Russia is a country of roughly 6% of the economies of the US and EU combined, wreaking havoc. http://goo.gl/fXzLzW It does not seem that the sanctions fazed them. How is this Crimean invasion affecting the Russian or any other economy?
That's a good (and very relevant) question. It's also quite a complex one, and I'm no economist. But here is some stuff I've been reading:
In general, Russia's economy hasn't been doing well (referring to before-the-crisis). Growth is still positive, but much less than the average of recent years, and the ruble has been falling. During the "mid-naughties," it was pegged around 27 to the dollar. Since the 2008 crisis, it has hung pretty steadily around 30 to 31, but in the past couple of weeks has dropped to 36.
Markets have taken big hits since the invasion of Crimea, though they may bounce back. Somebody estimated that the Russian oligarchs have lost something like 20 billion dollars (I'm going from memory, so please check this if you want dependable figures) in a couple of weeks.
The Russian central bank jacked up interest rates in an effort to support the ruble, and foreign lenders (reportedly, Russia is heavily dependent on foreign banks) are raising rates because Russian risk is considered to be worsened by the Ukraine mess.
The "round one" sanctions announced so far are not really economic sanctions: they are targeted to a few individuals, with the intention of making them uncomfortable, but won't matter to the economy.
If the EU stopped buying natural gas from Russia, it's thought that the effect would be quite strong. Although it would be expensive, the EU could probably do completely without Russian gas from now till November, without facing serious shortages. After that, it would surely get harder, and of course winter demand depends on the vagaries of weather.
The experts seem to think that Russia is now very dependent on the western banking system, not only for credit but for fundamental operations like clearing of payments. I read a few days ago that Gazprom, an energy giant owned by the Russian government, actually uses a western bank as its official point for payments (I think it's even a US bank!). If the US and EU simply "cut the wire" so no funds could move between Russia and the banks of the West, the pain for Russia would be dramatic. And if I understand right, because of mechanisms put in place for cutting off funding to terrorist organizations or for sanctions against other countries like Iran, a Russian cut-off could be done quickly and thoroughly.
One guy I saw on AJAM said that even if the US did a banking cut-off without Europe, it would be very difficult for Russia because the modern banking system is so networked that a lot of stuff passes through US banks, even if you wouldn't think of it as US transactions.
My thinking, is that the banking cut-off is pretty much the "nuclear option" of economic sanctions, so the West would want to keep it in the holster until things escalate further. If I were calling the shots, I'd probably let Russia know that if they move into east Ukraine, that's when they lose western banks.
We'll learn what round two looks like in the next day or two. I guess that our side has already come up with a "staircase" of ascending sanctions.
Two things about sanctions:
(1) They work over time. The effect is not instant (or if there is an instant effect, the effect over time is likely to be much stronger). Probably 3 to 6 months is the time frame where we could expect that the pain is near maximum.
(2) It's up to the Other Guy, to decide whether The Pain means more to him than The Prize (whatever he's going for).
If you consider total war scenarios, the side that was going down to defeat somtimes kept fighting after (a) it was pretty obvious that they no longer had much prospect of victory, and (b) the economic costs were astronomical.
One example is 1945 Germany: the physical and economic damage to Germany was on an astronomical scale, but Germany fought on until Berlin was physically overrun.
Another example is the US Civil War. Very late in the war, the CSA held a conference of high political and military staff officers, to discuss the war situation and what the South could do. This conference included a report prepared by a young military officer on the South's war damage; he estimated that the economic losses to the CSA exceeded the entire quantity of specie existing on Earth at that moment (specie means hard money, like silver coins or gold-standard notes). Yet the South fought on for months after that.
