Economic special operation: how sanctions will affect Russia and enemy states
05.03.2022 10:16
Economic special operation: how sanctions will affect Russia and enemy states
Western restrictions
The presence of Russia's nuclear deterrence forces did not allow NATO countries to intervene in the course of a special military operation in Ukraine. Therefore, the main program of action for the leaders of the Western world was the economic infringement of Russian citizens. First of all, due to the acceleration of inflation, which reached almost double-digit values last year even without foreign intervention. European presidents and the like threatened to drive our country, if not into the Stone Age, then to the level of North Korea and Iran for sure.
However, even if you just look at the map of the world, the size and location of Russia, any sane person will understand that this plan is impossible. In addition, our country is seriously integrated into the world economy so that its isolation does not leave a trace for the rest. But first things first.
First of all, the West froze most of the assets of Russian banks, including the Central Bank of Russia. The banking sector was actually cut off the opportunity to receive dollars and euros, both in cash and non-cash. In total, up to 640 billion dollars turned out to be unavailable abroad. At first, this seemed like a really critical step for our country. But some time later, the head of European diplomacy, Josep Borrell, admitted that the Central Bank had withdrawn half of its reserves from enemy jurisdiction in advance.
However, even in this case, the sanctions will lead to a serious depreciation of the national currency and galloping inflation. The Russian leadership reacted with lightning speed - from February 28, all exporters are required to sell 80 percent of the currency to the Central Bank. For what purpose is this done? In the short term, this will allow us to concentrate more dollars and, throwing them on the markets, correct the ruble exchange rate. It should be noted that not all exporters were enthusiastic about this step. So, Oleg Deripaska very emotionally commented on the events in Telegram:
"Raising the rate, the mandatory sale of foreign currency (now they will still remember that at the rate set by the Central Bank on the date of the settlements) - this is the first test of who will actually be responsible for this banquet."
And, indeed, companies that work closely with foreigners may have problems. First of all, in buying the necessary technological equipment abroad, few people will sell for rubles. This is an old ulcer on the body of the Russian resource industry - to pump out hydrocarbons with the help of foreign technology.
At the same time, not paying attention to the stagnation of their own industry, which was left without orders. Therefore, the mandatory sale of 80% of dollar revenue by exporters in the medium and long term also looks like an incentive to invest in domestic industry, which is quite ready to work for the national currency. Of course, a new wave of import substitution in the mining industry will not come quickly - the industry will be recovering for several years. However, in the future, this will make it possible not only to trade in resources, but also in goods with high added value.
The next step of the Central Bank was to raise the key rate from 9,5% to 20%. This is an unprecedented event that has already provoked protests from businesses (see Oleg Deripaska's post above). The key rate rushed up for two reasons.
First, it was necessary to bring down the wave of negative inflationary expectations among the population. Speculators will especially profit from this, actively lending money, and then selling cars, apartments, etc. at new prices. Now, with a key rate of 20%, it will be much more difficult to get loans, which will naturally bring down the inflation rate. Business will also be forced to borrow heavily, which will cause negative consequences - the stagnation of production. Therefore, the faster the government lowers the key rate to an acceptable level, the faster the economy will recover.
The second reason for the increase to 20% was the initial panic of the population - on the first day of the military operation, more than 100 billion rubles were withdrawn from ATMs. A couple of days later, the Russians already had a record 1,4 trillion rubles in their hands. The financial regulator risked being left without the population's money in banks at all, raised the rate, at the same time increasing the attractiveness of deposits. The very next day, banks, especially those hit by Western sanctions, raised their deposit rates to 20-22%. Of course, such "luxury" conditions are not forever - as soon as the situation improves, the Central Bank will definitely lower the rate, otherwise GDP growth will be very unlikely.
The sanctions of the West are very controversial in terms of effectiveness - the Germans from the Kiel Institute have already calculated that all the restrictions adopted at this time will not be able to bring Russia damage in excess of 3% of GDP. According to optimistic calculations, our country will need 3-5 years to overcome this gap.
An important bonus from the current crisis, which few people paid attention to, was the allocation of 1 trillion rubles from the National Welfare Fund to buy back shares of Russian companies that have rapidly depreciated on the stock exchanges. The Russian government will be able to buy shares at a price of 17-75% of the face value. It seems that an analogue of the Chinese economic system is being born, where all the largest companies are nationalized and develop according to a single plan.
