The Collective West, led by the United States, issued a raft of sanctions against Russia, covering economic, financial and technology sectors, however, the ruble ended the month of March as the best performing currency.
UGO AKPAN
The collective West has ‘circled the wagons’ against the raging Russian Bear. Unwilling to come to Ukraine’s aid by committing troops on the ground, and thus risking conflict between nuclear-armed belligerents, the Western alliance has limited its intervention to arming Ukraine and churning out incessant war-time propaganda on its behalf. Furthermore, the West has unleashed a salvo of economic sanctions against Russia, which is a de facto declaration of war as these sanctions -more properly economic blockades- amount to a component of siege warfare.
Given the effective dismantling of the Ukrainian military infrastructure by the Armed Forces of the Russian Federation and the militias of the Lugansk and Donetsk Peoples Republics, as evidenced by Ukraine’s continuous requests for armaments (including old soviet armaments given the training required to operate NATO weaponry) and foreign volunteers, it is safe to say that the only real teeth at the disposal of the Western alliance are economic blockades or the commitment of Western troops into the theatre of war. While there are undoubtedly special forces elements of NATO nations in the theatre of war -especially those of the United States, Britain, Canada, and possibly France- along with their counterparts from the covert intelligence services coordinating the information war against Russia, the West has so far been reluctant to commit conventional troops on the ground -or indeed in the air to enforce those dangerous and irrational calls for a “no-fly zone” over Ukraine against a country with the largest nuclear stockpile and most sophisticated delivery systems– and risk a further escalation of the conflict to include all of Europe. While the combined forces and weapon systems of NATO nations may do significant damage to Russian forces and military hardware in Ukraine, this would easily lead to an escalation of the war, open up multiple fronts and suck most of Europe into the conflict. Such a massive escalation in the conflict will most likely end in a nuclear exchange, and with that, the end of human life as we know it.
The West has therefore turned to its favourite weapon of mass destruction, economic sanctions. The term in itself sounds benign until one reviews the devastation that sanctions, more properly termed blockades or siege warfare, have wrecked on human populations since the United States has resorted to heavy reliance on these sorts of coercive measures since the last decade of the 20th century.
These sanctions hardly achieve their often stated objective of “punishing the regime” and effecting regime change, but rather sadistically strangulate ordinary residents of the target countries leading to mass starvation and wanton civilian death. In many instances, these regimes of economic coercive measures, far from weakening the leadership of targeted countries, actually consolidate support around the leadership of the target countries aiding the effective out manoeuvring of these sanctions and the restructuring of the target economy towards greater self-sufficiency.
Western Sanctions and Unintended Consequences
From March 2014, following the Euromaidan coup in Ukraine and the subsequent annexation of Crimea, the United States and the collective West imposed harsh economic sanctions on Russia. This regime of sanctions has been maintained, following second and third rounds along with extensions thereof, until the current crisis in which an additional round of sanctions has been imposed. Over the course of three rounds of sanctions which covered the years 2014 to 2015, the Russian economy entered a recession. Further exacerbating recessionary pressure on Russia was the drop in oil prices caused by a reduction in global demand for oil and an oversupply of crude oil by the United States. President Putin pointed the finger at “Western partners” insinuating that the crisis was manufactured in order to back Russia into a corner and neutralize the country’s independence.
Nevertheless, Russia weathered the storm and despite another round of sanctions in 2018, Russia has managed to substantially immunize its economy from Western economic coercion by becoming more self-sufficient through import substitution, de-dollarization, foreign currency diversification, and reducing external debt. As of 31 December 2020, Russia had the lowest sovereign debt to GDP ratio of any emerging market or developed market economy. In addition to this economic restructuring achieved in the last decade, Russia also established a National Payment System, MIR (launched in 2015), which would allow Russia to exercise greater autonomy within the global finance architecture dominated and controlled by Western regimes.
On the back of these policy initiatives, Russia’s economic recovery has been robust since its United States coordinated economic recession in the 2014-16 period, powering to a growth rate of 23.29% in 2017 and posting an average of ~10% (~8% on a PPP basis) until the global economic downturn due to the covid pandemic in 2020.
