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The Macroeconomical Ramifications of the Russo-Ukrainian War

Updated: May 7, 2023

Mohit Bhabak, finalist of the Ontario Writing Workshop

April 1st, 2023


On February 24, 2022, Vladimir Putin announced that his Russian soldiers had begun a “special military operation” in Ukraine. With that, began the first full-scale land invasion since World War 2. With that, came Europe’s largest refugee crisis, the largest gathering of troops, tanks, planes, and shells, and the greatest scare of another global conflict since that great war itself. Millions of people displaced, killed, and devastated, all for a war that seemingly has no foreseeble end. Now, although the grave humanitarian and militaristic damage this conflict has caused is nothing short of horrific, arguably more devastating may just be the economic ramifications that have ensued worldwide following the onset of the invasion. The Russo-Ukrainian conflict has resulted in one of and perhaps the greatest magnitude of sanctions upon one nation in global history. Western nations, their allies, and many others imposed limited sanctions on Russia when it recognized the Donbas as an independent nation. When the attack itself began on October the 24th, 2022, harder sanctions almost rained down on Russia in what can be referred to as “economic warfare”, with western nations attempting to cripple the Russian nation by destroying their economy, Sanctions targeted individuals, banks, business, monetary exchanges, exports/imports, and more. Russian banks were removed from the SWIFT network on the 1st of March, 2022 in an unprecedented movie. With SWIFT being the agency facilitating almost all international financial transactions, this move made it extremely difficult for Russian banks to conduct business, and thus extremely difficult for exchanges utilizing the Russian Ruble as a whole. The host of sanctions also froze the assets of the Russian Central Bank, which held almost $630 billion USD in foreign-exchange reserves. The proposed Nord Stream 2 gas pipeline was also frozen. By just the 1st of March, the total amount of Russian assets frozen by sanctions amounted to over $1 trillion USD.

The Impact

The impacts of these sanctions on Russia were devastating at the beginning, with the Russian stock market falling by 39% on just the first day of the invasion. The national currency, the Russian Ruble, fell to record lows as citizens rushed to exchange the Ruble for foreign currencies before it went worthless. Many stock exchanges, notably those in the capital, Moscow, and Saint Petersburg closed until the 18th of March, 2022, in an attempt to negate a complete collapse of the stock market. This closure was also the largest in the nation’s history.

Borrowing also very quickly became very difficult for the Russian state as the government’s credit rating plummeted, making it far more difficult to receive the bonds and investments required to get the nation out of debt. Very quickly, nearly all major Western companies ceased trading and later completely even seized operations in Russia. The fallout in the nation was so devastating that Sergeii Aleksasheno, the former Russian deputy finance minister, said “This is a kind of financial nuclear bomb that is falling on Russia.” This display was truly a form of economic warfare, with the intended effects of a deep recession, bank runs, and hyperinflation in Russia very quickly coming to fruition.

A major part of the international economic backlash upon Russia was through fossil fuels and other such natural resources, which make up a significant portion of the Russian economy, GDP, and even global supply. On February 28th, 2022, Canada began by banning all Russian imports of crude oils. On March 8, 2022, President of the United States, Joe Biden, continued after he ordered a ban on all Russian imports of oil, gas, and coal into the nation. The European Commission followed suit in May with a ban on all oil imports from Russia. However, this ban was later minimized to a ban on only imports by sea after tough campaigning from Hungary which gets 60% of its oil from Russian pipelines. The complete European oil pipeline supply from Russia is almost 800,000 barrels a day which is an exception relative to other common sanctions. Despite this law, however, certain nations have committed to a full ban on Russian oil imports including those by pipeline, a move was taken by Germany & Poland amongst others. The European ambition to free themselves of Russian fossil fuels was furthered when the European Commission and International Energy Agency presented joint plans to reduce their reliance on Russian fossil fuels by first reducing gas imports by two-thirds within a year and completing by the turn of the decade. The President of the European Commission stated in April 2022 that “the era of Russian fossil fuels will come to an end.” The European Union also formally announced its plans to end its reliance on Russian fossil fuels by 2023 in May. Major international companies in the fossil fuels industry also began to repeal their business out of Russia, with Shell announcing on March 8, 2022, that it intended to withdraw from the Russian hydrocarbons industry. Despite these setbacks, Russia was still exporting a significant amount of fossil fuels, generating funds that were crucial to stabilizing the economy and funding the war effort. To counter this, on September 22nd, the G7 nations agreed to cap the price of Russian oil.

Despite the substantial amounts of sanctions applied on Russia, which may make it seem as if the nation would be crumbling, things have arguably not panned out as well as the Western nations have hoped. The sanctioning was arguably not as universal as these nations would have hoped, with several major nations refusing to sanction Russia and standing up well against Western pressure to do so. Major nations such as India, China, Brazil, Serbia, & Mexico declared intentions to not sanction Russia, and have stuck by it. This has allowed Russia the opportunity to conduct trade with these nations to keep its economy and war effort alive. Nations such as India & China particularly have grown as a stronger export destinations for Russian fossil fuels. Several disagreements have also ensued between Western nations and nations refusing to sanction Russia, with India being a notable example. This was furthered by the fact that Joe Biden had even threatened to impose sanctions on India itself after the nation refused to halt its purchase of Russian military goods. India held strong against pressure and has arguably increased its cooperation with Russia in financial & economic terms. This similar trend has been witnessed amongst many nations across the Eastern world and even in some European nations in the Balkan regions. Overall, the barrage of sanctions implemented against Russia has essentially resulted in an economic “Cold War” of sorts where nations are now divided depending on their willingness to cooperate with Russia economically.