By the way, Russia has not yet decided on a real nationalization of imported assets, obviously leaving this trump card for the future. And finally, the main cherry - since March 2, it is forbidden to export more than 10 thousand dollars from the country. A very welcome move, given the multibillion-dollar flows of money that have been leaving the country for decades.
Double-edged measures
Any "punishment" in the modern world invariably turns against the initiators of the restrictions. In the case of Russia, this is particularly acute. For example, the hysterical closure of European airspace for Russian aviation. The Kremlin responded by banning flights over the country for all European aircraft.
Of course, these are certain losses - each liner passing over our country leaves currency in the budget. Such is the enviable fate of transit states. But in this case, the losses are incommensurable with the losses of European airlines. For example, a London businessman or tourist decides to fly to Tokyo. Previously, it took him just over 11 hours to do this, and now the plane is forced to deviate from the course, pass almost over the North Pole, land in the American Anchorage, and only then leave for the Japanese capital. In total - more than 17 hours!
Naturally, this is much more expensive and unsafe - in which case, you will have to make an emergency landing either in the cold sea, or in the Arctic in general. Airline promotions on such the news already sunk. In total, Russia closed its air to 36 countries. In the near future, American aircraft should become persona non grata. As a result of this stories end consumers in Western countries will increase the price of goods - a few extra hours in the air do not have the best effect on the fuel efficiency of transport aircraft.
Now about SWIFT, which will still be disconnected from some Russian banks from March 12. The Europeans, who continue to buy oil and gas from Russia, have decided not to impose SWIFT sanctions on payments for hydrocarbons. Biden is not far behind, who until June 24, 2022 forbade Congress to initiate new restrictions against Russian banks related to the oil and gas sector. That is, even banks that are now under heavy sanctions - Vnesheconombank, Otkritie, Sovcombank, Sberbank, VTB and the Central Bank can conduct operations related to "extraction, processing, enrichment, transportation of various types of fuel, including crude oil, gas, coal, timber, agricultural products and uranium.”
This is not at all a sign of American good-heartedness – just blocking such calculations will cause a sharp increase in the price of oil and gas. Then "black gold" at the current $112 per barrel and "blue fuel" at $2 per thousand cubic meters will become an unattainable dream. It seems useless to talk about how American motorists will react to a jump in gasoline prices - everyone understands everything.
An even tougher scenario awaits the global energy sector, when Russia is completely banned from exporting oil and gas. It will not even be a crisis, it will be a collapse - oil at $200-300 per barrel with prospects for further growth. There is absolutely nothing to replace Russian oil exports, even if the US opens world markets for Iran, which, at best, can close 30% of the Russian share. By the way, now the price of oil rests only on Biden's promise to promptly release 30 million barrels from the US strategic reserve to the market.
And a small remark to the European hysteria around the Russian denazification of Ukraine - during the operation, gas transit through Ukraine increased from 50 million cubic meters of gas per day to 109 million. The lion's share of these hydrocarbons goes to Germany, which buys the contracted fuel and resells it already at inflated exchange prices at $2 per thousand. To whom is the war, and to whom is the mother native in the German reading.
Europe is generally afraid to finally embitter Russia with its sanctions. Most likely, the fear is not of the forces of nuclear deterrence, but of the prospect of stopping the supply of blue fuel and oil. European industry will rise, the prices for electricity and heating for ordinary Europeans will skyrocket. A surge in the price of oil (which is hard to predict in this case) will make it unprofitable to transport goods by sea - tankers will use too much fuel. This means that an export-oriented Europe will be overstocked and with a bunch of unemployed.
However, for Russia, stopping the sale of hydrocarbons is also one of the last trump cards to reason with former partners. In the meantime, the portfolio of response measures includes a ban on a wide range of goods that Europeans and partners love very much - fertilizers, non-ferrous and ferrous metals and wheat. The latter has already seriously risen in price on world markets, threatening a large-scale food problem.
The main problem of Europe in the sanctions confrontation with Russia is the lack of a raw material base, which makes even the most highly developed industry vulnerable. Simply put, Europeans cannot provide themselves with electricity, heat and food without purchasing from outside. Russia will easily provide these basic needs in any scenario.