Russia now faces sanctions set forth by both the United States and the European Union in response to the recent situation in Ukraine. These actions are specifically targeted at a group of 17 banks and other various firms led by four Russian billionaires who continually keep close ties with Vladimir Putin, as well as seven other important individuals, two of these acting as advisers to Putin. The U.S. and E.U. has since also filed sanctions against 15 other main figure heads in Moscow, with business being affected across the country.
Despite White House assurance stating that these newly placed sanctions on Russia have significantly impacted the Russian economy, the end result has come to be less effective than intended. Since last autumn, markets in Russia were already on the decline prior to U.S. and E.U. sanctions. However, markets in Russia have slightly improved as of the past few days, despite continued sanctions on businesses.
As administrator Timothy Frye of Columbia University’s Harriman Institute explains, the Russian economy was already suffering prior to sanctions, but it would be very incorrect to state that ensuing sanctions will not have any future effects on Russia’s economy, and that this is something Moscow will not be able to ignore in the near future. In fact, he further explains that Putin and other Russian authorities may very well blame the West’s sanctions as a reason for poor economic performance, although the underlying reason is bad leadership.
The ruble, however, has still experienced a decline since January due to Russia’s government drifting away from strategies dealing with stimulus and money supply in order to lower rates of borrowing to spur business activities across the country. Before Russian intervention in the Crimea region, the ruble had begun to drop, but due to interference in Ukraine, this drop was heavily hastened. By increasing key rates, the country’s central bank was able to slow the ruble’s decline.
Even though this current lack of international faith has affected Russian business existed prior to entering Ukraine, the unstable crisis in Crimea has further worsened business prospects in Moscow, sparking uncertainty in investors while drastically lowering Russia’s credibility. However, the amount that this is due to the current Ukraine incident and resulting U.S. and E.U. sanctions still remains unclear. Moscow’s top authority for the International Monetary Fund explained how because of these reasons, Russia faces a recession. This could potentially worsen as business ties with Western nations are disturbingly strained.
The doubt of business investors may be the overall purpose of the sanctions, as is stated by top White House officials. Russia’s credit score, along with a lowered growth estimate, sank to almost above nothing, with a very low overall status. Those investing in the country hence require interest rates to be raised in order to keep embracing bonds in Russia.
The U.S. Department of the Treasury explains that a reason for imposing these sanctions is to stir uncertainty, with the belief that markets will suffer more in the months ahead. According to the Treasury Department’s David Cohen, this doubt has enabled international markets to penalize Moscow and the country’s economic health.
While Russia faces aggressive sanctions from the U.S., the E.U. remains weary of furthering sanctions, due to very complex economic ties with Russian industries – oil companies especially. Europe currently walks the fine line of siding with the U.S. over Russian intervention in Crimea, while keeping business deals with Russian companies which provide European countries a vast majority of their oil and power resources. Other main international oil companies, such as BP and ExxonMobil, have also yet to alter current business arrangements.
As these intense situations unfold, U.S. and E.U. sanctions are likely to lead to more affected business than had been previously anticipated. With complex economic ties between nations, coming to a peaceful consensus regarding both Russia’s intervention in the Crimea region of Ukraine and the country’s economic situation will be tricky for international leaders. Until these issues can be resolved or minimized, Russia’s economy faces difficult times ahead.
By Scott Gaudinier