From 24th of February, when Russia’s invasion into Ukraine started, a lot of Western sanctions were put into the action. I can admit that Russian Federation plays an important role in the field of energy production, metals, agricultural production, so Russia’s exclusion from global economy because of sanctions, will affect both: the whole world and Russia itself. The sanctions hit Russia's weak points, make the strongest influence on the Russian political elite, and are also coordinated with the actions of Ukraine's allies. In this essay I will consider the question of how sanctions and Russia’s exclusion from global economy will impact on the world and on this country.
Firstly, I want to emphasize on the possible effects in the sphere of international trade. As we know, Russia is one of the biggest exporters of natural gas, crude oil, solid fossil fuel (mostly coal) to the Europe. According to the data, Europe imports from Russia 43% of natural gas, 29% of crude oil and 54% of solid fossil fuel (mostly coal). [1] But what will be now? One of the most important low that is needed to be passed - full embargo on trade in Russian gas and oil. In this case, GDP of the aggressor country will fall. According to the research of the Quantitative Institute of the World Economy, falling in GDP, due to the stoppage of gas and oil trade, will be on 3% and 1,2% respectively. Unfortunately, now the full embargo is not implemented, but Europe try to find new sources for gas import. At the same time, the economy of European Union can even benefit from the refusal of Russian gas and grow by 0.1% [1]. In this situation, Europe needs to replace imported resources with domestically produced resources and due to that increase the competitiveness of the European economy. If we are talking about the export of oil and gas to other powerful countries, it can be added that. On March 8, 2022, the Biden Administration announced a ban on imports of Russian crude oil and certain petroleum products, liquefied natural gas, and coal to the United States. [2]
Currently, there is a ban on the export of certain goods from the EU to Russia (for example, energy equipment or aviation technology), as well as on imports from Russia to the EU (gold, wood, steel, iron, etc.). The European Commission has applied trade restrictive measures in the form of import and export bans on the two countries (Russia and Belarus) under the common foreign and security policy. These include import bans on some Russian and Belarusian steel products, coal, rubber products and wood, on Russian spirits, alcohol and seafood, etc. The total value of all export sanctions imposed on Russia so far is €22.8billion, 25 % of the EU's pre-war exports [8, p.2]. Significant restrictions on transportation between Russia and the countries of the European Union have also been introduced. Thus, it will be much more difficult for the energy industry, aviation technologies and other industries that are subject to sanctions in the Russian Federation to develop, which, of course, will in turn have a negative impact on the country's economic growth. It is already understandable by analyzing CPI of Russia [3], [4].
Secondly, essential sphere which is also subject to sanctions is financial field. Russian financial institutions and banks are really active in global financial markets. Investors both in the European Union and the USA were not allowed to provide financing to Sberbank, VTB, Gazprombank, Rosselkhozbank, and VEB (Russia’s state-owned development bank) ever since the occupation of Crimea [5, p.19]. The most powerful action was the disconnecting of some Russian banks from SWIFT. After this, banks of aggressor country have actually lost the ability to conduct transactions in foreign currency (in euro, in dollar, etc.). They can conduct operations with banks of other partner countries, but not in dollars or euros. For instance, Sberbank, which is one of the most dominant bank, was positioned as authoritative players in the global financial market, has now become “de facto” as domestic bank of Russian Federation. Unfortunately, not all banks are disconnecting from SWIFT-system, but there are a lot of meanings of Western scientists that after some time absolutely all banks will be disconnected. If we are talking about the full disconnection from SWIFT, it should be noted that it will hit both ordinary citizens and Russia's export industries. In particular, citizens of the aggressor country will lose the opportunity to make international payments, money transfers from Russia or to Russia (here it is needed to be mentioned about labor migrants and their transactions for families that are living in the aggressor country). People that have banking cards of international payment systems, such as Visa and MasterCard, will lose the ability to make cashless payments. They will be needed to pay for goods and services only in cash. As a conclusion, the country will be fully isolated in an economic sense.
Thirdly, not the least important sphere is tourism. Of course, it is also covered by Western sanctions. Such restrictions can affect both: Russia and the whole world, because, as we know, tourism allows the circulation of money in economy. In the short term, countries that rely on both Russian and Ukrainian visitors will be affected because of travel from these countries will be limited. Larger impacts are expected in terms of travel from Russia. [9] At the moment, the visa facilitation agreement from 2007 has been suspended. Thanks to this, the flow of goods, capital and technology to Russia will be reduced. In turn, it impacts the economic growth and development of the country. The absence of new technologies is equal to absence of development of production, of service sector and so on. Russia’s expenditures on the international tourism were around 36.2 billion U.S. dollars in 2019 [7]. Russia and Ukraine's international tourism spending in % of world total [6]. On the other hand, if people that live in the aggressor country, can easily make a visa and arrive to the Europe, consume and return to Russia and, accordingly, have access to goods and services that European sanctions deprive them of in their own country, will it be any sense of Western sanctions? At the moment, Europe has also completely closed the sky to Russian planes, which makes tourism from Russia much more difficult. Of course, it is important to highlight that Europe doesn’t want to completely stop issuing visas to Russians. It’s logically because the flow of money from international tourism will decrease, and it can influence the economy of EU and can lead to high inflation rates in Western economies, especially in Europe [9]. But if Russia can cut off its gas supplies, which have reliably supported Europe for decades, why shouldn't Europe cut off the flow of citizens whose support supports the Russian regime?
