EDITORIALS/OPINIONS ANALYSIS FOR UPSC 01 MARCH 2022
- Counting the costs
Counting the Costs
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.
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.
- 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