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Russia-Ukraine War: Wreaking havoc in Bangladeshs economy - Modern Diplomacy
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border-bottom: 1px solid #B4E7F8;
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span.mvp-widget-home-title,
span.mvp-post-cat,
span.mvp-feat1-pop-head {
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}
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span.mvp-prev-next-label,
.mvp-cat-date-wrap .sticky {
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#mvp-fly-wrap,
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#mvp-main-nav-small .mvp-search-but-wrap span,
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span.mvp-fly-soc-head,
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#mvp-main-nav-small .mvp-nav-menu ul li a {
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nav.mvp-fly-nav-menu ul li a,
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span.mvp-feat-caption,
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span.mvp-author-box-name a,
#mvp-author-box-text p,
.mvp-post-gallery-text p,
ul.mvp-soc-mob-list li span,
#comments,
h3#reply-title,
h2.comments,
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span.mvp-fly-soc-head,
.mvp-post-tags-header,
span.mvp-prev-next-label,
span.mvp-post-add-link-but,
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#mvp-comments-button span.mvp-comment-but-text,
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.woocommerce ul.product_list_widget li a,
.woocommerce #reviews #comments ol.commentlist li .comment-text p.meta,
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.woocommerce span.onsale,
.woocommerce-review-link,
#woo-content p.woocommerce-result-count,
.woocommerce div.product .woocommerce-tabs ul.tabs li a,
a.mvp-inf-more-but,
span.mvp-cont-read-but,
span.mvp-cd-cat,
span.mvp-cd-date,
.mvp-feat4-main-text p,
span.mvp-woo-cart-num,
span.mvp-widget-home-title2,
.wp-caption,
#mvp-content-main p.wp-caption-text,
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span.mvp-author-page-desc,
#mvp-404 p,
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.rwp-u-review__comment,
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.mvp-prev-next-text p,
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h2.mvp-authors-latest a,
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h1.mvp-post-title,
h1.mvp-post-title-wide,
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span.mvp-post-cat,
span.mvp-page-head,
h1.mvp-author-top-head,
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background: #fff;
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background: #000;
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span.mvp-fly-soc-head,
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h1.mvp-post-title,
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color: #000;
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.mvp-nav-links {
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span.mvp-feat1-pop-head {
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span.mvp-feat1-list-but {
transform: none;
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span.mvp-widget-home-title {
transform: none;
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span.mvp-post-cat {
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Russia-Ukraine War: Wreaking havoc in Bangladeshs economy
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<p>
February 24<sup>th</sup> marked one year since the Russian invasion of Ukraine. Although the war took place some 5800 kilometers away, the maelstrom laid bare upheaval in the countrys economic and financial sectors. The severity of the blow of the war was duly felt when <a href="https://www.google.com/amp/s/www.wionews.com/india-news/g20-nations-should-try-and-stop-the-russia-ukraine-war-bangladesh-fm-tells-wion-567397/amp">Foreign Minister A.K Abdul Momen</a> summoned at the world leaders orating, “<em>The war should stop, and G20 nations should try their best to stop the war</em>”, at the G20 Foreign Ministers Meet in New Delhi, of March 2023. &#160;With the onset of war, the price of global commodities have spiked resulting negative impact on both macro and microeconomic dimensions of the country.
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Ever since the war began on February 24, <a href="https://www.google.com/amp/s/www.thedailystar.net/news/world/russian-invasion-ukraine/news/one-year-ukraine-war-undoing-bangladesh-economy-3255641%3famp">inflation averaged</a> 8.14 percent, way higher than the reasonable 5 percent. With this, the taka has depreciated by about 25 percent and reserves have shrunk by about 28 percent. Furthermore, <a href="https://www.icab.org.bd/publication/news/5/490/Russia-Ukraine-War-Impact-on-Bangladesh%E2%80%99s-Economy">BDT&#160; lost value</a> against the dollar by 10.08%. Since the advent of war, during the ­first nine months (July-March) of the <a href="https://www.icab.org.bd/publication/news/5/490/Russia-Ukraine-War-Impact-on-Bangladesh%E2%80%99s-Economy">2021-22 ­fiscal year</a> import payments increased by 44% whereas export income increased by 33% and remittances has fallen by 18%. Being a trading country and highly import dependent for fuel and industrial raw materials, many companies have been facing trouble in opening LCs since banks are unwilling to open LCs due to forex shortages.
