Currently, Western countries are trying to carry out a process of impoverishment and massive isolation of Russia in Eastern Europe. This effort responds to Russia, which invaded Ukraine one week ago. Panic has started to hit the Russian population. Russian billionaires in several countries experience difficulties when their access is closed. Russian people have started queuing in front of ATMs. The Russian currency is increasingly under pressure on international markets. Some banking transactions will experience problems because the Russian bank SWIFT has been discontinued.
I have never seen the effect of the war on how a country is impoverished and isolated from the international community. Pro-Russian countries will help the Russian government’s predicament when the country’s economy is crushed by countries that disagree with Putin’s decision to start the war machine in Ukraine.
The first week’s response from the EU (European Union) and global alliance countries against Putin’s war appears to target panic in the Kremlin. The Russian government had predicted from the start or at least imagined what would happen to millions of Russians.
Russia is a superpower country. This “global alliance” response will send an important message to Putin to stop his war machine in Ukraine. However, these expectations are not realized, especially after the dialogue in Belarus has stalled.
American scholars have also debated the issue of the effectiveness of sanctions against a country. In the April 2022 Foreign Affairs issue, the authors seek arguments about the experience of whether US government sanctions are effective or not. It is stated that: “Like any other foreign policy tool, however, targeted sanctions don’t work in isolation. It is unfair to expect them to produce results on their own. Instead, sanctions are best employed as part of a broader multilateral strategy.”
I cannot comment on the economic impact on Russia. What concerns me is how Russian citizens will experience the economic downturn due to war. Even if it is to be fixed, it seems that it will require a strong effort from the Russian government to gain recognition from the global community, which is not feeling well when Putin sends troops to Ukraine.
My imagination is also focused on the Chinese government insisting on invading Taiwan. Of course, global instability will occur because, at this time, the Chinese government is intensively expanding its economic influence as the country that currently invests the most in almost dozens of countries.
The strategy of economic sanctions, banning commercial aircraft from flying through the air, banning the dissemination of information from official state media, unilaterally cutting off trade relations, and freezing assets is likely to impact the Kremlin significantly.
In the second week of the war between Russia and Ukraine, there will be more concrete steps with a significant impact by the EU and the “global alliance” against the Putin government in the Kremlin. In addition, with several NATO troops, America and its allies will be in a position. If this war spreads to other countries in Eastern Europe and China begins to invade Taiwan, then the prediction of World War III will become undeniable.
The report entitled “Russian Military Invasion against Ukraine Impact on The Indonesian economy” (1 March 2022) stated that the war between Russia and Ukraine will have a global impact and beyond on the Indonesian state. Several vital points in the report are: First, Russia is included in the top 20 countries with the enormous export value in the world, where the country is ranked 16th with a total export value reaching US$ 332 billion. The size of Russia’s exports is supported by exports of energy commodities, where the value reaches more than 50% of the country’s total exports. With the high proportion of energy commodities exports, Russia’s trade surplus is among the highest globally (ranked 3) in 2020, in line with rising commodity prices.
Second, Russia is one of the largest energy, and food commodities export globally. Data for 2020 shows that Russia is the fourth largest oil-exporting country after Middle Eastern countries and the US, which exports an average of 7.4 million barrels daily. Apart from being one of the largest oil exporters globally, Russia is also the world’s largest exporter of wheat and flour, which, is three the last year has consistently been ranked the second largest in the world. The fact that Russia is the world’s largest exporter of oil and foodstuffs causes the Russo-Ukrainian war to be expected, pushing the prices of world energy and food commodities to increase due to supply-side disturbances.
Third, data for 2020 recorded that Russia was ranked first as the country with the largest natural gas reserves in the world, which is 37 Trillion Cubic Meters, an increase from 34 Trillion Cubic Meters in 2010. In addition to having large gas reserves, Russia is also the second-largest natural gas producer globally after the US, making Russia the most significant gas exporter globally, primarily through the pipeline.
Fourth, in terms of trading partners, China will be the largest trading partner country for Russia in 2021, where the value of trade between the two is countries reached US$140.7 billion, followed by Germany and the Netherlands. International trade has been the main motor of Russia’s GDP for at least the last decade, where the contribution value of exports and imports has reached almost 50% of the time.
Fifth, Russia is the sixth-largest country contributor to global GDP, with a share of 3.11%. The Russo-Ukrainian war can certainly negatively impact global economic growth. Oxford Economics projections show that the Russo-Ukrainian war led to a decline in the global economic growth of nearly 0.2%. With the same two scenarios with inflation, Moody’s made a simulation of global economic growth projections. As a result, both scenarios show that the world’s growth rate is under pressure at least until Q4-2022, where the bad scenario (lengthy conflict) resulted in economic growth of around 0.7%yoy in Q4-2022.
Seventh, Russia’s military invasion of Ukraine on February 24, 2022, then triggered the weakening of the Rubles exchange rate against the US Dollar. In addition to the exchange rate itself, this weakens the exchange rate in various developing countries against the US Dollar. Because the investors tend to put their financial assets in a safer as in the US. The stock market also experienced pressure on February 24, 2022, due to Russia’s declaration of a military invasion of Ukraine.
The movement of oil prices continued to increase, driven by the Russo-Ukrainian war, which disrupted oil supply because Russia was one of the largest oil producers in the world. Rising oil prices can push up the prices of other substitute commodities, such as coal and gas, because the demand will increase to keep up with economic activity. Rising prices for oil and other energy commodities allow Indonesia to take advantage of them. Even though Indonesia is a net importer of oil, in other energy commodities, Indonesia is a net exporter with the export value of other energy commodities, which is greater than oil imports. Net exports of non-oil commodities still experience a surplus.
It is safe to say that the reality of Russia’s economic strength, the strategy of impoverishment and isolation by Western countries still needs to be studied in depth because Russia is a country that seems to have predicted what would happen to their economy when Putin started his invasion in 2014.