Ukraine invasion, Russia faces economic shock due to sanctions

Russians discovered the cost of the Ukrainian invasion on Monday morning 28th. As soon as the market opened, the ruble fell 30% against the dollar. The Central Bank of Russia had to intervene urgently by raising the key rate by 10 points to 20%. This intervention helped the ruble recover at noon, perhaps preventing Russians from rushing to withdraw deposits from banks. However, certain concerns have been identified among savers. “Inflation, food shortages, air travel problems … our generation has overcome it all the time. It’s the return of the Soviet Union, especially for young people. Yesterday, this muscovite reacted for about 50 years.

→ Live.Ukrainian War: Follow the latest news about the Russian invasion

In addition, the Moscow Stock Exchange remained closed on Monday to avoid a crash. In the Western markets, Russian assets such as Sberbank, the country’s major commercial bank, which plunged 74% at the start of trading in London, were sold. The problem is, “”Bankruptcy or possible bankruptcy»» Bankruptcy caused by a European subsidiary established in Austria, according to the European Central Bank (ECB) “”Massive deposit outflows due to impact of geopolitical tensions on reputation ” Depositor.

Russia, “Economic Paria”

Therefore, being deprived of cash to fulfill its obligations, this subsidiary has become extremely difficult. This is the effect required by sanctions. They target the banking and financial sectors.They have russia “Economic Paria”, In the words of an American official. They cut off most of Russia’s relations with developed countries such as the European Union, the United States, the United Kingdom, Canada and Japan. Even normally neutral Switzerland applies sanctions.

→ Analysis.Industry, finance … how Western sanctions want to isolate Russia

These measures provide tracking of many oligarchy assets, an embargo on the export of technical products, a ban on Russian planes, a disconnection from 70% of Russian banks’ Swift messaging, and secure transactions between banks. To .. “Russia developed its own alternative messaging service in 2014, but only 23 banks outside Russia are connected.” Éric Dor, Dean of Economics at Iéseg, said.

But above all, sanctions stipulate a freeze on the assets of the Central Bank of Russia held by Western banks. It’s a matter of attacking Russian protected areas, “War chest” Accurately planned to mitigate the effects of Vladimir Putin’s possible sanctions. These reserves amount to 560 billion euros. About half are detained in developed countries and must be deposited in escrow.

Revival of instability in the 1990s

With these measures, allies want to undermine the banking system and currencies, or even create a crisis. This will put Russia in financial instability in the 1990s.To be precise, the instability that the Kremlin Master is proud to overcome has given the Russians “Stable”.. This is to show that the choice to invade Ukraine is to confuse the country.

→ Explanation.An economic weapon called Swift against Russia

Kremlin spokesman said these sanctions “heavy” When “There’s a problem”But he assured Russia has “Ability required to compensate for damage”.. He said: “The President is still working on economic issues in the Kremlin today. »»

All of these sanctions should have a progressive effect. They force the central bank to sell currency to support the ruble. And they will put a brake on imports and exports. Already in 2014, during the annexation of Crimea, the West threatened to disconnect the Swift system. The Russian Finance Minister then estimated that this measure would cost five points of national GDP.

Risk of rising energy

To get out of it, Russia can still bet on the sale of hydrocarbons for the time being, exempt from sanctions. “Even before the Ukrainian invasion, gas and oil were at high levels due to Covid and accelerated demand. Analyzing John Plassard, Deputy Director of the Mirabaud Group.. As a result, Russia’s hydrocarbon-related revenues are more important than ever. The sanctions adopted are historic to that extent, but they still have this mattress. »»

→ Read.Russia has a financial cushion to ease sanctions

However, Russians are expected to rise to 6.4% in 2021 in countries where inflation was already high. “In the case of hyperinflation, population dissatisfaction can move the line at central banks that no longer control the collapse of the ruble.” John Prasad continues.

These sanctions also affect developed countries. They can also contribute to the increase in inflation here. “Oil and gas prices can run wild.” Alexandre Hezez, Chief Strategy Officer at Banque Richelieu, explains. Central banks will certainly be working to mitigate the blow in return: “Everything is being done to give Russia financially without much impact on our economy. We look forward to the same intervention that took place in March 2020. Alexandre Hezes explains. The ECB needs to continue to support the economy. »»