We begin to lose track: air traffic, big banks, foreign exchange reserves, oligarch money and state information. The list of sanctions against Russia is getting longer and longer. From a geopolitical point of view, Russian President Vladimir Putin has succeeded in a feat in which many have failed: to provoke a united and decisive reaction from the West and to teach the European Union to speak in the language of power. But now the question is: will all this be of any use?
Sanctions are aimed at causing maximum damage to Russia and minimum damage to the rest of the world. For this reason, payments related to Russian oil and gas supplies are still possible. Indeed, it is not only the German government that thinks that if the Kremlin were to cut off energy supplies, there would be massive damage to Germany and other European countries, damage that must be prevented. For this alone, it is clear that the sanctions will not be without consequences for Western companies.
But the point isn’t just energy. For the United States it has always been important not to jeopardize the hegemony on the financial markets, also ensured by the role of the dollar as a world reserve currency. Banks that operate internationally do not want or cannot give up on the US financial market and its payment infrastructure. But to maintain this status, the slightest suspicion that the United States and its allies are abusing financial dominance for political purposes must be avoided. In this case, in fact, other currencies could take the place of the dollar or alternative payment systems could arise. This is why the United States has also hesitated to take tougher measures.
The devaluation of the ruble
The ruble is undergoing a drastic devaluation because, without access to its foreign exchange reserves, the Russian central bank has a lot of difficulty in supporting it: it can print rubles, but certainly not euros or dollars. Furthermore, while the ruble is legal tender in Russia, no one abroad is obliged to accept it. Thus imported goods which, despite the largely blocked payments, still manage to enter the country, will become more expensive. In recent days, moreover, long queues have formed in front of Russian ATMs, while the European Central Bank closed the European branches of Sberbank, the largest Russian bank, because customers had taken away their deposits.
The sanctions will raise the price paid by the Russians for the continuation of their military actions, but will probably not force Putin to retreat. It is evident that the economic well-being of his country does not interest the head of the Kremlin, who otherwise would not have ordered the invasion of Ukraine, for which there were no serious economic reasons. Sometimes, among other things, if the population of the affected country interprets the sanctions as a hostile act, the only effect is to exacerbate the divisions.
It is not certain that in the case of Russia it will go like this: in the country, despite Putin’s control over the media, there does not seem to be great enthusiasm for the invasion. So it is quite unlikely that the Russians’ anger will suddenly turn against Germany or the United States. For Putin, the situation is not favorable, especially considering the increase in military supplies to Ukraine. It could be the beginning of the end for his reign. Let’s just hope that, before he leaves the global political scene, he doesn’t make a mistake.
(Translation of Susanna Karasz)
To know
Swift and foreign exchange reserves
On February 27, the United States and its Western allies decided to remove some Russian banks from the Swift, the messaging system used to communicate details of cross-border payments between banks. Furthermore, in a joint statement, the United States, the United Kingdom, Canada, France, Germany, Italy and the European Commission announced the freezing of foreign exchange reserves of the Russian central bank, which amount to about 630 billion dollars. Western countries, however, will be able to continue to secure Russian energy supplies, but by preventing Moscow from using and spending the money collected. These measures have also been adopted by Switzerland and Singapore, two important centers of global finance. Russian capital worth around USD 7.6 billion flowed into Switzerland between 2016 and 2020.
The goal is to isolate Russia from the international financial system and weaken its economy. On February 28, to avoid capital flight, the Russian central bank raised the cost of money from 9.5 to 20 percent and introduced capital flow controls. The ministry of economy has required Russian companies to convert 80 percent of their foreign exchange earnings into rubles. On the same day, the ruble depreciated by 20 percent against the dollar. Shares of Russian companies listed in London also collapsed: those of Sberbank, the largest Russian bank and one of the institutions affected by the sanctions, lost 74 percent, while its Austrian branch was forced to close. Energy giants Gazprom and Rosneft lost 53 and 42 percent respectively. On March 2, the Moscow stock exchange had not yet reopened trading.