• Shujat Ali Shahid

Is Russia slowly crumbling?

The Impact of Sanctions, Ban and Boycott


While the notion that Russia is fast advancing in its quest to capture the entirety of Ukraine holds strong, another such notion that the West is oblivious to the situation is not well-informed. Behind the shadows lies the crumbling dilemma of Russia to prepare for the future under the pressure of sanctions, boycott and ban.


Russian Banks take a hit

A number of European countries and the USA have decided to do away with several Russian banks from the trading platform SWIFT (Society for Worldwide Interbank Finance Telecommunication). This would entail preempting such banks from trading at high volumes. Perhaps a more catastrophic effect is the potential reluctance of people to keep money in the banks removed from SWIFT.

Assets of the Russian Central Bank have been paralysed by the European Union, which could act as a bane for the economy. If you are thinking about numbers- this includes $300 billion worth of assets. Looking at the situation from the grassroots, many visible signs of irritation and chaos have emerged in the form of long ATM lines and tiring, rigorous bank runs. The Russian Central Bank has increased interest rates to a whopping 20%, but this could also prove to be disastrous and trigger inflation at a mammoth scale.

Accounting firm Baker McKenzie has announced that it will ‘completely cut off relations with several Russian clients’ as part of the sanctions imposed on the country. Baker McKenzie has high profile clients in the land of the Soviets, including the national finance ministry and VTB bank. In what is said to be amongst the major burdens on Russia, the European Central Bank, too, has imposed sanctions upon the Russian Central Bank. Several millions of dollars, euros and pounds might be owned by the Russian Central Bank but this doesn’t mean that Russia has total authority and control over them, at least in the present context when its assets have been frozen by the EU.


Companies shying away

While this was bound to happen, the rate at which companies have stormed off has been alarming. Of course, this also means an end or at least a suspension to a somewhat extraordinary journey of some companies in Russia as it has been a hot seat of heavy and light industry. Russia’s largest foreign investor BP Plc announced the exit of its 20% stake in Rosneft, which is state-controlled.

Following in the footsteps of BP Plc, Shell Plc cited that it would be ending partnerships with Gazprom and the Sakhalin-II liquefied natural gas facility and Nord Stream 2 pipeline project.


Kwasi Kwarteng, UK Business Secretary held - “Shell have made the right call. There is now a strong moral imperative on British companies to isolate Russia. This invasion must be a strategic failure for Putin.” Norway’s biggest energy company Equinor ASA too announced withdrawal of joint ventures in Russia. Similar has been the case for Exxon Mobil Corp., TotalEnergies SE and some more. Daimler Truck Holding which is one of the world’s largest commercial vehicle manufacturers will stop business activities in Russia until further notice.

After the disintegration of the Soviet Union, such companies saw opportunities in Russia, boosted by a large market of millions of customers. But with the occupation of Ukraine, Russia saw the same companies leave.

Ban from sports

The international soccer governing body FIFA, along with the administrative body for soccer in Europe UEFA have banned Russian teams from competing. Later, Adidas AG suspended partnership with the Russian Football Union. Nike Inc. has also expressed desire to stop sales in Russia.

Restrictions were also put on Russia in the game of ice-skating which is supposedly President Vladimir Putin’s favourite. Russia was denied participation in international events, in a move complying with the International Olympic Committee’s request to debar Russian athletes from sporting events worldwide. Belarus, a strong aide of Russia, was also banned.

Ice hockey was no exception as the governing body, IIHF, banned athletes from Russia and Belarus. This would go on for seven tournaments, including both men’s and women’s world championships. IIHF also took the risky, but crucial decision to not have a world junior championship in Novosibirsk, Russia.

This has caused significant frustration among the Russians as ice skating and ice hockey are very famous sports there.


Another economy depends on Russian stability

To the north of Afghanistan, lies Tajikistan and a jarring fact about this small central Asian country in this context, is that it gains 20% of the GDP from remittances sent by citizens working in Russia. The sanctions and pressures on Russia can be a precursor to a major collapse in the economy of Tajikistan if the workers stop sending money back home.

The factor of brain drain can also be attributed to Russians, as the EU has closed out all Russian air routes, signifying prevention of arrival and departure of the same. Tajikistan also shares borders with China’s Xinjiang province and one can hardly fail to figure out that a collapse of the Russian economy will have jarring effects across Central Asia.


WHAT IS BOUND TO HAPPEN NEXT?

What happens with Russia, spreads all over the world. While the sanctions and boycott are weakening the Russian economy, they have also sent ripple effects across the globe.

The fear of a possible energy and food crisis is slowly growing in various parts of the world because of the omniscient presence of Russian heavyweights in industry and Russian exports. Further escalation of tensions can cause severe repercussions and put both sides to the disputes in jeopardy.

 

~ Shujat Ali Shahid


Sources: The Atlantic, ESPN, Bloomberg