Potential Solutions

A solution to the conflict itself is complicated at best. Western nations sanctioning Russia is not a new phenomenon by any means, rather sanctions began in 2014 during Russia’s initial annexation of Crimea itself. These sanctions were maintained for the most part for 8 years until they were all increased in magnitude following the recent escalation of the conflict. Thus, potential solutions on the economic front must work even harder to reverse the damage done during the several years of sanctioning itself. It is highly unlikely that sanctions will come to an end without the ending of the conflict itself, or at least some promise of a ceasefire. For Western nations, the philosophy behind their approach to the conflict has been one of economic warfare, defeating Russia from a distance by crushing its economy, thus, taking a U-turn from this approach is highly unlikely without some major concessions from the other side. However, compromises should be considered, especially when taking into account the global economic

situation. Many nations currently sit on the brink of another recession, with economists and organizations worldwide reiterating a sense of relative crisis across the globe. Many banks globally, especially ones in Western nations are seeing unprecedented lows. Stock markets worldwide have taken hits, and inflation across the world has gone up tremendously. Although much of this economic damage can also be accredited to the Covid-19 pandemic and its impacts as well, the conflict in Russia has exacerbated everything. Thus, considering this all, for many nations a compromise may well be in their best interests. A temporary solution that reduces sanctions on certain goods which are both crucial to Russia’s export economy and also needed for nations worldwide is a potential solution to consider. Russia has seemingly been gaining more cards to play with as the economic conflict progresses. Despite the lackluster performance on the battlefield, the world has truly seen the importance of Russian goods to the global economy. Russia is the world’s largest exporter of not just fossil fuels, but also grains, fertilizers, and several minerals such as platinum, gold, cobalt, nickel, aluminum, and palladium. All of these are crucial materials to high-tech manufacturing which in turn are crucial for most businesses in Western nations themselves. All of these remain crucial factors to consider when the world may witness its nations finally come to the negotiating table.

Past Attempts

Peace negotiations and attempted solutions have been discussed throughout the conflict. Very early on in the conflict, several rounds were held. The first meeting was born on 28 February 2022, in Belarus with the following rounds held on 3 March & 7 March. These were very early on in the conflict when the sanctions devastated the Russian economy severely. However, as the war continued to go on, the impacts of these sanctions were arguably minimized as the Russian economy adapted and export markets were changed. More bargaining power on the economic front was arguably granted to the Russian delegation as Western nations began to have their own economic issues to deal with. Russia remains isolated from much of the world, however, one can say it has formed a network of sympathetic nations who continue to cooperate with it, sustaining its economy and therefore its war effort. All foreign nations have expressed a desire for the conflict to end, with leaders from both sides of the world and allies with both nations expressing their concern for conflict, however, the way that they go about bringing an end to the conflict differs severely. Russia for example, early on demanded that Western nations

drop their sanctions on Russia, arguing that these sanctions just escalated the conflict rather than attempting to bring an end to it like the claimed intentions of them said. Western nations however refused to drop such sanctions, instead threatening more sanctions unless Russia retracted its invasion. This dynamic is likely to continue, with both sides not wanting to budge first before the other does.

With elections and new leadership having already come to power or soon coming into the picture in several major nations, the future remains intriguing for all to witness. Whether the amount or intensity of sanctions increases and how the Russian and global economies alike handle them are things that not even the greatest of economic analysts can predict. With business leaving the nation, the Ruble going through near hyperinflation, and services being cut off, much of the Russian populace has not been happy. The onset of the conflict saw anti-war protests occurring throughout the nation which was quickly cracked down upon. Media censorship and propaganda have become mainstream in not only Russia, but even the West, and with all nations leaning towards more authoritarian policies creating distrust between the people and government, it’s hard to tell how much longer these economies will survive. Issues such as the cost of living and soaring energy prices for example have been plaguing Western nations to an extent rivaling even the worst of economic recessions seen in our societies. We rest in a time where warfare, geopolitics, economics, and history could never be more intertwined, and with so much at stake for every nation, it almost seems as if a true solution is nearly impossible. The actions that nations and their leaders may take today will set the stage for the global economic hierarchy for decades to come, and one wrong decision now may cause detrimental consequences for generations of the future. At times when the solutions to our problems may seem so simple at face value, it is often those which are the most complicated; and in this case, these complications can make or break the lives of billions globally. These sanctions may seem like just a solution to a conflict, yet they rest as a meaningful symbol of what 21st-century geopolitics and macroeconomics embody; and at the same time, they might just as well set the precedent for what the future of hundreds of countries, millions of soldiers and companies, and billions of people may look like.



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