EDITORIALS/OPINIONS ANALYSIS FOR UPSC 01 MARCH 2022
Contents:
- Counting the costs
Counting the Costs
Context:
Recently, Ukraine and Russia met to deliberate on ending the war. It is inevitable to end the war as sanction on Russia could hurt the wider world.
Relevance:
GS-II: Effect of Policies & Politics of Countries on India’s Interests
Dimensions of the Article:
- Sanctions imposed on Russia
- Immediate effects of the War
- The Energy exports and Inflation
- Way Forward
Sanctions imposed on Russia:
• The U.S., the U.K. and European allies, including France and Germany, has imposed various sanctions on Russia following the invasion on Ukraine.
• The announcement of the West of a raft of ‘further restrictive economic measures’ to increase the costs on Russia for its invasion of Ukraine.
• To restrict Russia further, the western allies have planned to isolate Russia from the international financial system.
• They decided to block ‘selected’ Russian banks from the SWIFT messaging system used to validate and complete international payment transactions.
• They also resolved to impose restrictions on the Russian central bank’s ability to access and deploy the country’s ‘war chest’ of an estimated $630 billion in foreign exchange reserves.
• They also forced the country’s central bank to more than double its benchmark interest rate to 20%, the highest in almost two decades, and impose controls on capital flows.
• This has raised concerns, as the effects of these economic sanctions can cause a widespread economic fallout.
Immediate effects of the War:
• The citizens of Russia are likely to face the real prospect of runaway inflation as there are long queues outside ATMs on fears of likely cash shortages.
• Russia’s largest lender Sberbank found its European arm facing a run on its deposits, which the European Central Bank warned could lead to the unit’s ‘failure’.
• As an immediate impact of the sanctions, the rouble, Russian currency tumbled almost 30% intra-day to a record low against the dollar in Asian trading on Monday and has weakened about 26% so far in 2022
• The world has already started feeling the economic cost of the Russian invasion.
• European banks and companies that have significant exposure to Russia will be impacted as a sharp escalation in the sanctions is certain to hurt their operations and revenues.
The Energy exports and Inflation:
• The western allies have, however carefully avoided any mention so far on closing the tap on Russia’s massive exports of oil and gas that contribute substantially to the country’s current-account surplus.
• But, due to concerns on possible disruptions to shipments from the world’s second-largest producer of oil have pushed the price of Brent crude futures well above $100 a barrel.
• The European economies are largely dependent on Russia for energy supplies.
• The war has caused concerns of rising energy costs, and in turn accelerating the inflation in Europe and across the world.
Way Forward:
- The world is already struggling to cope with the COVID-19 pandemic and the economic is yet to take hold. A war in this situation, initiated by Russia and the consequent sanctions on it, especially if widened to cover countries that seek to bypass the sanctions regime, pose a challenge to the global economy.
- The only solution to this is ending the conflict at the earliest.
-Source: The Hindu
