Russia Sanctioning = a financial world war
A month into Russia’s invasion of Ukraine, the world’s richest countries have ventured into a financial world war.
Financial
sanctions have been part of governments’ arsenal for decades, and it’s
not the first time rich countries deployed them together as a unified
front. But the sanctions against Russia are a watershed moment in the
history of economic warfare because of their scope, their speed, and
their spillover.
The last time there was a comparable use of
sanctions against a major economy was in 1935, also in response to an
invasion. Dozens of governments tried to drain Italy’s currency reserves
to force Benito Mussolini to withdraw from Ethiopia. That took months
and was attempted by blocking Italian exports—and Italy’s access to hard
currency. This time around, things moved much faster: Vladimir Putin
lost access to hundreds of billions of dollars at the push of a button,
thanks to the digitized financial system.
And unlike more recent
sanction regimes, like those imposed on relatively small economies like
Venezuela or Iran, the effects of the measures against Russia are
already reverberating throughout the world.
“What we’ve done to
Russia over the last weeks has blown the top off sanctions,” said Julia
Friedlander, director of the Economic Statecraft Initiative at the
Atlantic Council.
Never before have sanctions cut so deep or
spread so far. It took a confluence of factors to arrive at this point,
including an interdependent global financial system anchored by the
dollar that makes it easy to intercept money. It also took nearly a
century of trial and error.
Like
in Russia’s case, the Venezuelan sanctions froze the country’s central
bank reserves, blocked it from the debt market, and targeted individuals
and companies. But when those kinds of sanctions were rolled out
against Venezuela, it was mostly Venezuelans who bore the economic
brunt, with some spillover to their neighbors.
The Russia
sanctions are even more comprehensive. Applied to the world’s 11th
largest economy, over a matter of weeks, they will have a much bigger
impact. We’re already seeing the fallout in the shape of wheat shortages
in the Middle East and higher oil prices everywhere. Economic strife
could develop into political strife and conflict, says Eva Nanopoulos, a
sanctions expert at Queen Mary University of London
“This is
quite risky. We are globalizing it,” she says. “This is going to become
a world war. It’s not just Russians who are going to die.”
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