New York
DailyExpertNews Business
†
As Western sanctions take root, Russians are bracing for a dramatic shift in their standard of living as their savings plummet and imports of everyday goods quickly cease.
In the past week, several Western companies have shut down their Russian activities to avoid violating sanctions. They also distract potential PR swamps that could result from maintaining ties with a country increasingly seen as a pariah on the global stage.
On Tuesday, Apple said it had stopped selling all of its products in Russia, following similar moves by car and truck manufacturers, including Ford, General Motors, Volvo, Renault and Jaguar. Western oil giants Shell and BP ended joint ventures with Russian counterparts earlier this week. Disney, along with WarnerMedia, DailyExpertNews’s parent company, are pausing film releases in Russia.
In addition to the economic pain, two of the world’s largest container shipping companies, Maersk and MSC, said they are suspending freight bookings to and from Russia, excluding food, medicine and humanitarian supplies.
Those departures, combined with the ruble’s declining value, threaten to stifle the Russian economy and deprive the Russians of crucial foreign goods such as cars, mobile phones, clothing and food. Although the Russian economy is mainly driven by the export of oil and natural gas, it relies heavily on the import of finished consumer products.
The Russian currency plunged about 25% on Monday and one ruble is now worth less than a cent. The weakened ruble is likely to exacerbate inflation, which was well above the central bank’s target before Putin’s invasion of Ukraine.
There are already signs of panic, with multiple reports of residents waiting in long lines at ATMs on weekends. The central bank has prevented a stock sell-off by keeping the stock market closed this week. It has also more than doubled its key interest rate to 20% in an attempt to stabilize the currency.
If history is any indication of how President Vladimir Putin’s regime will respond to a disastrous domestic economy, ordinary Russians may be in for a hard paradigm shift.
After the invasion of Crimea in 2014, Russia responded to Western sanctions with so-called import substitution policies to try to reduce its dependence on foreign goods. While more successful than most Western observers expected, those policies have had mixed results.
“There’s been a fairly successful substitution, mainly for food, and on some other parts that go to industrial goods…but it’s been mostly at the lower end of the economic scale,” said Charles Lichfield, deputy director of the GeoEconomics Center of the Atlantic Council. High-end tech hardware is a frequently mentioned example.
“That’s something where they’re extremely dependent, not on Western carriers per se, but on providers that trade in dollars,” Lichfield said.
The US export restrictions announced last week are designed to hurt Russia’s military progress — without unnecessarily burdening Russian consumers. But the ruble’s collapse is already causing panic in a country that has experienced a similar currency crisis over the past decade.
If the latest sanctions last, Russia is much more likely to double down on domestic substitutes and tell its citizens to simply adapt than it is to negotiate with the West.
“The way they handled it in 2014/15, the way they will deal with it now, is just take inflation on the chin, enact replacement policies, and use the oil revenues to keep government spending going,” said Lichfield.
The Russian government can do that because public opinion is simply not as important to the Putin regime as it is to a Western democracy.
“There’s no real opposition, so the standard of living dropped in 2014/15,” Lichfield said, “but it didn’t really have a political ramification. And I think they expect it to be the same this time.”