Is it really possible to isolate Russia from the global economy?

Russia’s ongoing invasion of Ukraine is beginning to cause turmoil in Europe and around the world as gas pipelines are curtailed and sanctions are imposed on Russia.

Is it really possible to isolate Russia from the global economy?

So far the throttle shutdown hasn’t caused too much of a nuisance, but it will be in the winter months when it hits really hard. This is because the time to replenish reserves for the winter is now, but that will be difficult when Russia closes the pipelines amid claims of necessary maintenance work.

The sanctions imposed on Russia thus far do not appear to have persuaded Vladimir Putin to call off the invasion, and it appears that he is settling for an occupation that will not end soon.

So what can the world do about it without escalating the violence even further?

Economic sanctions to avoid military conflict

A number of sanctions have already been imposed that will shrink the Russian economy by 15% if they continue into 2022. These sanctions include the removal of many Russian banks from the cross-border payment platform SWIFT. Russia has also had a large part of its foreign reserves frozen. The country has a total of $630 billion in reserves, half of which are abroad and now inaccessible.

The United States has also applied a series of banking restrictions, such as banning Russia’s largest bank from conducting most transactions in US dollars. They also do not have access to their US-based assets.

Many technology exports have also been prevented from entering Russia, which could limit their intelligence, defense industry and oil drilling and refining capabilities. The US has banned imports of Russian gas and oil, while countries like the UK have pledged to phase out Russian oil and gas imports by the end of the year. If the EU joins the ban, the Russian economy could pull out by 20% this year.

Other sanctions include many US companies suspending operations in Russia. These include Coca-Cola, Disney, Google, and Microsoft, among others.

Russia’s response to sanctions

Russia has already received sanctions many times, although the latter cut a little deeper than the last. This time, the sanctions are hitting both the major Russian banks and the secondary capital markets. This kind of economic isolation could have serious consequences for Russia, as it is deeply integrated into world markets.

In response, Russia has raised gas prices as its main retaliation, and is also expected to raise grain prices, as much of it comes from occupied Ukraine.

Another response to the sanctions was the stripping of intellectual property rights from all US companies. This resulted in the immediate submission of new fake Russian versions of Instagram, McDonald’s and Starbucks.

Russian investors have responded by investing in gold, as it is considered a lower risk investment during market volatility. This has led to the gold price reaching its 8-month high.

financial war vs russia

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