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Bilateral trade with Russia, <a href="https://thefinancialexpress.com.bd/views/opinions/war-in-ukraine-to-spell-trouble-for-bangladesh-economy-1646497018">US$1.14 billion</a> in the last fiscal year (FY21), is small compare to Bangladeshs total global trade worth US$ 104.35 billion. Understandably, disruption in trade, especially export, will be costly.&#160; In the last fiscal year, Bangladesh exported $665.30 million to Russia of which around 95 per cent was textile and clothing. Due to war, it has been difficult to continue the export as cost of shipping has likely surged. Bangladeshi exports to Russia <a href="https://www.businessinsiderbd.com/trade/news/30571/bangladesh-for-alternative-payment-system-to-keep-trading-with-russia-official">started falling</a> in March 2022 and it is likely to fall drastically in fiscal year (FY) 2022-2023.
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The more challenging has been retaining the export receipts as the United States (US) along with European Union (EU) has imposed sanctions on Russian banks to cut off the country from the global financial system.
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The negative impact of the financial sanction on Russia will disrupt the <a href="https://thefinancialexpress.com.bd/views/opinions/war-in-ukraine-to-spell-trouble-for-bangladesh-economy-1646497018">Rooppur nuclear power plant</a> project, the largest project with Russian credit in Bangladesh worth US$ 11.38 billion. Already the Russian bank, Bank for Development and Foreign Economic Affairs (VEB)&#160; has asked Sonali Bank, which transacts the fund for the project to hold up transactions for the time being. The Russian counterpart is facing sanctions regarding the SWIFTs service.
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<p>
Where the global commodity price have hiked, the net income of industrial workers has <a href="https://www.google.com/amp/s/www.thedailystar.net/news/world/russian-invasion-ukraine/news/one-year-ukraine-war-undoing-bangladesh-economy-3255641%3famp">decreased to 30-40 percent</a> since the inception of the war due to inflation, according to Anu Mohammad, a former professor of Jahangirnagar Universitys economics department.
</p>
<p>
In order to combat the economic stagnation, Bangladesh Bank is on the lookout for an alternative payment system for carrying out smooth trade and commerce between Dhaka and Moscow. Russian has a few <a href="https://www.businessinsiderbd.com/trade/news/30571/bangladesh-for-alternative-payment-system-to-keep-trading-with-russia-official">experimental</a> international transaction method employing bartering, cryptocurrency with Brazil, Indonesia and a few of the African countries. The Russian authorities and companies are inventing new ways to stop relying on dollars and euros and increasingly turning to Chinese yuan and Bangladesh is considering to opt for the alternative method to get the economic wheel moving.
</p>
<p>
Economic hullabaloo along with geo-political complexities are heaped and piled as Bangladesh is concurrently dealing with the two fronts. With the Western sanction incumbent upon Russia, Bangladesh is faced with both economic and political quandary.
</p>
<p>
Bangladesh has been walking on a tightrope at the geopolitical front. Recently, Bangladesh has found herself in hot waters regarding the issue of Russian ship Ursa Major, among the <a href="https://www.google.com/amp/s/www.indianarrative.com/world-news/ukraine-war-echoes-in-dhaka-strains-russia-bangladesh-ties-112773.html/amp">69 ships</a> facing western sanction. Bangladesh, in line with the sanctions has agreed not to allow any of the ships targeted by the sanctions from sailing into Bangladesh waters. The&#160; ship carrying much needed raw materials for Bangladeshs Rooppur nuclear power plant, was not allowed into Bangladesh by Dhaka, clearly under pressure from the US authorities. The move did not make President Putin and his government happy. The outcome was the <a href="https://www.google.com/amp/s/www.indianarrative.com/world-news/ukraine-war-echoes-in-dhaka-strains-russia-bangladesh-ties-112773.html/amp">summoning</a> of &#160;Kamrul Ahsan, Bangladeshs Ambassador to Russia to the Foreign Ministry in Moscow.
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<p>
Under this geopolitical rubble, Bangladesh has been maneuvering her foreign policy carefully not to disrupt the delicate power balancing. With coming days, the mantle is at the hands of the international community to effectively put an end to the war. In an increasing interdependent and multilateral world, ostracizing one country will not beget any long-term benefit. Polarization will only increase alienation of the smaller states which will inevitably risk a rule-based, multilateral Western world order. Ergo, in the light of such ethos the world leaders must commence effective and peaceful measures to stop the war and end the plight of global community.
