Sanctions and their Impact on Russia
Sanctions are actions implemented on a certain country in the form of threats against the country for breaching some common agreement or accord. They are primarily set in place through a lengthy engagement between giving parties from specific countries. The threats are intended to persuade the target nation to adopt the specific code of conduct, or face grave consequences. Because of the biased disciplinary nature of the sanctions, the country that is a victim of sanctions faces difficult obstacles in carrying out her task. The country is exonerated from all the general activities that concern the world affairs. This is because the sanctions always have a collateral damage on the citizens of the country in question. Russia is the subject that was subjected to the impact of sanctions in this case. The country was embroiled in a row with Ukraine over who was to control the Crimea. The forceful invasion of the Crimea by the Kremlin seemed as an act of bullying and violation of human rights and the sovereignty of the state of Ukraine. The aftermath of the sanctions on Russia and the mitigation measures embraced in trying to cope with the challenges will be covered in-depth.
Russian Army and the Sanctions
Russia had a good deal of government machinations and military prowess. She dispatched military platoons who patrolled and combed the area in conjunction with the rebels. The Russian army was armed to the teeth and they helped in the perpetration of atrocities and injustices in the Crimea. There were numerous killings and sabotage of the properties and premises that made the world to condemn the heinous acts in the sternest terms possible. The United States and the European Union convened a meeting in ordered to strive to resolve the conflict that pitted Russia and Ukraine. Russia was determined to stick her guns and then claimed that all the allegations concerning her support of the rebels were baseless, null, and void. She instead claimed that it was just a political and economic witch-hunt that was meant to sabotage and taint the Kremlin. The United States and partners passed given sanctions that were geared towards injecting extreme pressure to the Vladimir Putin regime sop that it could withdraw from the Crimea. The annexation of the Crimea served as the recipe for disaster for the Russian regime. The series of sanctions that followed was unprecedented and the impact reigned supreme.
Economic Sanctions
The decision to punish Russia that was upheld by the European Union and the US resulted in a chain of activities that was almost leaving the Kremlin in mere straits. Economic sanctions were put in place on those people who happened to be within Putin's sphere of influence. The inner circle friends of Putin and the companies that were affiliated with Putin and the family were served with sanctions that limited their operations within the nations that were party to the meeting that was held with a view to reining Russia in. The assets belonging to Russian tycoons and business Moguls who were close to Putin and his regime were frozen and stiff financial restrictions put in place. The Russian firms that undertook business with the US and other European nations were barred from transacting in the respective countries that supported the sanctions. The key sectors of the economy were bound to perform dismally due to the fact that Russia depends solely on the trade on oil and gas for oils and the arms deal they strike with other countries. The failure to get the market for their products coupled with the drop in the oil prices resulted in the derailment of the financial progress in the economy of Russia. The monumental and pivotal oil exploration companies that worked in the prospecting, exploration, and exploitation of the rare commodity were devastated as a result. Some had to close business and shift their location to somewhere else. Come had to sever ties with the Russian partners since there were restrictions that had been raised in order to tame Russia. The joint production projects that had been begun were forced to grind to an ultimate halt due to the new and unfriendly business atmosphere that prevailed. The military arsenal that Russia sold to other countries in both Europe and the US came to an abrupt end and hence rendering the country struggling to get new markets for the available products.
