Sanctions and Its Impacts: The economic sanctions placed due to the Russia-Ukraine war, now raise a series of challenges, in different parts of the world. These challenges, and their global implications, can be now seen and observed.
The Russia-Ukraine stepped into the sixth month. The revised strategy of Russia, whilst the war, of focusing solely on southern and eastern Ukraine, kicked a new phase. On the other hand, the West came up with strategies to support and aid Ukraine in the execution of military operations. Both sides are now facing issues caused by multilateral economic sanctions, placed on Russia.
The Economic Sanctions on Russia:
The idea of economic sanctions has evolved through the centuries. The effectiveness and political outcomes of sanctions are still debatable. Both, punitive and deterrent sanctions are in use, in unilateral as well as coordinated methods.
The US and the EU, along with a few other partners, placed a few sanctions on Russia. The recent sanctions of 2022, are shaper, more extensive, and stronger, to harm the Russian economy for a longer period. The sanctions are wide-ranging, touching upon banking and financial services, exports, imports, technologies, and services, with a special focus on energy sectors, steel, agriculture, and mining.
Russian steps to lessen the economic pain include capital controls, prohibition of hard currency transfer abroad from Russia, ban on exports of certain commodities (like raw materials and equipment), forced rubles payments for gas, use of alternative payment systems, and trade and investment diversifications. It also placed a few countersanctions and restricted gas supplies to the European countries.
The sanctions and countersanctions game, have had adverse effects on global growth and resulted in increased inflation in various commodities, energy, fertilizers, and food products. Supply chains are suffering in many segments. The foreign exchange reserves have dwindled for many countries, resulting in currency market turmoil. The Central banks and governments are forced in taking touch with fiscal and monetary decisions.
“The global economic outlook has darkened significantly, and uncertainty is exceptionally high. Downside risks about which IMF had previously warned have now materialized.”
-Kristalina Georgieva, IMF Managing Director,on Sri Lanka crisis.
The US and EU sanctions against Russia, are supported by the G7 and western alliances and partners. While several countries like Indonesia, China, Turkey, etc. have released public statements indicating their disbelief in sanctions and non-participants in them. Many others took a neutral stand, by not joining the sanctions, nor giving any official statement about it.
Sanctions and Its Impacts
Trends arising out of Sanctions:
Challenges of Rule-based order for Economic Sanctions: Western countries evolved to emphasize economic sanctions based on rules and norms. However, its practical execution faces the difficulties of weak international and multilateral institutions. These sanctions have served well in the geopolitical interests of a selected few.
China’s increased improvement in its resilience against sanctions: China is not only taking military lessons from this war, but also about economic sanctions. Even before the Russia-Ukraine war, China was taking measures to the improvement of its resilience against sanctions, like the promotion of the renminbi for transactions related to trade, diversification of trade, and promotion of the Cross Border Interbank Payment System. China is making significant efforts in developing partnerships for ‘sanctions resilience’.
The pressure on Dollar-denominated reserves: The US dollar is still the dominant international currency. Over the last decade, various economies are diversifying their currencies basket. This practice is likely to be continued due to imbalances in the global financial system, caused due to Russia-Ukraine war’s economic sanctions. Bilateral and regional trades are permitting the usage of alternate currencies in many parts of the world.
The way forward:
The consequences of sanctions and counter-sanctions can be observed in the Global South and emerging economies. The geopolitical uncertainties coupled with adverse effects of economic sanctions and countersanctions point out to reshaping of geo-economic scenarios over the globe.
Sanctions and Its Impacts
