How much could sanctions hurt Russia’s economy?

Now, with an influx of Russian troops into eastern Ukraine after Moscow recognized the two regions as independent, the US, UK and EU have announced sanctions and indicated that there may be more to come. Is. Initial measures include targeting Russian banks, high-level individuals and sovereign debt.

Russia has taken steps to protect itself against the economic shock that comes with imposing sanctions. The country has cut its budget, boosted foreign exchange reserves and sought to diversify its trade portfolio to become less dependent on the EU for export revenue.

Trade:

The bulk of Russia’s export revenue comes from mineral products such as oil, natural gas and coal. This dependence makes energy exports an attractive target for sanctions.

The European Union is dependent on Russia for more than a third of its natural gas imports. As of January, the US and Europe were not directly weighing sanctions against Russian exports of oil and natural gas, given concerns that doing so could add to already high energy costs in Europe. However, in response to this week’s incursion, Germany announced on Tuesday that it was halting plans to open the Nord Stream 2 pipeline, which would increase Russian gas shipments to Germany.

While the European Union remains Russia’s largest trading partner, Russia has made efforts to diversify, expand and expand relations with China. These efforts include the opening of a major gas pipeline for the country in 2019. Natural gas exports to China have grown since then, but are still small compared to Russia’s other large gas buyers.

The Biden administration is also banning the export of various products that use microelectronics based on US equipment, software or technology. The sanctions could undermine Russia’s ability to make progress in aerospace, artificial intelligence and other high-tech areas.

Budget/Loan:

Moscow is working to strengthen its finances, which can help cushion the economy and keep the government funded in the face of sanctions. The country has pursued a conservative fiscal policy and has cut debt relative to other countries such as the US and its European allies.

Stores:

Russia has used oil and gas revenues to build up its gold and foreign exchange reserves since the Ukraine crisis of 2014. Moscow could use these to help support the ruble, if sanctions cause the currency to fall, or to help cover government spending.

Ever since the US and other countries imposed sanctions on Russia over its 2014 annexation of Crimea, Moscow has had time to rebuild its economy in an effort to make it more resistant to far-reaching punitive measures, hence the last of the sanctions. Effectiveness remains uncertain.

Beyond Russia, the consequences of the Ukraine conflict and the resulting sanctions could damage the larger global economy, which is already reeling from inflation and supply-chain malfunctions. Oil prices rose on Tuesday, as did other large Russian and Ukrainian exports such as natural gas, wheat and aluminum.