Collateral Damage from Scatter Shot Western Sanctions
Under the current phase of sanctions, the collective West, led by the United States, have issued a raft of sanctions against Russia, covering economic, financial and technology sectors, including the freezing of Russian foreign reserves and the so-called “nuclear option” of banning Russian financial institutions from the Swift messaging system. Swift is the global financial artery that allows the smooth and rapid transfer of money across borders. Based in Belgium, Swift links 11,000 banks and institutions in more than 200 countries. The system sends more than 40 million messages a day, facilitating the exchange of trillions of dollars between companies and governments. More than one percent of those messages were thought to involve Russian payments prior to the ban.
Seven Russian banks were removed from Swift in March including Bank Otkritie, Novikombank, Promsvyazbank, Bank Rossiya, Sovcombank, VNESHECONOMBANK (VEB) and VTB BANK. While the expelled banks constitute just 25% of the Russian banking system, three of Russia’s largest lenders, including Sberbank and Gazprombank, which accounted for about 40% of Russia’s banking sector assets in February 2022, remained on the Swift system into April 2022, allowing Russia to continue receiving payments for key commodities including fossil fuel sales to bolster its economy despite the increasingly desperate sanctions being thrown at it.
At the time of going to press, Russia had so far bucked the raft of sanctions targeted at it by the collective West, through a combination of robust central bank policies to stabilize the economy, and counter-sanctions from President Putin targeting “unfriendly countries”, shoring up the ruble and increasing Russia’s trade surplus. The requirement for certain countries, primarily in the EU, to pay for Russian gas in rubles, has blunted the EU’s economic assault against the Russian economy. President Biden had boasted that the aim of Western sanctions was to turn the ruble to rubble; however, the ruble ended the month of March as the best performing currency.
The ruble continued to strengthen against the US dollar in April surpassing its pre-conflict exchange rate, in large part reflecting the skillful monetary policy management by the Central Bank of Russia led by Elvira Nabiullina.
There is mounting evidence that, far from being effective in the stated objective of hobbling the Russian economy, the sanctions have had the unanticipated and unintended effects of wreaking havoc on European economies and even on the United States economy, with the latest economic data indicating heightened risks of stagflation in the EU, Britain, and the United States.
The cohesiveness of Western sanctions has been further stymied by Germany, Italy, Hungary and other EU members’ reluctance to permit further punishing sanctions which would further increase the economic peril that the bureaucrats in the EU seem determined to foist on European economies.
This recklessness with which the collective West has fired off sanctions is exacerbating an already stressed agriculture commodities market; and is pushing the global economy, still fragile from the impact of the covid global lockdown, into further peril. It appears that the inability of- Western bureaucrats to appreciate the systemic importance of Russia to the global economy as a key commodities exporter, threatens further downside risks to the global economy with potentially deleterious effects on poorer and more fragile economies in Africa and other non-Western parts of the world.
Aside from national interest considerations and an apparent increasing discontent with the current United States-led world order, most countries of the world representing about 90% of humanity have refused to follow the United States’ prodding to sanction Russia. Some political leaders may have paid a price for rejecting Western coercion as may be the case with the ousting of Imran Khan as Prime Minister of Pakistan following his rejection of Washington’s pressure to take a more confrontational stance towards Russia. However, it should be noted that the bid to bring a “no confidence” vote against Imran Khan’s leadership had already started to gather momentum prior to the meeting between the United States Assistant Secretary of State for South and Central Asia Affairs, Donald Lu, and Pakistan’s Ambassador to the United States, Asad Majeed, in which the former expressed United States’ concerns about the Imran Khan government and allegedly threatened that the US-Pakistan relations “will not improve” with Khan in power and that Pakistan “will be forgiven” once he is ousted. Whatever the truth may be, mass protests have occurred in numerous cities in Pakistan following Imran Khan’s ouster, including in Islamabad, Karachi, Peshawar, and Lahore, in support of him, a clear rejection from the Pakistani grassroots of the United States’ meddling and coercion. Further highlighting the credibility deficit bedeviling Western foreign policy, Cyril Ramaphosa, President of South Africa, flatly rejected calls to condemn Russia for the conflict in Ukraine, rather blaming NATO for the war.
It appears that the long history of unbridled aggression against countries of the global south by the United States and its Western allies, as well as the rank hypocrisy in accusing others of the crimes which they themselves have been guilty of, has heralded a change in global politics, weakened United States’ influence and its ability to shape the dominant narrative across the globe. Indeed, China and Russia issued a comprehensive Joint Statement on 4 February 2022 essentially calling an end to the United States-led unipolar world, along with its so-called “rules-based order”, and heralding a multipolar world based on UN derived international law.
