Home/ Opinion / Views/  FM is right, impact of Russia sanctions need to be weighed

Finance Minister Nirmala Sitharaman said last week that the G20 countries are going to have to discuss the spillover effects on the rest of the world of the western sanctions imposed on Russia.

After Russia’s troops marched into Ukraine in February, nearly 40 countries had responded with coordinated sanctions against it to freeze its foreign currency reserves and snap trade ties. The hope was that by limiting its banks’ access to dollars and its industries’ access to imports of hi-tech goods and services from the rest of the world, the restrictions would bring Russia’s economy to its knees. This, it was expected, would reduce Russia’s ability to wage war.

To add to the pressure on Kremlin, sanctions were also announced against its allies and Russian businesses and individuals. All put together, the sanctions were to increase the cost of waging war.

But the war has not ended.

The sanctions haven’t proved to be much of a deterrence. Russia’s oil and gas exports are booming. With global oil and gas prices rising, Russia’s revenues have increased, not decreased.

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Russia's aviation industry has defied predictions it would gradually grind to a halt under the impact of western sanctions restricting access to imports of vital spares and maintenance services. Plane makers Airbus and Boeing that account for nearly two-thirds of the Russian passenger fleet and aircraft engine maker Rolls-Royce suspended supplies to Russia in March. Yet, air travel within the country has rebound close to pre-Covid levels.

It’s thus not clear how much Western sanctions are hurting Russia. Meanwhile, the rest of the world has been plunged into multiple crises: not just low-income and developing economies but also parts of the rich world are grappling with food and energy insecurity. Rising prices of food and fuel are wrecking government budgets, pushing people into poverty and, as Sitharaman said, making reaching the SDGs even more difficult for countries. Many countries are struggling with debt distress and a humanitarian crisis.

It could be a cold, dark winter this year in Europe, which depends heavily on Russian gas for its energy needs, and could see a power crisis. The fallout isn’t limited to fuel and food. Ukraine and Russia are key sources of critical metals, minerals and inputs for a variety of industries — the war has increased global prices of essentials such as fertilizers.

The finance minister is right also to point to the spiralling effects of the sanctions leading to global inflation, sharp volatility in currencies and macroeconomic stress and risk of economic recession. Unsurprisingly, the cost-of-living crisis is creating challenging political conditions across countries, and may become the deciding factor in the US midterm polls.

It has to be said: the sanctions have backfired. Their designers failed to take into account the economic cost of the repercussions for the rest of the world or the dynamics of the global oil market due to which although Russia is selling its oil exports at discount, it’s still raking in enough to finance Kremlin’s budget. Countries with energy-intensive economies but no secure sources of fuel have had no option but to buy from it, and maintain neutral position on the war, limiting the pressure on President Vladimir Putin.

The OPEC+ group has cut oil production to prevent oil prices from dipping. They say that this is a strategy to preserve their revenues in the unfolding global economic slowdown. But what it makes quite clear is that the anti-Russia coalition is essentially a Western alliance. Have the economic warfare and Western sanctions succeeded in delivering the international isolation of Russia as intended? Clearly not. Countries such as Saudi Arabia, India and China are prioritising their own interests, regardless of how their oil purchases and sales are funding Russia's war.

Sanctions cannot deliver outcomes unless imposed multilaterally in tandem by the whole world. The US and a handful of countries in Europe cannot economically force Russia into submission.

It’s time to accept enough is enough, adjust the sanctions, and think of more effective ways of pressuring President Putin to bring the war against Ukraine to close, and quickly.

Biden administration officials have already reported in Congressional hearings that the outcomes of the sanctions have fallen short of lofty expectations. “We have to have a more clear assessment in Congress and in our national psyche as to just what the impact of sanctions can do," Senator Mitt Romney, a Russia hawk, told that hearing. “The indications so far are, it wasn’t as crippling as we thought on Russia."

What are the alternatives? President Putin and Ukraine’s Volodymyr Zelenskiy have shown no inclination for diplomatic negotiations. Washington too hasn’t. But, as India has been pressing all along, there has to be greater appetite for diplomatic solutions.

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In Opinion, Kaushik Basu says popular anger reflects a basic misunderstanding of what drives inflation. David Fickling writes about bullion purchases and zombie apocalypse. Ruchi Gupta says ONDC has many questions to resolve. Long Story tells if China is exiting Zero-Covid mode soon.

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Updated: 08 Nov 2022, 03:00 PM IST
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