Mere weeks after the war between Russia and Ukraine was declared, countries and companies implemented sanctions that ceased imports and operations within Russia. World leaders are taking actions to show their opposition to the war through economic sanctions, attempting to financially undermine Russia’s war funding.
As it stands, the war will not be the fastest issue impairing Russia. The economy is crumbling due to these imposed sanctions. With Russia waging war on Ukraine, many international companies that conduct business in Russia are suddenly pulling away and closing their locations.
One of the goals of the sanctions is to isolate Russia and create a deep recession from which it will be hard for them to recover. The longer the hostilities with the war continue, the more dire their situation will become. Citizens of many countries, economic experts, investors, and world leaders, have pressured businesses to cease making deals and conducting business with Russia. Times are changing and companies are demonstrating ethical responsibility by breaking away from Russia to send a message against the warfront.
Economic sanctions range from export restrictions, trade embargos, travel bans, and even asset seizures. For example, President Joe Biden has imposed sanctions against the US importation and exportation of oil and gas. Russia’s economy is reliant on the fossil fuel industry. British Petroleum (BP) and Shell have dropped some of the funding towards Russia. Losing oil and gas revenue worth billions will severely cripple the Russian economy further.
Disney, Adidas, Pepsi, Netflix, and numerous other companies that have become a part of daily life in Russia are no longer operating as a result of the sanctions. The sudden loss of these companies, products, and services, has made a noticeable impact on the lives of citizens. No longer having access to their favorite foods or are unable to buy products they have come to expect. Even international media has been censored allowing citizens access to only state-run and selected information and programming. Currently, the only form of media accessible to the public is the Russian Government made and approved. This leads to an exposure of Government designed propaganda with no opportunities for citizens to research other perspectives and information. President Putin has even been considering a policy to punish anyone who he deems to spread “fake news.”
Despite the mass departure of business from Russia, not every company has had an easy time ceasing operations. Fast food restaurants like McDonald’s and Burger King have had issues closing due to the on site franchise owners. One Burger King franchise business owner, Alexander Kolobov, controls 800 locations that have refused to close. Even if they manage to continue to stay open, they have lost their corporate support and are struggling with product supply and general leadership.
By economically sanctioning Russia, companies and countries hope to undermine support for President Vladimir Putin. The reduction of business establishments has created economic issues for Russian citizens and many have become more vocal in their opposition to the war and leadership. Currently, over 7,000 Russian citizens have been arrested for protests and anti-war speech.
While the issues surrounding the quality of life have been devastating for Russian citizens, the effects of these sanctions has significantly impacted their economy. The value of the ruble, Russia’s main currency, has plummeted in the last couple of weeks. Prior to the sanctions, one US dollar was worth 75 rubles. 2-weeks after the war was declared, the rubles’ value peaked at 138 per US dollar. Now As of April 2022, the ruble has gone back down to 75 per US dollar.
In the 1990s, after the collapse of the USSR, a similar drop in the exchange rate occurred. Due to this, many Russian citizens turned their trust to foreign currencies for their savings for a while. Over the last 30-years, people have developed trust in rubles again, but when the war with Ukraine began, people desperately flooded to their nearest cash points to convert their rubles into dollars expecting the value to drop in a similar manner.
Another fear people have relates to their bank cards. If bank cards stop working or a limit is imposed on how much currency can be withdrawn is of major concern. It happened before and it has happened again. Currently, various international payment systems have been cut off in response to the Russian aggression such as Visa, Mastercard, Apple, and Google Play. Many Russian citizens have been forced to open new credit and bank cards with Russian banks because of their inability to access international banks.
The head of Russia’s central bank, Elvira Nabiullina, stated “the conditions for the Russian economy have changed dramatically,” and “the new sanctions imposed by foreign states have entailed a considerable increase in the ruble exchange rate and also limited Russia’s use of its gold and foreign currency reserves.”
The Central Bank of the Russian Federation has desperately tried to stabilize its economy by raising interest rates to an all-time high of 20%. Higher interest rates mean that both people and businesses will lower their spending which will eventually lead to a drop in earnings and stock prices.
Oxford Economics, an economic analysis company, predicts that the Russian economy could see itself shrink as much as 7% to start a recession or even depression in response to the imposed sanctions. When people cannot afford to make purchases, the economic flow is disturbed due to the lack of trust people develop at times like these.
Less consumer spending results in a reduction of available jobs, a slowdown in industrial production, and a decline in income people use which in turn, stimulates the economy. The economy needs this consistent flow of money to sustain itself and continue to grow. As it stands, the economy of Russia is suffering because of financial sanctions imposed due to the war. Many Russian citizens cannot see a good future for their country.
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Ian Valenzuela | ASK Catalyst Writer | ivalenzuela@theaskacademy.org
ASK Catalyst 
May 18, 2022
Briefs, News