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Economic impact of the Russian invasion of Ukraine

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An ongoing financial crisis began in the Russian Federation in late February 2022, in the days after the 2022 Russian invasion of Ukraine and the subsequent economic sanctions targeting the Russian banking sector, Vladimir Putin, and his government.[1][2][3][4][5]

Background

See also: Russian financial crisis (2014–2016) and International sanctions during the Russo-Ukrainian War

Since 2014, Russia had been facing sanctions over its annexation of Crimea which hurt its economic growth.[6][7][8][9][10] In 2020 to 2021, the COVID-19 recession[11][12][13][14] and the 2020 Russia–Saudi Arabia oil price war also affected the Russian economy. Additional sanctions occurred in the lead-up to the invasion,[15][16] and there was a stock crash merely from the military buildup.[17]

Impact

Cost of food and crops

Wheat prices surged to their highest prices since 2008 in response to the attack.[18] Ukraine is the fourth-largest exporter of corn and wheat and the world's largest exporter of sunflower oil, with Russia and Ukraine together exporting 29% of the world's wheat supply and 75% of world sunflower oil exports. The benchmark Chicago Board of Trade March wheat futures contract reached its highest price since 2012 on 25 February, with the prices of corn and soybean also spiking. The American Bakers Association president warned that the price of anything made with grain would begin rising as all the grain markets are interrelated. The chief agricultural economist for Wells Fargo stated that Ukraine will likely be severely limited in their ability to plant crops in spring 2022 and lose an agricultural year, while an embargo on Russian crops would create more inflation of food prices. Recovering crop production capabilities may take years even after fighting has stopped.[19] Surging wheat prices resulting from the conflict have strained countries such as Egypt, which are highly dependent upon Russian and Ukrainian wheat exports, and have provoked fears of social unrest.[20] On 24 February, China announced that it would drop all restrictions on Russian wheat, in what the South China Morning Post called a potential "lifeline" for the Russian economy.[21]

Crude oil

As a result of the invasion, prices for Brent oil briefly rose above $100 a barrel for the first time since 2014 before losing some of its gains. In total from 22 February when sanctions started to 28 February when sanctions on Russia's Central Bank were applied, the price of West Texas Intermediate and Brent rose by roughly $5/bbl.[22][23]

On 27 February, BP, one of the world's seven largest oil and gas companies and the single largest foreign investor in Russia, announced it was divesting from Rosneft.[24] The Rosneft interest comprises about half of BP's oil and gas reserves and a third of its production. The divestment may cost the company up to $25 billion and analysts noted that it was unlikely that BP would be able to recover a fraction of this cost.[25] The same day, the Government Pension Fund of Norway, the world's largest sovereign wealth fund, announced that it would divest itself from its Russian assets. The fund owned about 25 billion Norwegian krone ($2.83 billion) in Russian company shares and government bonds.[26]

International organizations and corporations

Kristalina Georgieva, the managing director of the International Monetary Fund, warned that the conflict poses a substantial economic risk for the region and internationally, and added that the Fund could help other countries impacted by the conflict, complementary to a $2.2 billion loan package being prepared to assist Ukraine. David Malpass, the president of the World Bank Group, said that the conflict would have far-reaching economic and social effects and reported that the bank was preparing options for significant economic and fiscal support to Ukrainians and the region.[27]

Corporate boycotts and removals of service

Main article 2022 boycott of Russia and Belarus

  • UPS and FedEx announced that they would halt shipments to Russia and Ukraine.[28]
  • Disney announced it would pause theatrical releases in Russia.[29]
  • Netflix will not add 20 Russian "propaganda" channels to their service, despite a requirement to host them under Russian law.[30]
  • Fonterra, one of the world's largest dairy producers, suspended shipments of all its dairy products to Russia.[31]
  • Apple halted its products sales in Russia.[32]

Stock markets, banking sector and the ruble

In Russia, the first round of economic sanctions in response to Russia's 2022 invasion of Ukraine had an immediate effect. The Russian stock market crashed, falling 39%, as measured by the RTS Index, on 24 February, the first day of the invasion, recovering over 26% in the following day; however, on 28 February, a Monday, the Moscow stock exchange closed for the day because of the "developing situation".

The ruble fell to record lows as Russians rushed to exchange money.[33][34][35][36][37] Moscow and St Petersburg Stock Exchanges were suspended.[38] The Central Bank of Russia announced its first market interventions since the 2014 annexation of Crimea to stabilize the market. It also raised interest rates to 20% and banned foreigners from selling local securities.[39] The sanctions put Russia's sovereign wealth fund at risk of disappearing.[40] Long lines and empty ATMs have been reported in Russian cities.[41][42]

The second round of sanctions which saw various Russian banks removed from SWIFT and direct sanctions on the Russian Central Bank saw the value of the ruble fall 30% against the U.S. dollar, to as low as ₽119/$1 as of 28 February.[43] The Russian central bank raised interest rates to 20% as a result, in an attempt to balance the sinking ruble, it temporarily shut down the Moscow Stock Exchange, mandated that all Russian companies sell 80% of foreign exchange reserves, and prohibited foreigners from liquidating assets in Russia.[44][45]