If Putin has the "red mist", he won't back down because lots of people are suffering: he doesn't care much about people. Sanctions could move him in two ways: if he cares enough about his Big Program for Russia that he will let go of a little pride in order to save it; or if he is overthrown by people who ARE in pain and won't tolerate any more.
the sanctions so far were laughed at. I think sanctions have very little affect because some government will be of some help just to be against them. As of right now there is no will to do much in America and unless that changes I doubt America will honor it commitment to protect Ukraine. It will be up to Ukraine to change the mind or will of the American people if they want help. I doubt Europe can do much without hurting there own people. Unless western Europe finds a way to free its self from Russian gas there will not be much they can do. Russia has already taken a pumping station in the Kherson region and working on taking Donetsk.
sanctions work if they are substantial.
if it was done yesterday and done on a total cross the board scale any country would consider their future doings when crossing the line of sovereignty.
politicians end of the day are only as strong as the will of its people.
i was very surprised myself some years ago how much trade Russia dose to the outside world when living there for a little while.
many company's are very dependent on such, specially it seems around Europe.
if bank accounts were seized and all trade stopped and i mean all trade, i wonder how long its people would chant rusia over a sovereignty state.
commodity's is what makes all countrys work today, its what makes our lives much easier and livable for many,,,, this is about trade in the end.
this century is very different to our passed when it comes to trade and its needs for a country's well been.
this could even be taken to the airlines that fly into,, it the world had balls.
without all this people would feel the bite very quickly.
as in the gas and oil,, thats what i dont like about the Europeans,, they just dont give a sh#t when it comes to their own little lives and needs.
to me this is not much different to the last ruckus in former Yugoslavia, in the end it was the west, i mean America who had to play it out by force,, the Eu were trading and cashing in with Serbia as the US missiles were hitting Serbian tanks,,, and thats a fact.
having the west playing the big hand in European rubbish just shows how gutless our counter parts are,, or just dont care.
until the world acts as one on full trade sanctions on a even keel when it involves sovereignty matters as such no matter how it effects the likes of our living arrangements, the future will have less taste for the gun.
until then the circus will only carry on.
I have a vk friend in Russia who is a staunch Herbalife agent, a very pretty one at that. She doesn't post much about herself as the others. She posts about business. She has been suspended a couple of times from vk. vk usually suspends of spamming activities - unwanted messages. In her case, probably potential customers. I like her because she always has something nice to say when I PM her. I am wonder how her Herbalife business will be affected.
I myself have a dating site. It is not popular, but I do have a steady amount of visitors. I am thinking of doing my own sanctions and taking it down as my own mini sanction. If I was to revive it or to continue, it would be a Ukrainian dating site only, not Russian. This is just at the thought stages right now. It does take a little time to take down a site and undo some things.
I think you're been a bit hard on the Russian women and changing it to just a Ukraine dating site. My girlfriend is from Yevpatoria Crimea. she could not be more happier now, since the vote going back to Russian on Sunday.
here are her words she wrote to me ( she a young women only 23)
My nationality Russian. My parents too Russians. Ancestors of mother from Altai, Siberia (it is Russia). When the Crimea became part of Ukraine, we so remained in it. But in the Crimea all talk in Russian. Now the Crimea again became Russia. We came back home. =) Now everything will be good. Movies at movie theaters will be again in Russian, advertizing, television, at universities examinations will be in Russian. For us such revolution is a big holiday. =)) I will receive the Russian passport soon. ;)
why hasn't sanctions worked on N Korea Cuba and Iran.
limiting any poor man or country in earnings as a lesson in accountability will never work.
because if they are already very poor what are you really trying to achieve?
why are you teaching someone a lesson in something they have no comprehension in in the first place, its a bit silly isnt it.
Russia is a multi billion dollar trader,, it survives on trade today massively, its armed services survive on the billions it makes from outside income, gas timber gold and such.
even in the cold war they traded to a large extent.
of cause sometimes they had money problems..
but hey what is trade sanctions today? a bit of this a bit of that.
trade should seize to exist with them, cut ya losses to bad hard luck whom has moneys involved,,, not a bit of this a bit of that scenario as we do.
i bit like why are Americans smoking Cuban cigars today? i thought you lot had a trade sanction in place,,, we smoke them to but with no sanctions involved, we trade with Cuba so you can have your cigars yes?.
cash reserves are not made from inside of itself, most country's of substance and wealth it comes from trade, it comes from outside yes.
what is a diamond or piece of gold if you cannot sell it?
look at the cold war when things were tight for them, (but of cause they were still trading) had such a mass in military might of steal,,, out numbered america in many a thing.
but a lot of it was not usable by western standards.
they moldered steal faster then technology gave them life,, so what if they had all the steal in the world.
did it do them any good?
they were even that stupid to involve a bit of ethnic cleansing in a sense at times which also destroyed a lot of their brain power, techo people..
finally they jumped with joy when they trumped it all will biological and chemical warfare shit.
what a disaster that came to for them in the end,,,,, places they cannot go in fear of been bitten in the ass.
let them keep their gas and oil,, if they can use it,,, great who cares.
but why finance them?
their people need to actually think and take on what all this stupidness means to the outside world.
we ourselves cannot change the Russian politicians minds,, but the people in Russia can.
do they really want to fall back into the past,,,, i bet you not...
