Humanitarian catastrophe, global economic crisis: Implications of Russian sanctions

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Following Russia's military operation in Ukraine, major Western countries and blocs such as Japan, European Union, Canada, the United States, the United Kingdom, and Canada imposed various sanctions on Russia. These included restricting secondary trade in Russian government bonds, prohibiting interaction with Russian banks, barring exports of critical technology to Russia, freezing assets, and prohibiting travel for elite Russians.

These measures undoubtedly have global political and economic implications. Economic and financial sanctions imposed on Russia will alter the international economic system, with long-term implications for how the global economy operates. The Russian economy is modest, but the current sanctions could greatly impact the global economy; it exports some of the world's most important commodities.

The negative effects of economic sanctions have been seen in various parts of the world, posing new challenges. The world is divided on how modern sanctions should be conceptualized and implemented. The G7 has fully supported the US and EU sanctions against Russia… Will the G7 Leaders Succeed in Isolating Russia?... and many western alliances and partner countries have joined the sanctions regime. 

Whereas, several countries, including China, Argentina, South Africa, Mexico, Indonesia, Turkey, and Serbia, have stated that they do not presume such sanctions are necessary and will not participate in them. Many others have taken a neutral stance and have not joined the sanctions, despite no official statement to the contrary.

The Russia-Ukraine crisis, and subsequent sanctions imposed by Western countries, pose a risk of disrupting commodity trade, particularly exports of oil and gas commodities to Europe. As a significant risk, there is an increase in the prices of key commodities, which could lead to even higher global inflation and weaker global growth. 

Moreover, global oil and natural gas prices rose sharply, particularly in Europe, the United States, and Asia/Pacific. In addition, essential mineral and food commodity prices rose, including nickel, palladium, neon, wheat, and corn. These increases, to some extent, mirrored risk rather than existing sanctioning.

Furthermore, elevated commodity prices can dampen economic growth and, if prolonged or aggravated, will almost certainly result in accelerated high inflation in many countries, particularly in Europe. Sanctions, such as those imposed on Russia cause severe dysfunction by causing acute supply-side disruptions in free markets. Besides that, these sanctions encourage actors to abandon the common regulatory frameworks and payment systems that support global free markets.

Notably, in energy markets, the United States, the United Kingdom, and the European Union's decisions to ban, phase out, or significantly reduce Russian oil and gas imports have raised energy prices and have a significant impact on global price stability, forcing central banks to maintain restrictive monetary policies and delaying the recovery of a global economy still floundering from the ramifications of the pandemic. 

The Russian sanctions appear to have had a significant impact on Europe. These severe consequences include inflation, which is now at 8% after briefly reaching 10%; food price increases; and energy price increases. Sanctions caused inflation, which can be devastating for ordinary people, effectively punishing them for the actions of their leaders.

Significantly, due to globalization and interconnectedness, these sanctions are also likely to have significant ramifications for global welfare, affecting not only the livelihoods of ordinary Russians but also those of several of the world's most vulnerable people.

At least 5.5 million foreigners live in Russia, most from Central Asia and Eastern Europe. These workers send billions back to their home countries. Moreover, remittances from Russia account for up to a third of the GDP of the Central Asian countries. Therefore, the ruble's depreciation and the subsequent recession will almost certainly result in a humanitarian catastrophe for these groups.

The sanctions' ripple effects, particularly for the Global South and the developing world, have increased calls for a path forward that allows for a diplomatic solution and the cessation of sanctions. While there are still several geopolitical uncertainties, the negative fallout from economic sanctions and countersanctions signifies some trends that are likely to reshape the geo-economic landscape.

The global economy will suffer long-term consequences as tight energy markets become more strained, supply upheavals to food commodities exacerbate food insecurity in the developing world, globalized trade reduces, and inflation rises. In addition, the devastation caused by EU sanctions on various sectors of the global economy and security is becoming increasingly clear.

Most importantly, given Russia's significant role as a commodities exporter, the inflationary effects of imposed sanctions extend beyond the target country to the global economy and the billions of people whose well-being is dependent on the smooth operation of free markets. 

If not carefully crafted, economic hostility against Russia could harm underprivileged people worldwide and cause long-term damage to the global economy. Hence, western policymakers must ensure the integrity and stability of the global economy. Sanctions against Russia should not undermine the foundations of global prosperity or jeopardize the livelihoods of vulnerable people worldwide (Noema, Luthra, Butler, Kalish, 2022).