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Syeda Noshin Sharmily is pursuing her bachelors in International Relations at University of Dhaka. Her field of interest includes international politics, political economy, international regime. She can be reached at @noshin.sharmily07[at]gmail.com
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<h1 class="mvp-post-title left">
Potential Implications of the Bangladesh-Bhutan Transit Agreement
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On March 22<sup>nd,</sup> 2023, Bangladesh and Bhutan signed a transit agreement. Under the agreement, Bhutan can <a href="https://www.thedailystar.net/business/economy/news/bangladesh-bhutan-sign-transit-deal-3278531">use</a> Bangladeshs land, air, and waterways to move goods to and from a third country in exchange for transit fees. As Bhutan is landlocked, it generally relies on its neighboring states for transit. In this context, the transit agreement will bring benefits to Bhutan in several aspects. On the other hand, providing a transit facility to Bhutan will also financially and politically benefit Bangladesh. Bhutan is the second country after India to avail of transit facilities from Bangladesh. Against this backdrop, it is worth assessing the potential implications of this transit agreement for both Bangladesh and Bhutan.
</p>
<p>
<strong>The Agreement</strong>
</p>
<p>
The agreement was signed on March 22<sup>nd</sup> at Bhutans Capital, Thimpu. Bangladeshs Commerce Minister Tipu Munshi represented Bangladesh while Minister for Industry, Commerce and Employment Lyonpo Karma Dorji <a href="https://www.newagebd.net/article/197487/bangladesh-bhutan-sign-transit-agreement">represented</a> Bhutan. Under the agreement, Bhutan will avail Bangladeshs land, air, and water routes for moving goods to and from a third country. In return, it will pay Bangladesh required fees and taxes.
</p>
<p>
According to the newspaper report, Bhutan will mainly use Mongla Sea Port and land and waterways from there. The agreement is also important for bilateral relations as Bangladesh and Bhutan <a href="https://www.tbsnews.net/economy/bangladesh-bhutan-pta-effective-1-july-415750">signed</a> a Preferential Trade Agreement in 2021.
</p>
<p>
<strong>Potential Implications for Bhutan</strong>
</p>
<p>
As Bhutan is a landlocked South Asian state, it requires cooperation from bordering and neighboring states to meet its export and import. In this aspect, the transit agreement will increase its cooperation with Bangladesh. Bhutan mainly relied on India to move its goods for a long time. Signing a transit agreement with Bangladesh will diversify its trade route. Moreover, Bhutan will greatly benefit by reducing its transit dependence on India. Due to the Sino-Indian rivalry over Bhutan, reducing transit dependence on India will also benefit Bhutan politically by easing geopolitical tension. The transit agreement will also increase trade relations between Bangladesh and Bhutan as Bhutanese traders will maintain close contact with their Bangladeshi counterparts for logistical support.
</p>
<p>
<strong>Potential Implications for Bangladesh</strong>
</p>
<p>
The agreement will increase commercial activities at Mongla Port. As a result, the agreement will help Bangladesh to utilize Mongla Port properly. Apart from Mongla Port, the agreement will also likely to increase commercial activities at the river ports. Moreover, moving Bhutanese goods will also increase the Bangladesh governments revenue through collecting taxes and transit fees.
</p>
<p>
Besides revenue, fees, and taxes, it will also contribute to the local economy. Moving Bhutanese goods will increase business for the transport sector of the country. New ventures of facilitating transit will also open new jobs at the local level. The roadside economy also has the scope to find extra profit. It is worth mentioning that the agreement opens up the scope, but the benefits Bangladesh and Bhutan would receive depends on the volume of goods Bhutan moves through Bangladesh.
</p>
<p>
In terms of bilateral relations, the agreement will enhance relations between Bangladesh and Bhutan. This is the second agreement in two years for the countries. In 2021, Bhutan and Bangladesh signed Preferential Trade Agreement (PTA) among them. Both countries are also <a href="https://www.newagebd.net/article/197487/bangladesh-bhutan-sign-transit-agreement">discussing</a> currently the possibilities of increasing agricultural trade among them.
</p>
<p>
Apart from bilateral and financial gains, the agreement will also diversify Bangladeshs transit obtainer list. Before Bhutan, Bangladesh only had one transit obtainer, India. A diverse transit list will allow other states such as Nepal to initiate negotiations.
</p>
<p>
The agreement will also serve as an influence on regional connectivity. For a while now, Bangladesh and other Asian states are promoting trans-Asian connectivity through a network of road connections, transit facilities, and transshipment facilities. Bangladeshs opening its trade routes to other South Asian states would serve as an example and inspiration for future regional connectivity also.
</p>
<p>
The agreement will not only benefit the signatory countries but also the region, South Asia. In South Asian politics, there is an effort to promote connectivity and regional trade. In larger Asian Politics, there is also an effort to promote connectivity and regionalism. So, the transit agreement will inspire future efforts and serve as a reference for future negotiations. The agreement will also become a milestone for Bangladesh-Bhutan bilateral relations, especially after the PTA agreement of 2021. Therefore, it is a praiseworthy agreement.
