buy Russian assets. In reality, not everything is surging in price, (at least not as much as other countries expected). Vodka prices have only risen slightly, and petrol costs about the same.
However, this does not mean Russia will not enter a recession this year. It will. The question is, are economic sanctions enough to send the Russian economy into disaster and end the war against Ukraine?