Also on 28 February, Mastercard Inc. blocked multiple Russian financial institutions from its payment network.[46] On 1 March, VISA Inc. announced that it had blocked those on the sanction list and that they were "prepared to comply with additional sanctions that may be implemented". Binance, the worlds largest cryptocurrency exchange also announced that it would block Russian individuals who have been sanctioned but would not unilaterally freeze all Russian users accounts.[47]

References

  1. ^ Melander, Ingrid; Gabriela, Baczynska (24 February 2022). "EU targets Russian economy after 'deluded autocrat' Putin invades Ukraine". Reuters. Archived from the original on 26 February 2022. Retrieved 26 February 2022.
  2. ^ "China State Banks Restrict Financing for Russian Commodities". Bloomberg News. 25 February 2022. Archived from the original on 25 February 2022. Retrieved 26 February 2022.
  3. ^ "Western Countries Agree To Add Putin, Lavrov To Sanctions List". 25 February 2022. Archived from the original on 26 February 2022. Retrieved 26 February 2022.
  4. ^ Holland, Steve; Chalmers, John; Psaledakis, Daphne (26 February 2022). "U.S., allies target 'fortress Russia' with new sanctions, including SWIFT ban". Reuters. Archived from the original on 26 February 2022. Retrieved 26 February 2022.
  5. ^ Collins, Kaitlan; Mattingly, Phil; Liptak, Kevin; Judd, Donald (26 February 2022). "White House and EU nations announce expulsion of 'selected Russian banks' from SWIFT". CNN. Archived from the original on 26 February 2022. Retrieved 26 February 2022.
  6. ^ Rakteem Katakey (25 March 2014). "Russian Oil Seen Heading East Not West in Crimea Spat". Bloomberg. Retrieved 2 January 2016.
  7. ^ "Ukraine-related Designations: Specially Designated Nationals List Update". US Department of the Treasury. 20 March 2014. Retrieved 27 February 2016.
  8. ^ "Specially Designated Nationals List (SDN)". US Department of the Treasury. 16 February 2016. Retrieved 27 February 2016.
  9. ^ "Treasury Sanctions Russian Officials, Members of the Russian Leadership's Inner Circle, And An Entity For Involvement in the Situation in Ukraine". United States Treasury Department. 20 March 2014. Retrieved 20 March 2014.
  10. ^ Peter Shuklinov (21 March 2014). Ближний круг Путина: кто попал в новый список санкций США [Putin's inner circle: who's in the new list of US sanctions]. liga.net (in Russian). Archived from the original on 7 February 2015. Retrieved 20 February 2016.
  11. ^ McFall-Johnsen, Juliana Kaplan, Lauren Frias, Morgan (14 March 2020). "A third of the global population is on coronavirus lockdown – here's our constantly updated list of countries and restrictions". Business Insider Australia. Retrieved 15 April 2020.{{cite web}}: CS1 maint: multiple names: authors list (link)
  12. ^ The return of Keynesianism? Exploring path dependency and ideational change in post-covid fiscal policy. Policy & Society. Volume 41, Issue 1, January 2022, Pages 68–82
  13. ^ Elliott, Larry (8 October 2019). "Nations must unite to halt global economic slowdown, says new IMF head". The Guardian. ISSN 0261-3077. Retrieved 15 April 2020.
  14. ^ Cox, Jeff (21 November 2019). "The worst of the global economic slowdown may be in the past, Goldman says". CNBC. Retrieved 15 April 2020.
  15. ^ "Ukraine: What sanctions are being imposed on Russia?". BBC. 22 February 2022. Retrieved 22 February 2022.{{cite news}}: CS1 maint: url-status (link)
  16. ^ "Британия ввела санкции против 5 российских банков, Ротенберга и Тимченко". RBK Daily. 22 February 2022. Retrieved 22 February 2022.{{cite news}}: CS1 maint: url-status (link)
  17. ^ "Russian billionaires lost $28 billion in market sell-off". MSN. Retrieved 1 March 2022.
  18. ^ Swanson, Anna (24 February 2022). "Ukraine Invasion Threatens Global Wheat Supply". The New York Times. Archived from the original on 24 February 2022. Retrieved 25 February 2022.
  19. ^ "Russia's invasion of Ukraine will likely ratchet American food prices even higher, experts say". The Washington Post. 26 February 2022. Archived from the original on 27 February 2022. Retrieved 26 February 2022.
  20. ^ "How tensions in Ukraine could rile Egypt". The Economist. Archived from the original on 24 February 2022. Retrieved 25 February 2022.
  21. ^ Tang, Frank (24 February 2022). "China lifts all wheat-import restrictions on Russia amid Ukraine crisis". South China Morning Post. Archived from the original on 24 February 2022. Retrieved 26 February 2022.
  22. ^ Lockett, Hudson (24 February 2022). "Oil rises above $100 a barrel for the first time since 2014". The Financial Times. Archived from the original on 24 February 2022. Retrieved 24 February 2022.
