Global sanctions hit Russia, but will they chill Utah’s economy?
Unprecedented international economic sanctions targeting Russia following the country’s invasion of Ukraine have triggered a record devaluation of the ruble and caused Russian citizens to line up at banks and ATMs across the country. hoping to cash out amid financial turmoil.
The fallout from the conflict is also likely to have global repercussions, including further increases in the costs of some goods in a US economy that is already experiencing record inflation-fueled price increases.
And some Utah companies that rely on open access to Russian and Ukrainian customers or engage service providers in those countries are struggling to meet the challenges amid the crisis.
Miles Hansen is president and CEO of the World Trade Center Utah and also served for years in various positions at the State Department, including in the former Soviet republic of Armenia.
“We have several Utah consumer products companies that have significant sales in Russia and at least one with double-digit percentages there,” Hansen said. “UPS and FedEx have said they will stop shipping to and from Russia and that’s pushing these companies to figure out how to adjust their business.”
A number of Utah tech companies are using developers in Russia and Ukraine and other local companies that had planned expansions in the region are reconfiguring in the face of sanctions and uncertainty, he said. .
Hansen said he expects sanctions on Russian exports to have the biggest impacts on consumer energy prices, including at gas pumps, but could also hit consumers. other sectors that depend on raw materials or agricultural products produced in the country.
The Russian currency plunged around 30% against the US dollar after Western countries announced measures to block some Russian banks from the SWIFT international transaction messaging system and to restrict Russia’s use of its huge reserves of foreign currencies. The exchange rate then regained ground after the measures taken by the Russian central bank.
But economic pressure tightened when the United States announced new sanctions on Monday to tie up all Russian central bank assets in the United States or held by Americans. The Biden administration estimated the move could impact “hundreds of billions of dollars” in Russian funding.
Hansen said it appears the United States and other Western countries acted on lessons learned from previous sanctions targeted by Russia in 2008, when the country invaded Georgia and again in 2014, to following the Russian annexation of Crimea. While these efforts would have resulted in Russian economic losses amounting to hundreds of billions of dollars, Hansen noted that the strategies ultimately did little to deter Russian President Vladimir Putin’s expansionist plans.
This time around, Hansen said, the U.S. and global response so far has increased significantly over past efforts.
Biden administration officials have said Germany, France, the United Kingdom, Italy, Japan, the European Union and others will join the United States in targeting the Russian central bank and freezing the movement of more than $600 billion in Russian foreign currency assets.
Tyler Kustra, assistant professor of politics and international relations at the University of Nottingham, said he could not recall a similar example from the past of an economy brought to its knees by global sanctions.
“It is the West that is causing a currency crisis for Russia,” said Kustra, who studies economic sanctions.
Russians, fearing the sanctions could deal a crippling blow to the economy, have been flocking to banks and ATMs for days, with reports on social media of long queues and sold-out machines . People in some central European countries have also rushed to withdraw cash from branches of Russian state bank Sberbank after it was hit by international sanctions.
Moscow’s public transport department warned residents of the city over the weekend that they may encounter problems with Apple Pay, Google Pay and Samsung Pay paying fares because VTB, one of the Russian banks making subject to sanctions, handles card payments on the Moscow metro, buses and trams. .
A sharp devaluation of the ruble would mean a drop in the standard of living for the average Russian, economists and analysts have said. Russians are still dependent on a slew of imported goods and the prices of such items are likely to skyrocket, such as iPhones and PlayStations. Foreign travel would become more expensive as their rubles would buy less foreign currency abroad. And the deeper economic turmoil will come in the coming weeks if price shocks and supply chain issues cause Russian factories to shut down due to lower demand.
“It’s going to trickle down to their economy very quickly,” said David Feldman, an economics professor at William & Mary in Virginia. “Anything imported is going to see the local cost of currency skyrocket. The only way to stop it will be heavy subsidies.
Russia decided to produce many goods on its territory, including most of its food, to protect the economy from sanctions, Kustra said. He expected that certain fruits, for example, which cannot be grown in Russia “will suddenly be much more expensive”.
Electronics will be a sore spot, with computers and cellphones having to be imported and costs rising, Kustra said. Even foreign services like Netflix might cost more, although such a company might lower its prices so Russians can still afford it.
In a weekend story for The Atlantic, David Frum wrote that countries cut off from SWIFT, like Iran was in 2012, are effectively thrust back into the pre-computing age – forced to rely on primitive, or “Breaking Bad” style barter transactions. pallets of physical silver, to finance their governments and their economies.
While Russia has some $630 billion in foreign exchange reserves, Frum noted that the country does not control much of those funds. This responsibility lies with foreign central banks, particularly the US Federal Reserve and the European Central Bank, which can effectively prevent Russia from accessing funds under the umbrella of international sanctions.
Frum wrote that the Federal Reserve or the European Central Bank might say, “No. Sorry. Russian central bank money is frozen. No transfer of dollars or euros from the Russian central bank to commercial banks. No transfers from commercial banks to businesses or individuals. For all intents and purposes, you’re broke.
It would be a surprising action, but not without precedent. The United States did this against Iran after the revolutionary regime took American diplomats as hostages in 1979.
The Russian government will have to step in to support declining industries, but without access to hard currencies like the US dollar or the euro, banks and economic sectors may have to resort to printing more rubles. It’s a move that could quickly escalate into hyperinflation.
Kremlin spokesman Dmitry Peskov called the sanctions that included a freeze on Russia’s hard currency reserves “heavy” but said on Monday that “Russia has the potential to compensate for the damage.”
The measures taken to support the ruble are themselves painful because rising interest rates can dampen growth by making it more expensive for companies to obtain credit. Russians who have borrowed money, such as homeowners with mortgages or business owners who have taken out loans, could also be affected by the central bank’s decision to double interest rates, Kustra said. .
Contributor: Associated Press