In just days President Joe Biden and allies from the U.S. armed the global economy against Russia for invading Ukraine. The destruction that followed was devastatingly rapid.
Russian President Vladimir Putin was almost immediately put on alert by the sanctions to combat skyrocketing inflation. Russia’s central banking, which was unable to tap foreign reserve, tried to make use of what resources it could to slow the steep fall.
Economists agree that Russia’s $1.5 Trillion economy, which was previously about 7% of the U.S., will shrink further in ways that may be unprecedented for a nuclear-power.
There is a push to increase financial penalties. Oleksandra Ustinova, a Ukrainian parliament member, met on Tuesday with U.S senators to demand that more sanctions be imposed immediately to stop Russian aggression against Ukraine.
While sitting in the offices Pennsylvania Senator Pat Toomey, Ustinova stated that the sanctions “work”. People are waiting in line for guns in Ukraine. People in Russia are at the ATM machines to obtain guns. They know they may not be able get this money within two days or it might take twice as long.
The U.S. and its allies retaliated against Russia by launching a series of financial attacks. This is a significant shift in the way conflicts are waged in a globalized, digital world where money is highly dependent.
In the past, economic targets were dependent on military maneuvers like blockades, factory bombings and the capture strategic resources. The recent wave of sanctions has shown that financial markets can react faster than conventional weapons.
These sanctions can also be used as a substitute for U.S. military action against Russia and its allies. Biden repeatedly stated that there would be no U.S. troops on ground, despite the fact that weapons and material are being provided to Ukraine.
The pace of fighting and whether Russia seizes Ukraine will determine the impact of sanctions. If Russia does, it could also decide if the situation becomes worse over time. According to FactSet, the value of rubles has dropped 35% in the past week. This sharp decline in the currency has led to higher inflation, higher interest rates, and a shortage of goods which have adversely affected regular Russian citizens.
“Ordinary Russians will undoubtedly suffer,” but if Ukraine collapses quickly and its government is overthrown soon, Putin is unlikely face enough internal pressure to make him resign,” stated Benn Steil of the Council on Foreign Relations, director of international economics. The sanctions could force Putin to declare victory if the conflict settles into a prolonged bloody stalemate.
Steil warned that sanctions and the freezing Russian central bank assets could lead to other countries avoiding the U.S. Dollar in international transactions. This would make it easier to resist the pressure being placed on Russia. This could lead to a decrease in dollar prominence in the global economy.
Steil stated that the moves would also accelerate the decline of the U.S. Dollar as the predominant settlement currency for international transactions. China will see the sanctions as a warning to its dollar dependence.
French Finance Minister Bruno Le Maire said during a Tuesday radio interview, that Russia was in “an economic and financial war.”
Le Maire later refuted those comments in a written statement, which stated that the term “war” was inappropriate. However, the words provoked Dmitry Medvedev (a deputy head of Russia’s Security Council) to tweet: “Watch your tongue gentlemen!” Remember that economic wars have often been turned into real ones throughout human history.
Toomey, the Senate Banking Committee’s top Republican, said that the sanctions were necessary and should be extended to the natural gas and oil sectors. This is something that the Biden administration has repeatedly resisted in order to maintain lower gasoline prices for U.S. motorists. Jen Psaki, White House press secretary, stated Wednesday on MSNBC that the administration was “very open” for sanctioning Russian energy sector. However, any sanctions would be weighed against U.S. drivers.
The political issue of oil prices is a sensitive one. There has been an effort to prevent prices from increasing too much. Tuesday’s announcement by the International Energy Agency stated that 31 members countries, including the United States, have agreed to free a combined 60,000,000 barrels of oil.
Toomey stated that Russian banks will continue to transact transactions until and unless we put sanctions on oil or gas. He also suggested that financial institutions that do business with Russian counterparts should be subject to sanctions.
“Is that weaponizing of the economy?” Toomey stated, “Yes, that could be said.” “But you know what?” Putin has used a whole society to attack an innocent country.
After Saturday’s sanctions against Russia’s central bank, Putin placed Russian nukes on high alert. This is a serious escalation in tensions and a sign that Russia wants to contain Russia through economic sanctions.
Jim Townsend, a former official at the U.S. Defense Department, said that his shaking of the nuclear saber and the saber-rattling we’ve heard in the last few days is a sign that sanctions are getting under him skin. He is now a fellow at The Center for a New American Security. These sanctions actually matter to him.”