The Weak Currency
The Kremlin started experiencing grave challenges as soon as the sanctions took effect. There was a significant contraction of the economy in that regard. The growth rate of the economy reduced to 0.7 %, which was a 3.7 percent drop from the previous status in 2014. This was caused by the various aspects where the entire business was incapacitated either as a result of the sanctions, which presented a limited market or the effect of the drop in the prices of oil and gas. The capital flight occurred as a result of the foreign investors pulling out of the business and channeling the businesses elsewhere. The general net outflow of capital from Russia hit the lowest in 2013 as opposed to the highest amount that was registered in 2013. The value in 2013 was sixty-one billion whereas in 2014 it stood at one hundred and fifty-two billion dollars. The Russian ruble encountered some of the most challenging moments since its value plummeted considerably. The country found itself in the worst economic doldrums in the history of the country. The ruble recorded a fifty percent depreciation in relation to the dollar in the year 2015. This presented the ruble as weak when a comparison is drawn between the currencies of the two countries. The stronger the currency, the stronger the economy since the dollar is used in most of the transactions dealing with oil and gas. Russia registered a significantly high rate of inflation in the recent past. The inflation rate rose from 6.8 percent in 2013 to 15.5 percent in 2015. The data obtained portrayed the shift in the performance of various businesses as an aftermath of the economic stand-off that existed between the US and the European Union with reference to the issuing of the sanctions. The Eurozone boycotted trading with Russia while Russian did the same in retaliation and hence there were no viable business transactions amongst them.
Budgetary Pressure and Depletion of Reserves
Budgetary pressure mounted locally since there was an insufficient amount of resources to run the government business. The country has a population of more than one hundred and forty million people. The people need services from their government, and hence the federal government had the mandate to ensure that each and every individual has access to resources in terms of jobs and even affordable health care. The deficit rose from 0.9 percent in 2013 up to 3.2 percent in 2015.
The tapping of the holdings of the international reserves was deeply experienced in Russia. That was meant to offset the local budget due to the deficit of the available capital for funding the budget. This was exacerbated by the fact that Russia had been excluded from the international markets. The narrow market available could not account for the many assignments and tasks ahead. The reserves shrunk from five hundred billion dollars to three hundred and sixty-eight billion dollars in 2015.
Increase in Poverty
The rate of poverty skyrocketed significantly in Russia. That was due to the loss of employment opportunities. The various companies that closed down business employed many people and people solely depended on the same jobs for their livelihood. That reduced them to virtually nothing since they could neither fend for themselves nor their family. This denies the country of the required efficient and sufficient manpower who should serve the people and the country in different capacities. The rate of poverty among Russians increased by 3.1 million people until it hit 19.2 million by 2015. This represented thirteen point four percent of the population.
The Stabilization of the Russian Economy
The Russian economy was stabilizing in spite of the odds that prevailed. That was because of the various mitigation measures that the leadership was trying to impose to allow the economy to recover. The rate at which the economy contracted in 2016 was significantly lower, as there was a record of 0.8 percent. The outflows of capital significantly slowed from one hundred and fifty billion dollars to fifteen billion dollars in 2016. The rate at which inflation occurred dwindled by almost half until it reached 7.2 percent. The ruble value improved, and the government was in a position to sell bonds in the international market. That helped to generate more income with the profit margins that sufficed in boosting the other sectors of the economy.
Engaging 3rd World Countries
Russia reaped a fortune in 2016 due to the rise in the prices of oil. A barrel of oil could be sold from 30 to fifty dollars each, and that helped in making a significant profit. The returns from the revenue helped in boosting the economy. The Kremlin was able to sail through the financial storm in that time as the country boasts of high and ubiquitous oil and gas resources. Russia embraced that chance by diversifying in the type of customers it engaged. It commenced trading with other countries such as India, Brazil, China, and other Latin American countries in the business transactions. The countries found the market for their food products in Russia. This is since the country banned the import of any food products, such as pork from the European Union and poultry from the US. The rapport that they built allowed for the bonding and exchange of knowledge, such as advanced technology, which comes in handy in the daily life of an individual. The sanctions are said to have been cushioned by the friendly and versatile exchange rate. The much that was realized helped in offsetting the deficit expenditure, which amounted to 3.7 percent in 2016. The low value of the ruble poses challenges in the capacity of the country to modernize and create innovations for the Russian economy. There are various factors that have further contributed to the plights of Russia, such as corruption, the involvement of the government in the economy, gradual diversification of the economy, the poor framework on the protection of property rights, cumbersome and irksome administrative procedures, and the adverse dynamics of the demographics within the country. This implies that there is a reduction in the working population and hence there is insufficient manpower who can serve in various production capacities. The aging population consists of the majority of the population and hence the level of performance is significantly low.
