Sanctioning Russia: How and Why?

Russia has become a major economic target in the West as the war in Ukraine was announced and is continuing. There are many penalties one nation can put on another for acting in ways they don’t approve of, and sanctions are one of the most common and effective of the modern day. It’s the most practical way for one nation to affect another while staying within the scope of their own borders and control.

Many of these sanctions come in restrictions on international banking and reserves. The U.S, European Commission, and several other western countries have frozen all of Russia’s foreign reserves. This has led to the freeze of half of Russia’s $630 billion in reserves.

On top of this several western countries have come together to remove Russian banks from SWIFT. This severely restricts Russia’s ability to transfer payments across their borders, the only major exceptions being for oil and natural gas.

Oil and natural gas are the exceptions because Russia is the second largest producer of crude oil in the world. The U.S in particular has completely stopped any importation of oil from Russia which has been a big factor in the all time high gas prices seen currently.

What does this all do? If the sanctions continue through 2022 Russia will see a 15% contraction in their economy. This is a devastating drop for any nation and will hopefully serve to disincentivize the war in Ukraine. Beyond this individual companies such as Apple, Netflix, Google, Visa, and Mastercard are all suspending their services and payments within Russia. All of this together serves to put pressure on both the individuals and government of Russia

Still, there are clear downsides to sanctions. Russia isn’t the only economy suffering due to their exclusion, beyond the high gas prices, grain is also a major export in Russia as well as Ukraine and an ongoing war could raise the cost of bread, beer, and other grain products. Online cryptocurrency such as Bitcoin has also seen increased volatility, and the prices of gold and other precious metals have been steadily rising. The consequences of a war and efforts taken against it have global effects.

Sanctions on Russia and their financial implications infographic
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