- July 28, 2022
- Posted by: Ramkumar
- Category: Posts
Has Global Sanctions on Russia Worked?
As i look at the global commodities markets and soaring inflation, one thing is sure – In this globalised world, it is 𝐡𝐚𝐫𝐝 𝐭𝐨 𝐢𝐬𝐨𝐥𝐚𝐭𝐞 𝐚 𝐜𝐨𝐮𝐧𝐭𝐫𝐲 𝐥𝐞𝐠𝐢𝐬𝐥𝐚𝐭𝐢𝐯𝐞𝐥𝐲 𝐛𝐲 𝐢𝐦𝐩𝐨𝐬𝐢𝐧𝐠 𝐬𝐚𝐧𝐜𝐭𝐢𝐨𝐧𝐬. In the recent war on Ukraine, the US/EU imposed sanctions on Russia, hoping that sanctions would deter Russia and compel it to stop the fight.
As of 25th May 2022, the following has happened:
1)Russia contributes 14% of crude oil supply globally and is the second-largest natural gas producer. However, due to sanctions, oil trades at $𝟏𝟎𝟗/𝐛𝐚𝐫𝐫𝐞𝐥 𝐚𝐭 𝐚 𝟒𝟓% 𝐩𝐫𝐞𝐦𝐢𝐮𝐦 before the war. 𝐇𝐢𝐠𝐡𝐞𝐫 𝐨𝐢𝐥 𝐩𝐫𝐢𝐜𝐞𝐬 𝐥𝐞𝐚𝐝 𝐭𝐨 𝐡𝐢𝐠𝐡𝐞𝐫 𝐟𝐫𝐞𝐢𝐠𝐡𝐭 𝐜𝐨𝐬𝐭𝐬 across land and the ocean.
2)Imposing sanctions led to 𝐡𝐢𝐠𝐡𝐞𝐫 𝐠𝐚𝐬 𝐩𝐫𝐢𝐜𝐞𝐬 𝐥𝐞𝐚𝐝𝐢𝐧𝐠 𝐭𝐨 𝐡𝐢𝐠𝐡𝐞𝐫 𝐟𝐞𝐫𝐭𝐢𝐥𝐢𝐳𝐞𝐫𝐬 𝐜𝐨𝐬𝐭 𝐚𝐬 𝐚𝐦𝐦𝐨𝐧𝐢𝐚: a base for all fertilisers can get efficiently produced from natural gas.
3)𝐖𝐡𝐞𝐚𝐭, 𝐜𝐨𝐫𝐧, 𝐚𝐧𝐝 𝐬𝐮𝐧𝐟𝐥𝐨𝐰𝐞𝐫 𝐨𝐢𝐥 𝐜𝐨𝐬𝐭𝐬 𝐡𝐚𝐯𝐞 𝐬𝐨𝐚𝐫𝐞𝐝 because Ukraine, a leading producer of the above food commodities, cannot supply them due to war.
4)Russia’s Gazprombank continues receiving oil payments from the EU countries. For lower volumes, Russia has significantly hiked oil prices leading to minimal impact on its revenues from oil.
𝐒𝐨 𝐭𝐡𝐞 𝐪𝐮𝐞𝐬𝐭𝐢𝐨𝐧 𝐢𝐬 – 𝐇𝐚𝐯𝐞 𝐬𝐚𝐧𝐜𝐭𝐢𝐨𝐧𝐬 𝐡𝐮𝐫𝐭 𝐑𝐮𝐬𝐬𝐢𝐚?
𝐈𝐧 𝐦𝐲 𝐯𝐢𝐞𝐰 – 𝐍𝐎.
The emerging markets or developing countries with substantial existing debt that cannot borrow money at higher costs to import commodities are the worst hit.
COVID-induced shocks might be a natural calamity, but war and subsequent sanctions are us shooting ourselves in the foot, resulting in a potential slowdown or a global recession.