Struggling Economy
The overreliance of Russia on the oil and gas economy subjects the country to the market forces in the trading of oil. Diversification has become the other way to avoid the effect of the fluctuation in the oil prices, which culminates in a failed economy. In the wake of 2016, the US Department of State asserted that the sanctions that Russia was serving were not meant to push Russia off the "economic" cliff but rather to inject sufficient pressure to the Kremlin so that they could adhere to the demand of the US and the European Union in stopping the annexation of the Crimea and at the same time desisting from meddling in the political affairs of Ukraine. The sanctions were designed and tailored in such a manner that they worked over a continuum of time up to an extent that the Russian regime gives in and then withdraws from Crimea. The Russian Finance Minister in 2014 approximated that the cost of the sanctions per year stood at forty billion dollars loss to the economy of Russia. This amounts to two percent of the Gross Domestic Product of Russia. The loss is compared to the ninety to one hundred billion dollars loss caused by the fluctuation of the prices of oil in the global market. The losses that emanate from the imposition of the sanctions are anticipated to decrease significantly by the end of 2017, according to the research conducted by economists. The result will be triple lower than the loss that is associated with the shift in the prices of oil. The shock that comes with the change in the oil prices tends to be more severe than the effect of sanctions on the regime. That is because oil is the major natural resource which acts as the backbone of the economy of Russia.
Impact on US - Russian Trading
The trade between the US and Russia was more or less insignificant, as it only accounted for two percent of the transactions between the two countries. The bilateral relationships that existed between them had some touch of sourness right from the cold war. The scramble for being the world superpower has brooded between the duo. The fight for supremacy overshadows the genuineness of passing those sanctions since there can be ulterior motives behind the move. The trade transactions between the US and Russia declined significantly by half. The merchandise that was being shipped to Russia fell from 11.1 billion dollars to 5.8 billion dollars in 2013 and 2016 respectively. The US trade imports extracted from Russia decreased from 27.1 billion dollars to 14.5 billion dollars in 2013 and 2016 respectively. The investment relationships between Russia and the US dwindled significantly due to the sour relationships that existed at that time of the sanctions. There was little information that was shared between the two parties, and they seemed to be literally at a stand-off. The United States' investment attached to Russia reduced from 20.8 billion dollars in 2009 to 9.2 billion dollars in 2015. The investments of Russia in the USA decreased from 8.4 billion dollars in 2009 to 4.8 billion dollars in 2015. All this was exacerbated by the poor ties between the two countries that transpired from the sanction the US implemented in conjunction with the European Union.
Conclusion
The implementation of the sanctions on Russia in 2014 brought mixed feelings and situations across the globe. There were a lot of speculations as to the ways Russia could respond to the threats by the European Union and the US. The firms and companies that operated within Russia and the countries that upheld the sanctions to the letter had to bear the brunt part of the conflict in Ukraine in reference to the Russian sanctions. A number of US firms that operated in Russian experienced significant economic turmoil and disturbance due to the effect of the sanctions. ExxonMobil was compelled to suspend its projects that it partnered with Rosneft in the Kara Sea region of Russia. The company made losses amounting to one billion dollars in the process. The biting effect of the sanctions never left Halliburton and Nation Oilwell Varco unaffected. National Oilwell Varco and Halliburton companies participated in the provision of the services that related to the oil fields in Russia. Their operations were heavily limited and hence they warned of significant loss of profits lest the effects of the sanctions escalated. John Deere, which is a US-based company with a couple of factories in Russia, experienced dismally low sales which it attributed to the sanctions. The US businessmen who deal in the Russian balashnikov rifles face extreme restrictions on the purchase of the ware despite the lucrative market the product has enjoyed in the recent past. That denies the traders the chance to make a decent living from their normal business, and the producers in the Federal Republic of Russia would be forced to source for the new market for their wares. Both sides feel the pinch of the sanctions, but Russia finds herself on the receiving end because of the loss of revenue. This derails progress in the various economic sectors.
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