Russian President Vladimir Putin
By Tapiwa Jomo
A month has passed since Russia invaded Ukraine. So far there has been no sign of backing down, although both sides continue to express their willingness to engage in dialogue and end the war. While the war between Russia and Ukraine has been taking place over the past four weeks, it has taken on major global proportions on two fronts.
The first dimension is fear that it could escalate into world war or nuclear war, and Western countries and the North Atlantic Treaty Organization (NATO) have remained cautious in their support for Ukraine.
As long as the war goes on and a quick solution is not assured, this fear remains real and anything is possible.
The second dimension of war is its global economic impact. This is largely the result of the economic war between Russia and the West.
It is fair to say that Russia is at a military war with Ukraine while globally it is at economic war with the West, and this is causing suffering around the world.
As some analysts pointed out, Russia is now the most heavily sanctioned country after additional sanctions were imposed in February this year following its invasion of Ukraine.
Any war or invasion of a sovereign country must be condemned and stopped, but some useful lessons can be learned from how Russia has dealt with the myriad of Western sanctions and the reckless response of the United States and its Western allies.
Russia annexed Crimea from Ukraine in 2014, followed by a series of Western sanctions.
Since then, Russia has always known that the West is ready to impose additional sanctions if Moscow invades Ukraine again. Russia has embarked on what some have dubbed the Fortress Strategy, a plan aimed at protecting its economy from Western sanctions.
Part of the strategy is to wean the Russian economy off the US dollar and reduce the share of what Russia owes to foreign investors, mostly from the West, to just 20%.
It bought more gold with reserves estimated at $700 billion last December and increased exports to friendly countries like China and India. This has led to increased economic trade with China, with gas supplies to China worth over US$100 billion annually.
Since 2014, Russia has banned imports of Western food, medicines and technology and has boosted domestic production.
The goal was to achieve as much self-sufficiency as possible while expanding trade lines with friendly countries. Russia was preparing for this rainy day.
As Russia began to move away from the US dollar, the decision was not just out of fear of sanctions, but also out of a desire to dodge the ruthless stance of the West, particularly the United States, which some have recently called overly complacent . the use of sanctions and other economic measures to punish other countries.
With almost 10% of the world’s countries under some sort of US sanction, some of which are large economies, central banks around the world are realizing that trust in the US dollar may no longer be a sustainable idea and are looking into it options or diversification.
So far, Russia appears to have resisted the recent freeze on central bank reserves, the country’s disconnect from SWIFT, the interbank messaging system and other Western economic measures.
Russia was not brought down as quickly as the West expected.
This is simply because of the measures it has taken to protect itself from the volatile position of the West.
Economically, Russia is showing that it is not ready to give up or capitulate.
He announced last week that “unfriendly” countries would pay for gas in Russian rubles amid an energy crisis in the European bloc.
India and Russia are working on a ruble-ruble trading mechanism, which is expected to be ready this week.
It also reopened the stock exchange after being closed for a month. This is in addition to preventing foreign investors from selling their shares, which hold more than 80% of the stocks traded on the Moscow Stock Exchange in 2021.
Russia’s message is clear. Trade with friendly countries will increase or decrease with those that have imposed sanctions.
On the other hand, the West’s weaknesses also came to light as it grappled with the impact of its sanctions on Russia on its economies.
For example, the energy sector has remained unstable and unpredictable since sanctions were imposed on Russia, a major global oil and energy supplier.
With oil priced in US dollars, some of the major oil suppliers are turning to other currencies to circumvent Western sanctions, transforming global trade and geopolitical systems in the process.
There are reports that Saudi Arabia is considering accepting yuan payments for oil sold to China.
Russia and Saudi Arabia are among the top three oil producing countries in the world.
The sanctions are designed to punish the country’s leaders for behavior change or submission.
But with the Russian situation, there is a renewed understanding that sanctions also hurt those who impose them by restricting investment opportunities and trading partners.
In this way, the sanctions will open up space for investors from other regions, which will lead to less dependence on the dollar and western markets. This could be the beginning of a new world order.
- Tapiwa Gomo is a development consultancy based in Pretoria, South Africa. Write here as a private person.