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Nearly two months ago, Ukrainians woke up to a war as Russian missiles rained down on their country. A barrage of sanctions by Western nations to strangle Russia’s trade and banking has yielded slim results. When Russia agreed to retreat from Kyiv, the choke seemed to be working, until explosions again hit the city’s outskirts last week. The reason the sanctions are failing to stop war is clear: It is not just ordinary Russians who have suffered; everyone else in a close-knit global economy has, too. Here’s a look at what the attempt to isolate Moscow has achieved so far:

1. Slap on the wrist?

Over the past seven weeks, more than 40 countries have announced punitive measures against Russian banks, companies, and key individuals. With more than 6,900 new restrictions, Russia is now the world’s most sanctioned country. Its economic output is set to suffer, if not collapse, by all estimates. However, the conflict has had a spillover effect across the globe through rising commodity prices. The European Bank for Reconstruction and Development last month pared its gross domestic product growth estimates for several eastern European and central Asian countries by up to 380 basis points.

Economic costs are apparent immediately, but the global economy will also face long-term costs, said Saon Ray, visiting professor at the Indian Council for Research on International Economic Relations. “It depends on how pervasive the sanctions are and to what extent countries that have not imposed sanctions continue their partnership with Russia," she said.

2. Energy giant

The bilateral partnerships that are protecting Russia are centred heavily on its deep-seated role in global energy markets. Over half of Russia’s oil exports go to Europe. The US banned its own Russian imports, but all the EU could do was pledge to phase out Russian fuel “well before 2030". A minister has now urged Germans to cut gas use to “annoy" Russian President Vladimir Putin.

Russia’s hedge may not last. As Europe finds alternatives, Moscow will also need to reduce its dependence on Western financial, capital, and other markets, instead targeting its commodity supplies towards Asian markets, a BoFA Securities report said on 16 March.

“If Europe stopped Russian gas imports, it could lose more than Russia," said Mohit Ralhan, managing partner at TIW Capital Group. Even if both blocs go their own ways, inflation would surge in the West, while Russia’s turn towards Asia and Africa would lead to a challenging geopolitical situation, he said.

3. Not ‘rubble’

As the war left crude oil prices soaring, it also cast a shadow on Russia’s currency. The ruble hit record lows soon after the invasion began. It was the worst performing currency between 23 February and 15 March. However, with the central bank’s intervention to raise the benchmark policy rate to 20%, the currency staged a dramatic recovery, regaining pre-war levels by 7 April. The move to limit the selling of rubles and force its buying also helped fend off the risks of further collapse.

An even bigger push for the ruble came from Russia using the West’s tricks to up the ante. Effective 1 April, Moscow demanded European importers to pay for natural gas in rubles. Russia has also suspended its forex purchases to support its currency, though BoFA expects the freeze to be lifted soon to manage vulnerabilities.

4. World’s agony

No relief from inflation is likely soon as the war threatens a worldwide cost-of-living crisis. A KPMG report dated 1 April pegged global inflation at 4.5%-7.7% this year and 2.9%-4.3% in 2023. Even at the lower end, inflation would be at multi-decade highs in several countries.

Russians are facing the brunt the most, as hiked supplier costs and unfavourable exchange rates have driven up input prices at the fastest pace on record in March, said IHS Markit. Hiked interest rates have made borrowing expensive, while businesses could pass on hikes in input prices to consumers. Disrupted supply chains could send ripples across the globe.

The world will have to navigate a difficult period under geopolitical uncertainty, the KPMG report said. “Businesses and households will be hoping for the best but should plan for potential disruptions and uncertainty,“ it said.

5. Road ahead

Embargoes and economic sanctions are widely used geopolitical instruments, but their utility is debated. Financial sanctions and trade restrictions are incomplete if energy continues to be imported from Russia, Ray said.

Sanctions won’t affect Putin, while China’s position is critical, said Manoj Pant, vice chancellor, Indian Institute of Foreign Trade. “The longer Beijing and Europe keep up their fuel purchases from Russia, Moscow will be insulated," he said.

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The sanctions are well set to leave decades of globalization in disarray. For any country, keeping trade ties with both blocs will become increasingly challenging, the era of bilateral treaties will return, and world bodies will lose influence, Ralhan said. Russia and China will emerge stronger allies and could even build an alternative trade and financial system, which would be a disastrous outcome for the West, he said.

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