Russia’s attack on Ukraine resulted in tons of sanctions that aim at hindering Putin’s current aggressive efforts, predicted to severely hurt Russia for years to come whilst affecting its populace and other European nations that have heavy transactions with the country.
Although Russia provides few crucial commodities outside Europe as it has been a heavy supplier of corn and wheat to the Middle East and Africa, in the global perspective, Russia’s role in the economy may be insignificant compared to China that has deeply interwoven itself on the supply chains around the world, except for its produce of gas and oil.
It is Europe taking on a great toll as it is linked with Russia in many financial and business transactions, although the rate of investments, trades, and other transactions has dwindled as a result of the 2014 sanction imposed on Russia for invading Crimea.
Nevertheless, Europe remains to be Russia’s colossal trading partner. It has the most business transactions with Russia, as Europe gets approximately 70% of natural gas from the country. Europe also receives half of Russia’s oil exports. Not only for businesses or factories but households also substantially rely on Russia’s energy supply for heating homes.
BP, one of the biggest investors in Russia, a British energy behemoth itself, announced that it would be ditching its stake on the Russian oil company Rosneft at 19.75%. Bernard Looney, BP’s chief executive, also announced an immediate effect resignation from Rosneft’s board members.
Europe’s aviation behemoth, Airbus, relies on Russia for the supply of titanium. European financial firms have also granted billions of dollars of loan to Russian borrowers, especially Société Générale of France, Austria’s Raiffeisen Bank, and Italy’s UniCredit.
With outstanding debts remaining in Russia, major financial partners such as Germany, France, and Italy are the powers behind refusing Russia to be cut off from Swift. Cutting off Russia from this global payment system may cause severe damage not only to these EU countries but also to more than 11,000 financial firms around the world that rely on Swift for money transfer.
But with Russia sanctioned from processing its payments in currencies such as euros, dollars, etc., banks have to be wary about Russia’s potential to retaliate through cyberattacks.
Next to the pandemic, and whilst the globe is still getting back on track from the pandemic’s financial blow, the Russia-Ukraine war is now the leading cause of market fear. Investors have sold their stocks at the escalation of the crisis. Foreign investors will have to prepare for the worst.
European businesses in Russia are bound to pay the price. As Russia receives global sanctions, with the most impact from the US and EU, these businesses will have to embrace a domino effect through the collateral damage.
Although the sanctions aim to cripple Russia’s militaristic efforts whilst minimizing the impact on Europe, there’s a possibility that the war on Ukraine would be for the long haul, so redirecting commodity reliance from Russia is a big deal.
It would take a longer time to remove Russia from the global trade, especially from the European trade as it is heavily reliant on Russia’s energy supply. Germany shutting its Nord Stream 2 pipeline that would have provided a cheaper supply of energy from Russia to the country means gas prices would keep increasing dramatically.
The greatest concern lies in the energy supply. Without Russia’s supply, although analysts doubt that Putin would entirely cut off his gas, Europe and the world have to reshape its reliance on natural gas, to diversify, and consider transitioning to cleaner sources such as wind or solar.
Sanctions, in hopes to deescalate the crises, apparently would hurt the UK, putting a strain on household and business operation budgets, slowing stock markets, increasing mortgage costs, and escalating taxes. Tax hike is to be expected in April.
If the Russian-Ukraine war should persist, extreme gas prices would lead to continuous price inflation; hence, an increase in living and operation costs, utility bills, and higher overall spending throughout the UK for how long.
References
How a Ukraine Conflict Could Reshape Europe’s Reliance on Russia. (15 February 2022). Retrieved from The New York Times: https://www.nytimes.com/interactive/2022/02/15/business/energy-environment/russia-gas-europe-ukraine.html?action=click&module=RelatedLinks&pgtype=Article
Russia sanctions are a ‘big deal,’ experts say. But effects could take years. (25 February 2022). Retrieved from NBC News: https://www.nbcnews.com/news/us-news/russia-sanctions-are-big-deal-experts-say-effects-take-years-rcna17380
BP to Ditch Investment in Russia’s Rosneft. (27 February 2022). Retrieved from The Moscow Times: https://www.themoscowtimes.com/2022/02/27/bp-to-ditch-investment-in-russias-rosneft-a76635
They Do Business in Russia, and Now They May Pay a Price. (26 February 2022). Retrieved from The New York Times: https://www.nytimes.com/2022/02/26/business/sanctions-russia-ukraine-companies.html
Germany halts Nord Stream 2 and Russia responds with a stark warning. (23 February 2022). Retrieved from CNN Business: https://edition.cnn.com/2022/02/22/business/nord-stream-2-germany-russia/index.html
Never mind the debt – the Ukraine crisis calls for tax cuts and higher spending. (25 February 2022). Retrieved from The Telegraph: https://www.telegraph.co.uk/business/2022/02/25/never-mind-debt-ukraine-crisis-calls-tax-cuts-higher-spending/
What war in Ukraine could mean for you on the home front. (26 February 2022). Retrieved from The Telegraph: https://www.telegraph.co.uk/news/2022/02/25/what-war-ukraine-mean-you-uk-home-front-effects/
