Ambiguity about its effectiveness in changing Putin's behavior or causing turmoil in the West

Sanctions harm the Russian economy, and their risks are unexpected

Western bans on technology sales will undermine the capabilities of Russian industry.

From the source

The US-led Western sanctions imposed on Russia over its invasion of Ukraine are expected to inflict much more damage than President Vladimir Putin had thought, as they included a blow to Russia's commercial banks, central bank, business, industry and politicians.

economic war

Although the United States, as President Joe Biden has said, wants to turn Russia into a “global, economic and financial pariah,” all-out economic war has repercussions that the United States and its allies may not yet see, and it is not clear whether the sanctions will change Putin’s behavior, or cause Far-reaching disturbances of the West.

Since 2014, when Russia was targeted with sanctions due to the annexation of Crimea, President Putin has worked to reduce its impact on his country, which had current and financial surpluses, which means that there is no need to borrow from abroad or at home, as well as reducing external debt, and diversifying reserves The $630 billion foreign exchange, currency float, and central bank independence target for 4% inflation.

Currency and inflation

But Russia is still dealing with the countries of the world, which requires the ability to pay its trade bills.

With access to its reserves sharply curtailed, and the West unified on sanctions, the Russian Central Bank is less able to defend the value of the ruble, pay interest and principal on external debt that it may default on, or provide foreign currency to commercial banks.

The depreciation of the ruble since Russia invaded Ukraine could add 4 to 5 percentage points to Russian inflation, which hit 8.7% in January, according to former Russian Central Bank official Sergey Aleksachenko, who told the Wall Street Journal that the central bank had raised interest rates. to 20% from 9.5%, due to inflation.

oil and gas

Although Russia still receives a boost from its huge oil and gas exports, this has its limits. Russian oil is now being sold at a lower price, and global prices, now over $100 a barrel, are at risk if the global economy declines.

Russia already spends more of its GDP on the military than the United States does, a huge burden that the ongoing fighting in Ukraine will increase, and even more severe in the long-run for Russia.

technology sales

Aleksachenko said a Western ban on technology sales would undermine the capabilities of Russia's military and civilian industry, curb the growth potential of the economy, and increase technological backwardness.

"Russia will increasingly rely on selling natural gas to China, which is likely to pay a lower price than Europe," he added.

In addition, the Deputy Chief Economist at the Institute of International Finance, Elena Rybakova, expected that the Russian economy will contract by at least 10%.

However, sanctions have rarely changed the behavior of the target country, as the sanctions expert at the Atlantic Council, Julia Friedlander, said that if Putin's behavior does not change, and we have a poor Russian economy and a devastated Ukraine, what will we gain from all this?!

While the sanctions initially persuaded Iran to negotiate over its nuclear program, they had little effect on Venezuela or North Korea, as both became more aggressive, which indicates what will happen with Putin, when the economic war becomes aggressive enough, it can be considered Like an actual war.

China's response

The expulsion of Russia from the world economy also means "Russia out of the reach of economic influence."

China is likely to respond by intensifying its own efforts to separate from the West, developing alternatives to dollar-based payment systems through President Xi Jinping's policy, and increasing its economic influence through the Belt and Road Initiative.

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