Will economic sanctions work against Russia? Will the citizens of Russia suffer more than their officials? Meanwhile, what happens to Ukraine while the world waits for the economic sanctions to take their toll?
These are some of the many questions surrounding the US’s response to the escalating Russia-Ukraine conflict.
Biden Announces New Sanctions
Yesterday, President Joe Biden announced additional economic sanctions aimed to apply pressure to Russia. The US hopes to cut off the country from the cash and technology it needs to remain globally competitive.
Among the latest sanctions is cutting top Russian banks from US financial systems. The US will also reduce the country’s technological imports by more than 50%.
In addition, the US will add several more Russian executives and their families to its growing blacklist.
As these economic sanctions take effect, Russian citizens will feel the impact as well. Bank runs will happen with more frequency.
Inflation will get worse, which can lead to heightened unemployment. Biden hopes that Moscow realizes that sanctions will hurt them as much as military action.
He also hopes Russian President Vladimir Putin would want to save his country’s $1.5 trillion economies from collapsing.
Russian Economy In Trouble Even Before The Conflict Broke Out
Meanwhile, the Russian economy is already feeling the consequence of its military adventurism. The Russian market is hurtling downwards, as the RTS stock index lost 38% of its value Thursday.
Since October last year, the stock market lost 61% of its market cap. However, Putin remains unfazed as penalties begin piling up for his country.
During the past few years, Putin made moves to limit Russia’s exposure to international finance, stockpiling more than $630 billion in reserves.
The country also veered away from investing in dollar-based instruments. These moves helped insulate Russia from external shocks like what it’s experiencing now.
Biden said that the effect of economic sanctions won’t happen overnight. “No one expected the sanctions to prevent anything from happening.
This is going to take time,” Biden said. Adam Smith, a former Obama administration sanctions official, agrees with the strategy. “Sanctions don’t necessarily work immediately. They build up pressure over time. He’s attacking Kyiv today, and sanctions’ impact might not be felt for months,” he said.
Do Economic Sanctions Actually Work?
According to Dursun Peksen, a University of Memphis political scientist, only about a third of sanctions programs achieved their objective since 1945. “Sanctions tend to fail more often than they succeed. And sanctions rarely work against authoritarian regimes,” he observed.
Russia itself endured US sanctions for years now. Since 2014, the US imposed limits on Russian access to US financial and energy markets. This was a result of Russia’s annexation of Crimea that year.
Since that year, the Russian economy grew by less than 1% on average per year. Plus, the COVID pandemic and its effect on the oil market in 2020 affected the country more than what the sanctions did.
Sanctions Will Affect Russian Citizens More
Biden’s latest sanctions instructed the US financial system against processing payments of Russia’s major banks. In addition, 11 state-owned companies and two private corporations lost access to US capital markets.
These sanctions will ultimately shrink the Russian economy and make it hard for Russian citizens. Elina Ribakova, the deputy chief economist for the Institute of International Finance, says ordinary Russians will suffer most. “The average person will feel worse and will feel poorer,” she said.
Unfortunately, the worst may be yet to come. Ukrainian President Volodymyr Zelensky felt heartened by the international community’s condemnation of Russia’s military action.
He called for the United States and European Union countries to remove Russia from the global financial system called SWIFT.
The Society for Worldwide Interbank Financial Telecommunication (SWIFT), is a Belgian cooperative society. It serves as an intermediary of financial transactions between banks worldwide.
Watch the Sky News’ video reporting that US President Joe Biden announces new sanctions against Russia:
Do you think economic sanctions will work against Russia? In addition, can Ukraine survive the war while the other countries wait for sanctions to take effect?
Tell us what you think about Russia’s bold move and its global consequences. Share your comments below.