Ukrainian Invasion: Will sanctions work against Russia?
The current response of the West to the Russian invasion of Ukraine indicates the use of only one weapon - Sanctions. First, the Biden administration used sanctions to scare Russia - a preventive tool - but Russia act anyway. Now they want to use sanctions to force Russia out of Ukraine. How effective will sanctions be against Russia?
American Sanctions
The type of sanctions the Biden administration can raise against Russia are basically restrictions on import and exports, restrictions on banks and financial system (think SWIFT), technology bans and restrictions on individuals like Putin himself. The effect of these sanctions is not immediately visible and it will take time to have an effect on the Russian economy.
European Sanctions
Sanctions imposed by the European Union (EU) is slowed down by the difficulty of reaching an agreement among member states. Some European countries still want to export or import goods from Russia as the negative effect on their economy will be too high. For example, the Germans became dependent on Russian oil for energy after their effort to switch to "green energy" which proved not to be viable. It might be that the EU does not reach an agreement before the war is over.
Financial Sanctions
The sanctions on the banking system (SWIFT system) can be more problematic than it looks on the surface. Obama started to weaponise the banking system and the global movement of money. From then it became a sword that America hold over the heads of countries to get compliance. One can assume that the Putin administration have taken this into account when they moved into Ukraine. Cutting Russia off the SWIFT system can result in the end of one global monetary system controlled by America. Russia and China can use the SWIFT sanctions to establish a second global monetary system outside the control of America.
UN Sanctions
The UN security council also table a resolution that condemns the Russian invasion of Ukraine. Such a resolution cannot pass as Russia will only veto it. What it looks like is that the Security Council try to establish a front of countries that support such a resolution to give a show of uniformity. The question is if this will work?
Already three large economies in the world abstain from voting. By abstaining they show their disagreement with the resolution. These countries are China, India and the United Arab Emirates (UAE). Due to the new friendship between Russia and China, it is expected that they will not side with the resolution. India and UAE might come as a surprise as both were regarded as "friends of America". Through this move, they demonstrate that they will not be forced by America. Israel and other oil-producing countries also indicated to abstain from voting.
In General
The world leaders who condemn Russia, act passionately to demonstrate their loyalty to Ukraine without committing troops. These leaders' decisions are more intoxicated by the hysteria in the media than the logic of the situation.
In general, my opinion is that the sanctions will not have the desired impact on the Russian economy. The west promised Ukraine support against Russia and now that they need to be true to their word, they use sanctions to get out any expectation of troops commitment.
Source:
Article based on the analysis of Alexander Mercouris
It's me again
I was wondering if you have any view on futute of Russia financial system (especially from the perpective or regular people) after interest rates has been hiked to 20%?
I can hardly imagine being able to pay any loans or morgage in similar situation. Especially while knowing, that all imported items will cost so much more since value of Rubel dropped so badly.
Any thoughts you like to sharE?
Cheers, Piotr
We need to remember that the Russians are good Chess players - meaning they understand strategy. By saying that we can assume that Putin did not make this move without a proper strategy and contingencies to back it up. I cannot speak for Russia because I am just an observer like anyone else, but I can take a guess
The possibility to be disconnected from SWIFT is great. After Obama weaponised the financial system, I am sure Russia took the possibility into account. As I said such a move will not only harm Russia but the whole global financial system. Already in 2014 Russia developed an alternative system to SWIFT, the SBFS system that is currently connected to 23 foreign banks. Not great and on the same level as SWIFT, but it can support its banking clients.
Regarding the interest rate, my guess is as good as yours. What I think is that they also learn a lesson from the notepad of Paul Volcker, Fed Chairman in 1979. The out of control inflation of the 1970s forced Volcker to take dramatic steps by increasing the interest rate. The days of "easy credit" turned into the days of "very expensive credit." The prime lending rate exceeded 21 per cent.
The effect on the American economy was also drastic. Unemployment reached double digits in some months. The dollar depreciated significantly in world foreign exchange markets. Volcker's tough medicine led to not one, but two, recessions before prices finally stabilized. Paul Volcker was vilified for years because of the steps he had to take to break the back of inflation. "Wanted" posters targeted him for "killing" so many small businesses. Yet he remained resolute, doing what he knew was best for the country in the long term.
Without his bold change in monetary policy and his determination to stick with it through several painful years, the U.S. economy would have continued its downward spiral. By reversing the misguided policies of his predecessors, Volcker set the table for the long economic expansions of the 1980s and 1990s.
To answer your questions, yes the Russian interest rate is going to create hardship in the short term, but it can be the cure needed to get out of the global financial crisis fueled by America. In a few years, they might be better off than the rest of the world due to this.
Just my guess!
Can you tell me more about it @krabgat?
How did Obama weaponize financial system?
hi @krabgat
I myself am not really convinced if introducing SWIFT sanctions is a way to go.
Sanctions didn't "break" goverment of Iran, Venezuela or neither North Korea. It only made things worse for regular people. And implementing sanctions which target common people should be as illegal as shooting to them and killing them.
After all, Putin will still carry on with his war. But thousands of common Russians will die because of economic consequences.
Biggest irony is, that as far as I'm aware - european countries are still buying oil and gas from Russia. While revenue from that trade is directly the one used by Russian governing party.
Perhaps you may find my own post worth visiting:
SWIFT SANCTIONS - is it a NUCLEAR WEAPON in financial markets?
Cheers, Piotr
Totally agree with you that SWIFT sanctions are not the way to go. The world leaders are reacting to the hysteria of the MSM - one would expect a logical approach and not emotional. Also, they cannot really sanction Russia because they are too dependent on it, especially for the oil.
Thanks for comment!
Somehow I've missed your reply @krabgat
I would like to say "thank you" for responding to my previous comment.