One significant point to underline here – possible “brain drain” from Russia to EU countries or USA. Right now, after 6 months of Russian-Ukrainian war, over one in five developers previously located in Russian (22.9%) and Belarus (23.9%) can no longer be located there [10]. This is three to four times higher than that of regional rate. Factors of “brain drain” in Russian Federation can be considered as: search for better working and living conditions abroad; fear of being unemployed in the homeland; lack of professional development prospects, etc. All this factors one way or another are connected with the Western sanctions, due to which scientific, economic, financial and many other perspectives become impossible. If we are talking about effects, so for the aggressor country it is really a bad move. The country will not get a return on its investment in human capital. Russia will suffer significant economic, cultural, and sometimes political damage. The negative effects for the country will be the "withdrawal" of human capital from the country, hindering its development in the future, and as a result, a decrease in tax revenues to the budget and cancellation of investments in education. Effects on the Europe, USA will be the complete opposite. EU and USA will "import of highly qualified personnel" without the need to spend money on their education, etc. If we are talking about the “blue collars”, countries-members of EU and USA pay less to immigrants, as a rule. So, whichever way you look at it, European Union and USA will benefit from “brain drain” from Russian Federation.
In this essay I have tried to understand the main possible effects after the Russia’s exclusion from global economy. Consequently, I want to admit that Russia’s invasion into Ukraine leads only to negative effects for the aggressor country. Falling of GDP, a significant reduction in exports and imports, impossible economic development and growth, possible future embargo on Russian gas and oil, gradual transition from open to close economy and even total ban in all spheres – all this scenarios became possible after the horrible morning on 24th February 2022. It should be noted, that nowadays Europe also has not the best times, because it has been dependent on Russian gas and oil for many years. Despite this, I am totally sure that EU will find more reliable importer of natural gas or will develop their own sources of minerals. The same with USA and the whole world: yes, right now they import some goods from Russia, but I am sure that gradually reducing these imports, in a year or two the world will forever abandon Russian goods. Having taken some difficult steps now, giving up Russian goods, gas and oil, all countries will start looking for substitutes, or produce them themselves, and in a few years the Russian economy will collapse completely, the country will be under heavy sanctions pressure. While Ukraine will prosper, provide Europe and the whole world with everything necessary, and the economy of our country will stand firmly on its feet.
REFERENCES:
1. From where do we import energy ? Shedding light on energy in the EU. (n.d.). Retrieved September 11, 2022, from https://ec.europa.eu/eurostat/cache/infographs/energy/bloc-2c.html
2. D. Cimino-Isaacs, C., & Wong, L. (2022, March 18). Invasion of ukraine: Russia’s trade status - congress. Retrieved September 11, 2022, from https://crsreports.congress.gov/product/pdf/IN/IN11881
3. Organization for Economic Co-operation and Development (2022, August 11). Consumer price index: All items for russian federation. FRED. Retrieved September 14, 2022, from https://fred.stlouisfed.org/series/RUSCPIALLMINMEI
4. Statista Research Department. (2022, August 12). Russia - monthly inflation rate 2022. Statista. Retrieved September 14, 2022, from https://www.statista.com/statistics/276323/monthly-inflation-rate-in-russia/.
5. Korhonen, I. (2019). Economic Sanctions on Russia and Their Effects. Retrieved September 11, 2022, from https://www.ifo.de/DocDL/CESifo-Forum-2019-4-korhonen-economic-sanctions-december.pdf.
6. U. N. W. T. O. (2022). World Tourism Organization. Impact of the Russian offensive in Ukraine on international tourism. Retrieved September 14, 2022, from https://www.unwto.org/impact-russian-offensive-in-ukraine-on-tourism
7. Department, S. R. (2022, March 24). Russia: Outbound tourist visits 2014-2021. Statista. Retrieved September 11, 2022, from https://www.statista.com/statistics/894809/number-of-outbound-tourist-visits-from-russia/
8. Parry, M. (2022, May). Russia's war on Ukraine: Eu trade policy. At a Glance Notes of European Parliament. Retrieved September 11, 2022, from https://www.europarl.europa.eu/RegData/etudes/ATAG/2022/729422/EPRS_ATA(2022)729422_EN.pdf.
9. Tourism effects of russia's war on Ukraine. Oxford Economics. (2022). Retrieved September 14, 2022, from https://www.oxfordeconomics.com/resource/tourism-effects-of-russias-war-on-ukraine/
10. Wachs, J. (2022). Digital Traces of Brain Drain: Developers during the Russian Invasion of Ukraine. Retrieved September 11, 2022, from https://arxiv.org/pdf/2209.01041.pdf.
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Supervisor: Khmil Oxana Oleksandrivna, teacher of the department of foreign philology and translation, State University of Trade and Economics, Kyiv, Ukraine
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