First Standard & Poors and then Fitch Ratings downgraded Russia's outlook to negative (it was previously stable), with a BBB ranking by both firms -- the second lowest investment grade. This is due to the anticipated effect of sanctions on Russia's GDP growth, which was already sluggish in 2013.
It wasn't clear to me from the article, but I guess that the credit rating refers to Russian sovereign debt.
The article quotes Russia's Deputy Economic Minister as having said, even before the sanctions, that the economy was showing signs of crisis.
"Russian holders of Visa and MasterCard payment cards issued by four Russian banks—Bank Rossiya, Sobinbank, SMP Bank and InvestCapitalBank—couldn’t pay for goods and services with their cards starting on Friday morning. The two U.S. firms said they were obliged by the U.S. sanctions to cut the banks off from access to their network."
I don't know about you blokes ... but I'm enjoying this quite a bit.
The Forbes article linked by lonely (thanks!) is the most interesting I have yet seen about the possible impact of sanctions. On the one hand, the author has deep knowledge of Russia, and is an academic specialist in the Russian economy. On the other hand, he makes no pretense at objectivity: his contempt for Putin is plain to see, and so he may be tempted to overstate the case.
If his analysis is correct, then the news for Putin is not encouraging.
The main message of the article is that the second round of sanctions bite hard, and is causing pain and anxiety to people very high up in the Russian system.
He goes beyond that to say, that if the pain gets bad enough, Putin is liable to be put down one way or another. This has been my personal theory, about why sanctions may make a real difference to Russia's conduct: tyrants like Putin are very strong, but their strength is very brittle; it can shatter with startling suddenness. Russia has a long history of its leaders being murdered or otherwise deposed. I don't think it very likely that Putin will be deposed, because I believe that he shuddered each time, when he saw what happened to Egypt's Mubarak (imprisoned), Libya's Qadafi (killed like a dog by a street mob), and Ukraine's Yanukovich (exiled in permanent disgrace by his own cowardly flight). Putin's fear of "falling down" is more likely to induce him to steer a course where the pain of other powerful Russians doesn't go too far -- that is, to do what is necessary to get the West to lift sanctions.
I took away two pieces of information that were really news for me (quite unexpected) and seem quite important:
(1) Putin's own former Minister of Finance, Aleksei Kudrin, estimates the cost to Russia of Crimea's annexation at $200 billion. ragingbull -- this is a direct answer to your original question! This is a much higher figure than I would have imagined. To show the cost "to scale," it is equivalent to a $2 trillion loss for the US economy (similar to estimates for the total cost of the Iraq debacle).
If Kudrin is correct, this has a very important corollary: if Russia were to invade eastern Ukraine, or even the entire territory of Ukraine, the costs would have to be much greater than those due to stealing Crimea -- especially if Ukraine fights the Russians as hard as I expect. By this logic, annexation of the rest of Ukraine WOULD BANKRUPT THE RUSSIAN FEDERATION. Putin simply couldn't pay for it, no matter how much he might want it.
(2) Mr Gregory mentioned this only in passing, and didn't explain what it might mean, but he wrote: "the U.S. Treasury has sent Vladimir Putin a chilling warning: We know where your money is, and we can expose you for what you are." He was referring to the sanctions identifying Putin's PERSONAL financial involvement in shadowy foreign operations.
This MIGHT be very significant, because Putin claims an annual income of less than $200,000 and a net worth well below one million dollars. In truth, his net worth is probably in the tens of billions of dollars, and in the range of estimates made by observers, Putin MIGHT be the wealthiest man in the world: richer than Bill Gates or Warren Buffett. Of course, many Russians know that Putin's "financial statements" are absurd lies; but if he were publicly exposed as the richest and filthiest of all of Russia's rich and filthy oligarchs, that could be seriously damaging to the public image he has constructed with such great care. Oligarchs are despised by many Russians: urban or rural, comfortable or poor, well-educated or uneducated.