It is interesting to note that the countries (including the EU) currently sanctioning Russia have been the same ones doing so since 2014, suggesting a continuing obsession by the West to destroy the Russian economy. So far, it seems, they have failed.
The Fallout
According to a UN Conference on Trade and Development (UNCTAD) assessment in early 2022, Russia and Ukraine are both significant players in global energy, food and fertilizer markets. Russia is the world’s third-largest producer and exporter of oil; the second-largest producer and the largest exporter of natural gas; and the third-largest exporter of coal (thermal and coking). Russia is also the world’s largest exporter of wheat and the second-largest exporter of sunflower oil. Ukraine is equally significant to global food markets, as the largest exporter of sunflower oil, the fourth largest exporter of maize and the fifth largest exporter of wheat. Russia also dominates the global trade in fertilizers: it is the largest exporter of fertilizers overall, the second largest exporter of nitrogenous fertilizers and the third-largest exporter of potassic (those containing potassium) fertilizers. Furthermore, Russia is also an important supplier of metals and minerals, particularly of nickel, palladium, platinum, and titanium, as well as aluminum, copper, and uranium.
While disruptions to industrial commodities’ supply chains will most likely affect production in a number of industrial sectors in the medium term, disruptions in the food and energy supply chains are already having an impact on prices and availability of food and energy, and this will increase production costs, general living costs, and increases in global poverty. The effects of these are more immediate and could have catastrophic effects for the fragile post-covid global economic recovery.
According to the UNCTAD, this ongoing conflict is alarming for developing countries, and especially for African and least developed countries, some of which are particularly exposed to the war in Ukraine and its effect on trade costs, commodity prices and financial markets. The risk of civil unrest, food shortages and inflation-induced recessions cannot be discounted, particularly given the fragile state of the global economy and the developing world as a result of the COVID-19 (coronavirus disease) pandemic.
What is not often mentioned is the impact that Western indiscriminate sanctions on Russia are having on the supply of these key commodities and agriculture inputs. Western sanctions on Russia and Belarus, major exporters of potash, ammonia, urea and other soil nutrients, have disrupted shipments of these key inputs around the world leading to an escalation in prices of fertilizer and the scaling back of the use of these inputs by farmers worldwide. According to Reuters, the scale back can be seen in agricultural powerhouse Brazil, where some farmers are applying less fertilizer to their corn, and some federal legislators are pushing to open protected indigenous lands for the mining of potash. In Zimbabwe and Kenya, small farmers are reverting to using manure to nourish their crops.
In Nigeria, the impact of the Russia-Ukraine conflict and the Western sanctions regime has been felt in the escalation of energy prices for refined petroleum products. While the country had been undergoing disruptions to the market before the Ukrainian crisis escalated in late February 2022, the disruptions to global energy supply caused principally by Western sanctions on Russia has led to an average 100% increase in diesel pump prices between February and March. Although there has been a fed through to higher food prices, this increase has been somewhat muted by the existing subsidies of petrol prices. Nevertheless, as the ongoing disruptions in the supply of fuel continue to play out, there are expected to be further pass-through effects of higher pump prices on overall consumer prices in Nigeria.
The West has long understood that there can be no “knockout blow” to Russia from its sanctions regime, and that going for the “nuclear option”, i.e., removal from Swift and the banning of gas imports, would result in mutually assured destruction. Yet, it seems that the neo-cons in the West, who are in control of key institutions, are bent on preventing the end of their authoritarian grip on the global order, which since 1945 has been under the management of the United States. The United States in its 2018 National Defense Strategy, identified Russia and China as key threats to this US led order and in various defence policy papers, notably the 2019 Rand Corporation paper prepared for the Pentagon, the United States has planned for ways in which to weaken and diminish these so-called threats to its rules-based order; which is merely a world order according to rules dictated by the United States. It is left to the rest of the global community, which represent the vast majority of humanity, to counter the unbridled aggression and domineering posture of the West and ensure that the transition to a multipolar world proceeds unfettered.
- Ugo Akpan, Contributing Editor, writes from Europe