  23. ^ "Crude Oil Futures and Options". Chicago Mercantile Exchange. Retrieved 28 February 2022.
  24. ^ "BP to offload stake in Rosneft amid Ukraine conflict". BBC News. 27 February 2022. Archived from the original on 27 February 2022. Retrieved 27 February 2022.
  25. ^ "BP quits Russia in up to $25 billion hit after Ukraine invasion". Reuters. 27 February 2022. Retrieved 28 February 2022.
  26. ^ "Norway says its sovereign fund will divest from Russia". Reuters. 27 February 2022. Archived from the original on 28 February 2022. Retrieved 28 February 2022.
  27. ^ "IMF, World Bank Chiefs Warn Of Global Impacts From Ukraine War". Archived from the original on 24 February 2022. Retrieved 24 February 2022.
  28. ^ Reuters (27 February 2022). "UPS and FedEx halting shipments to Russia and Ukraine". Reuters. Archived from the original on 27 February 2022. Retrieved 28 February 2022. {{cite news}}: |last= has generic name (help)
  29. ^ Couch, Pamela McClintock,Aaron; McClintock, Pamela; Couch, Aaron (1 March 2022). "Disney First Hollywood Studio to Pause Theatrical Releases in Russia". The Hollywood Reporter. Retrieved 1 March 2022.{{cite web}}: CS1 maint: multiple names: authors list (link)
  30. ^ Ramachandran, Naman; Ramachandran, Naman (28 February 2022). "Netflix Declines to Carry Russian Propaganda Channels". Variety. Retrieved 1 March 2022.
  31. ^ RNZ (28 February 2022). "Fonterra suspends shipments to Russia". Radio New Zealand. Retrieved 1 March 2022.
  32. ^ Swanson, Ian (1 March 2022). "Apple halts product sales in Russia". TheHill. Retrieved 2 March 2022.
  33. ^ Thompson, Mark. "Russian stocks crash 33% and ruble plunges to record low". CNN. Archived from the original on 24 February 2022. Retrieved 25 February 2022.
  34. ^ "Moscow Exchange resumes trading on its markets at 10:00am". Moscow Exchange. 24 February 2022. Archived from the original on 24 February 2022. Retrieved 24 February 2022.
  35. ^ Mudgill, Amit (24 February 2022). "Russian stocks nosedive 20% as trading resumes on Moscow Exchange". The Economic Times. Archived from the original on 24 February 2022. Retrieved 24 February 2022.
  36. ^ "Moscow Exchange has suspended trading on all of its markets until further notice". Moscow Exchange. 24 February 2022. Archived from the original on 24 February 2022. Retrieved 24 February 2022.
  37. ^ Teterevleva, Anastasia; Rodionov, Maxim (24 February 2022). "Moscow Exchange suspends trading on all markets". Reuters. Archived from the original on 24 February 2022. Retrieved 24 February 2022.
  38. ^ "Moscow, Saint Petersburg Exchanges Say Trading Suspended". Agence France-Presse. Barron's. 24 February 2022. Archived from the original on 24 February 2022. Retrieved 24 February 2022.
  39. ^ "Ukraine war: sanctions-hit Russian rouble crashes as Zelenskiy speaks of 'crucial' 24 hours". the Guardian. 28 February 2022. Archived from the original on 28 February 2022. Retrieved 28 February 2022.
  40. ^ "Russians queue for cash as West targets banks over Ukraine". Reuters. 27 February 2022. Archived from the original on 27 February 2022. Retrieved 28 February 2022.
  41. ^ Reuters (27 February 2022). "Russians queue for cash as West targets banks over Ukraine". Reuters. Archived from the original on 27 February 2022. Retrieved 28 February 2022. {{cite news}}: |last= has generic name (help)
  42. ^ "Footage shows long line at Moscow ATM as sanctions against Russia have residents scrambling". www.timesofisrael.com. Archived from the original on 27 February 2022. Retrieved 28 February 2022.
  43. ^ Turak, Weizhen Tan,Natasha (28 February 2022). "Russian ruble plunges nearly 30% against the dollar amid sanctions over Ukraine invasion". CNBC. Archived from the original on 28 February 2022. Retrieved 28 February 2022.{{cite web}}: CS1 maint: multiple names: authors list (link)
  44. ^ Turak, Natasha (28 February 2022). "Russia central bank more than doubles key interest rate to 20% to boost sinking ruble". CNBC. Archived from the original on 28 February 2022. Retrieved 28 February 2022.
  45. ^ "The rouble's collapse compounds Russia's isolation". The Economist. 28 February 2022. Retrieved 28 February 2022.
  46. ^ "Mastercard blocks multiple financial institutions over sanctions on Russia". Reuters. 1 March 2022. Retrieved 1 March 2022.
  47. ^ Kharpal, Arjun (1 March 2022). "Visa and Mastercard block Russian banks from their networks after sanctions". CNBC. Retrieved 1 March 2022.
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