Already another Forbes article by the same author, titled "Mr. Putin's Very Bad Day: The Noose Tightens On His Inner Circle And The Russian People":
It's a collection of nuggets about how the situation is developing not necesssarily to Putin's advantage.
The heart of it, for me: "In Brussels and in Washington, officials declared that they have prepared a third tranche of sanctions that would broaden the list of individuals sanctioned and include for the first time industrial enterprises..."
I've got so say, chaps, that I approve this approach heartily:
(1) Hit the bastards with sanctions.
(2) Give them a few days to soak it in, to work out how it can affect them personally*, and to to wonder what things will look like if sanctions continue for months or even years -- or if they ratchet up.
(3) Hit them with harder sanctions.
(4) Go back to step (2)
This is first-class applied psychology. I'd bet good money that more than a few of the master criminals in Moscow have knots in their guts right about now.
The article points out the Big Picture headline: Ukraine and the EU yesterday signed the Association Agreement -- this is the thing Putin tried to stop in the first place. The Association Agreement binds Ukraine to a regime of openness, political freedom, and rule of law: if Ukraine carries out these reforms, then Putin won't be able to steer Ukraine by his customary system of stooges and bribes. So far, Putin's programme isn't looking completely successful.
* For those of you who don't know what it's like Over There ... though Russia has made a lot of economic progress, it's still a sh*thole in many ways. If you're a Russian Fat Cat, it's a Big Deal to you that your children can attend a posh school in England. It's a Big Deal that you have a house or two in the real Europe, where quality of life and health are so dramatically better. It's a Big Deal that you can keep millions (or billions) of your wealth in foreign banks, because in Russia everyone knows that there is no Rule of Law: if you fall from the favor of Papa Putin (or whichever other dictator happens to be in power), every penny you own can be seized in a matter of hours.
In other words, if you're a Russian Fat Cat, your access to the West is vitally important to you. Now you've just gotten the news that if you walk up to the Passport Control window in any Western country, you will be turned away and required to take the next flight back; that you can't visit your kids at their private school; that your London house and Swiss bank balance are untouchable by you, and that you have no idea when you might regain control of them.
Even Putin himself, who I am sure is willing to trade money for his Godfather-style respect, must be feeling the pain a little: he probably stands to lose many billions from his net worth.
I left out a very important part of Mr Gregory's new Forbes article:
* In the UK, there is growing parliamentary pressure on the Prime Minister to go after oligarchs in England.
* BILD, probably Germany's most widely read newspaper, published a list of sanctions expected to have the most impact in Russia. The last of these "called for Germany to forego purchases of Russian natural gas entirely because of full storage facilities and a plan to import gas from Norway."
I'm excited about this, because sanctions will cost Europe MUCH more than my country (USA). These stories suggest a degree of public support for sanctions in spite of the cost. If Germany stopped buying Russian gas, the effect in Russia would be like an earthquake -- as far as pyschology, and the reaction of financial markets, it would be way the hell out of proportion of the actual economic loss. If you take gas sales away from Russia, it falls far down the ladder of the world's economies (apart from mineral extraction, the rest of the Russian economy is mediocre at best). The only reason Putin has public support is that Russia is a petro-state. Like the Kings of Saudi Arabia, Putin spreads the petro-wealth around just enough to keep people pacified. Without that wealth, he would just be a focus for resentment about many dissatisfactions in Russian life.
If Germany did close the gas pipeline valves at its end, that might be sustainable only until heating season starts in October -- but I'm not at all sure that Putin could stay in power that long.
By The Way, Russia doesn't have infrastructure in place to sell much of its gas anywhere other than Europe. So if Europe stops (or merely reduces) buying, Russia must either shut down the wells, or waste the gas by burning it from flare towers. In the future, Russia will probably sell gas to Asian countries, but it will need years (and quite a lot of cash!) to build the pipelines (and LNG ships).
Durak,,, in one of the links that I posted, it gave some of the ways Putin could retaliate against the US. It was about the “Petrodollar” and how Putin could get the dollar dropped as the standard for oil.
China also fought for this about a year ago,,,, so China and Russia are working together a little bit on this.
If this would ever happen,, the value of the US dollar could plummet!