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Wednesday, August 10, 2022

Economic Crossfire

Sanctions have become a 21st century response to attacks on democracy, but Russia’s Feb. 24 invasion of Ukraine changed the game. Instead of committing troops to fight on Ukrainian soil and possibly provoking a more deadly global assault, world leaders are reacting via the economy.

Russia’s Central Bank has been cut off from $300 billion — 60 percent of its reserve funds — stored in foreign banks, leaving Russia unable to support its currency and at risk of defaulting on millions of dollars in foreign debt. Some Russian banks have been cut off from the international payments system SWIFT, preventing them from carrying out foreign transactions.

Caught in the economic crossfire are ordinary citizens, who are now cut off from Western goods and grappling with a plummeting ruble. Daria Sevastianova, an associate professor of economics at the University of Southern Indiana and a native of neighboring Belarus who immigrated to the U.S. in 1997, says she and others from Russia and former Soviet Union states vividly remember the post-USSR 1990s when inflation was high, goods were scarce, and long lines of consumers hurriedly bought supplies before they ran out.

“Fifty percent of Russia’s consumer goods are imported. Food, medicine, clothes, cars, and technologically intensive goods now will be in short supply,” she says. “It will be hard for Russia to make up the shortfall of trade with domestic production.”

But the effects of sanctions aren’t confined to Russia. The European Union relies on Russia for about a third of its imported natural gas and is not equipped to replace that supply, causing EU leaders to proceed cautiously with trade restrictions on energy. Halting Russian grain and fertilizer exports would also negatively impact poorer countries.

This, perhaps, is the biggest drawback from using economic sanctions to wage war. As Sevastianova says, the severity of any sanctions put in place would long outlast the physical fighting.

“Any sanctions implemented are difficult to undo,” she says. “Russians are immigrating to Finland and Europe. Talent is leaving the country while they still can, because the future is bleak.”

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