Shortcuts / 03 March 2022

The West’s sanctions on Russia

As Russia pushes forward with its invasion of Ukraine, the West has been using sanctions to punish them. So in this Squiz Shortcut, we look at what these sanctions are and who is imposing them, their impact, and Russia’s reaction to them.

What are sanctions?
So we’re right into it. No hello?

Hello. Sanctions are penalties but don’t involve the military or the use of lethal force.

And who can impose them?
It can be one country against another. Or an international organisation like the United Nations can level them against a country or group.

What sort of thing sees sanctions imposed against these countries or individuals or groups?
Good old fashioned bad behaviour. Other than taking up arms, they can be a good way to stop a rogue nation from doing something undesirable, like invading another country, or accessing weapons and technologies that pose a risk to the world generally.

So like what most of the world does with North Korea with its nuclear arsenal?
Bingo. And sanctions can also be used as a deterrent to stop violence or conflict – like what we’re seeing with Russia over Ukraine.

Okay, that’s the stick – what’s the carrot?
That sanctions will be dropped if the bad behaviour stops.

Got you. And what’s the most commonly-enforced sanction?
That would be economic sanctions, which cover everything from freezing cash and assets to blocking transfers to and from specific financial institutions.

How does that work?
Well, to impose sanctions, groups or entities – like a bank – have to be formally ‘designated’. That means that they have to be formally listed as problematic.

Has Oz done that before?
Yep – our government has done that for Myanmar, Syria and Zimbabwe. And because we’re a member of the UN, we take responsibility for implementing their sanctions on our patch, like those against North Korea and Iran. 

…and Russia?
When Russia invaded Ukraine last week it was hit by a raft of sanctions from Australia and so many nations across the world.

So what sanctions has Russia been hit with?
So many sanctions… There’s a lot of ground to cover but let’s start with economic sanctions. One to call out is the sanction against Russia’s central bank that limits the Kremlin’s ability to access US$600 billion in reserves held in American and other markets.

I don’t get it… 
Central banks, including Australia’s Reserve Bank, have money in markets outside their own country. So these sanctions freeze those assets – Russia can’t access them. And if it can’t access that money, it can’t stop the ruble from plunging in value, which is already happening. And if that currency goes into freefall, it could trigger huge inflation and dramatically increase the cost of living for ordinary Russians.

So the sanctions on Russia’s central bank are a big deal…
Yep. The next to call out is Russia’s removal from the international SWIFT financial network.

That’s the system that moves billions of dollars around more than 11,000 banks and other global financial institutions. 

And you mentioned sanctions on individuals earlier – are Russians being targeted?
They are – and the main people to note are Russian President Vladimir Putin, his inner circle and senior government officials.

How do those individual sanctions work?
The idea is that they will go after their personal assets held outside Russia. Bank accounts have been frozen, properties seized, and they are on travel ban lists around the world.

Any other types of sanctions to note?
Yes – those targeting their energy sector. So Russia is one of the world’s biggest energy producers thanks to its massive oil and gas reserves. But it’s tricky… While some sanctions have targeted those, Europe imports 40% of its natural gas from Russia.

That is tricky.
And that’s why the EU has been holding back there, as it doesn’t want to impose sanctions that would ultimately harm itself.

Got any more sanctions for me?
Yep, on Russia’s involvement in big-time sport.

What does that entail?
Well, the UEFA Champions League grand final has been taken from St Petersburg and given to Paris, and Russian clubs have been suspended from all competitions. The Formula One Grand Prix and all World Cup skiing events in Russia have also been cancelled.

Yep, and Russia’s also been kicked out of Eurovision – so you know it’s serious.

That’s a long list…
It sure is. These are the most significant sanctions ever levelled against a country of Russia’s economic size.

And how did it happen?
It was the start of December that Putin and Biden had their first talks about the situation in Ukraine. Biden told Putin that the US did not plan to put troops on the ground in Ukraine, but he promised Russia would pay “a terrible price” in the form of those severe economic sanctions in the event of an incursion into Ukraine.

And since then?
Western countries talked about what could be done if Russia did invade Ukraine. So the effort has been well coordinated. 

So how has Putin responded to those sanctions?
In an unprecedented move, Putin put Russian nuclear forces on high alert.

Yikes… What does that mean?
Well, we don’t know for sure… But experts say it doesn’t mean a nuclear strike is imminent.

That’s still alarming – what’s got Putin’s goat?
He said: “Western countries aren’t only taking unfriendly actions against our country in the economic sphere, but top officials from leading NATO members made aggressive statements regarding our country.”

My big question is: will the sanctions make Putin change tack on Ukraine?
It’s a fair question. Analysts say it could lead to severe inflation, a stock market crash and financial panic that would inflict pain on the Russian people. That’s nothing to sneeze at, but it can take time to get into motion.

Time that Ukraine doesn’t have…
That’s right, and Russia isn’t a country that backs down easily.  Western nations are also mindful that ordinary people will suffer, which might fuel anti-Western sentiment and bolster Putin’s narrative that his country is being persecuted.

And what impact will these sanctions have on the global economy?
Well, we’re all connected one way or another… The big issue is the impact on Russia’s energy sector because if it slows down, it could drive up prices across Europe and North America, just as they are grappling with rising inflation as they recover from the pandemic recovery.

So what other kind of support is Ukraine receiving from the West?
Quite a lot – hundreds of millions of dollars in military aid is being sent to Ukraine.

But not troops on the ground?
No, but it is a form of direct military involvement that includes weaponry, munitions, body armour etc to support Ukraine’s front-line defenders. And that’s what its president Volodymyr Zelensky said he needs. When he was offered an airlift out of Ukraine at the start of the war he said, “I need ammunition, not a ride”.

I have a feeling this isn’t the last time we’ll talk about this war…
Indeed, and we’ll keep you updated as the terrible events in Ukraine continue to unfold.

Squiz recommends:

How Russian sanctions workThe Atlantic

As Sanctions Batter Economy, Russians Face the Anxieties of a Costly WarThe New York Times

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