Economic Planet | The Age of Economic Missiles

Unless they want to start a new world war, Western nations do not have many ways to oppose Russia’s invasion of Ukraine. Even though it is always difficult to assess the effectiveness of sanctions, sanctions are still the weapon of choice.

Posted at 5am

Helen Barril

Helen Barril

The rain of sanctions on Russia will certainly have a negative impact on the country’s economy. However, unlike missiles, which have immediate attack power, economic weapons take time to produce their effects.

Elsewhere, it has been found that the effects of sanctions application may be relatively rapid, as in Iran, Cuba and Afghanistan since the Taliban’s reinstatement.

This is special for Russia. The Russian economy is an interesting animal. This country is the third largest oil power in the world after the United States and Saudi Arabia. It is rich in all kinds of resources, including the most coveted ones in the modern economy, such as aluminum, nickel and titanium. But it remains an emerging country in many ways.

Farther away, China has overtaken Russia in GDP per capita, and the middle class is making a strong entry into the consumer society. On the other hand, the Russian population is treading water.

Russia’s wealth mainly benefits the administration and the small circles of friends and allies, while the population benefits little. In a sense, Russia today is not much different from the time of Emperor Nicholas II.

This very wealthy caste tends to invest abroad to protect himself from changes in the mood of political leaders. We can understand them. The history of Russian millennials is full of cases of disgraceful influential people in the administration who have lost everything, including their lives.

Not surprisingly, international sanctions on Russia target foreign individuals and their bank accounts. The Vladimir Putin administration needs the support of these oligarchy who can turn their backs on them if they are deprived of their power to profit from the billions. The Russian president himself has been the target of asset freezes abroad.

nuclear weapons

In addition to imposing targeted sanctions on individuals and businesses associated with the Putin administration, the Western world has by denying access to Swift, an interbank network through which all international transactions pass. You can break all financial relationships with. That’s what happened this weekend.

Swift, an acronym for the Society for Worldwide Interbank Financial Telecommunication, is a secure network established in Belgium, serving 11,600 financial institutions in 200 countries. Created in 1973 to promote trade, it is now considered an essential service.

Blocking Russians’ access to Swift has been compared to using nuclear weapons against them. It required a majority vote of member states to use it, and some hesitated before resigning. It’s easy for Canada to agree to ban Russia from its network. But for countries that rely on Russia’s gas, such as Germany, the results can be dramatic.

Nevertheless, the Russians had time to prepare for it and the threat was not new. The country has also established its own international financial network, and if it is small, China can be expected to participate.

Since the first international sanctions following the merger of Crimea in 2014, the Russian central bank has accumulated an estimated US $ 631 billion in foreign exchange reserves, reducing its reliance on the international financial system, especially by reducing its share of the US dollar in foreign exchange. I’ve been.Reserve, report New York Times last week. However, the United States, Canada, France, Italy, Germany and the United Kingdom have agreed to ban transactions by the Central Bank of Russia over the weekend.

With these new sanctions, some are predicting a marked collapse of the Russian economy as of Monday morning. We need to figure out how long the Russian regime can be without the international financial system. On the other hand, his ally, the oligarchy, may have low patience. “There are no more shopping in Milan, parties in St. Tropez, diamonds in Antwerp,” the European Union Foreign Commissioner Josep Borrell cursed on Twitter in a later deleted message.

We need to see if sanctions directed at our friends and their bosses are more harmful than embargoes and other types of sanctions, but in any case it takes time to measure their effectiveness. increase. Economic weapons are slow to act. Russians invade Ukraine and have time to settle there.