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Published
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on
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By
</p><span class="author-name vcard fn author" itemprop="name"><a href="https://moderndiplomacy.eu/author/antoniograceffo/" title="Posts by Antonio Graceffo" rel="author">Antonio Graceffo</a></span>
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<em>“Apply this</em> <em><a href="https://www.americanforeignrelations.com/E-N/Embargoes-and-Sanctions-On-sanctions.html">economic</a></em><em>, peaceful, silent, deadly remedy and there will be no need for force. It is a terrible remedy. It does not cost a life outside of the nation boycotted, but it brings a pressure upon that nation.”</em> — Woodrow Wilson
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Economics has always played a role in wars. In the American Revolution, blockades were used to prevent nations from trading, in order to cause shortages and prevent treasuries from replenishing their gold reserves. In the Ukraine war, however, economics has played an especially significant role, allowing the United States and its allies to take on Russia without losing a single life, and inflict more damage than carpet-bombing could, albeit more slowly. Moving forward, it seems that economics will play a greater role in future wars. China is Washingtons other major adversary, so Beijing is most likely watching what unfurls in Russia. Xi Jinping is surely asking himself if China could withstand similar sanctions, if they were imposed in response to an attack on Taiwan.
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Since the invasion of Ukraine, the U.S. and its allies have levied some <a href="https://www.npr.org/2023/02/27/1159630187/since-russia-invaded-ukraine-allies-levied-more-than-11-000-sanctions-on-russia">11,000 sanctions</a> against Russia. The economic aspect of this war has been dubbed <a href="https://www.cbc.ca/news/politics/ukraine-russia-economy-gdp-electricity-grid-1.6761937">the third front</a> by Matthew Schmidt, a former lecturer at the U.S. Command General Staff College. Although sanctions by themselves are not expected to defeat Russia, they had a negative impact on the countrys economy last year and are expected to have an even greater impact this year.
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The first sanctions imposed by the U.S., shortly after the war began, prevented the sale of most commodities and technology to Russia. Western banks and companies were <a href="https://www.csis.org/analysis/russia-sanctions-one-year">prohibited from transactions</a> with many of Russias largest banks. Numerous Russian financial entities were removed from the SWIFT international payment system. Financial institutions were no longer permitted to extend credit to certain major Russian corporations. The Kremlins foreign currency reserves, held in Western banks, were frozen. And trading in Russian government bonds was banned.
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In the early stages of the invasion, the World Bank and other authorities forecast that the Russian economy would contract by <a href="https://www.cbc.ca/news/politics/ukraine-russia-economy-gdp-electricity-grid-1.6761937">8 to 10 percent</a>. The Russian central bank, however, moved quickly to insulate the economy and stabilize the currency. The government <a href="https://www.wsj.com/livecoverage/russia-ukraine-latest-news-2022-05-24/card/russia-moves-ahead-with-bill-on-nationalizing-assets-of-foreign-companies-OQ8d2B8n2MlAdNKwQRKf">nationalized assets</a> of foreign companies that left country. Russian banks increased interest rates <a href="https://www.csis.org/analysis/russia-sanctions-one-year">to 20 percent</a>. Restrictions were placed on the conversion of rubles into dollars, while companies were forced to convert 80 percent of their dollar holdings to rubles. And although the currency took an initial dive, by summer it had recovered.
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An unintended consequence on sanctions preventing exports to Russia was that they prevented capital from leaving the country. With export revenues rising from skyrocketing oil prices and little money being spent on imports, by November, Russia had developed a major trade surplus. Oil and gas revenues were <a href="https://www.aljazeera.com/opinions/2023/2/28/russia-after-a-year-of-sanctions">up 28</a> <a href="https://www.aljazeera.com/opinions/2023/2/28/russia-after-a-year-of-sanctions">percent</a>, while the GDP continued to grow.
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In December, this all changed, when Russias balance sheet was hit with a trifecta of bad news. Oil prices went into sharp decline, the EU imposed an oil-price cap, and Moscow completed its accounting for its war expenses. Suddenly, GDP growth was <a href="https://www.aljazeera.com/opinions/2023/2/28/russia-after-a-year-of-sanctions">negative 2.1</a> <a href="https://www.aljazeera.com/opinions/2023/2/28/russia-after-a-year-of-sanctions">percent</a> in 2022.
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In 2021, Russia provided 17.5 percent of the worlds oil, 47 percent of its palladium, “<a href="https://www.aljazeera.com/opinions/2023/2/28/russia-after-a-year-of-sanctions">16.7 percent of nickel</a>, 13 percent of aluminum, and almost a quarter of potash fertilizers.” Restrictions of these raw material exports would be devasting for the global economy, and so the harshest sanctions were placed on less crucial commodities: steel, coal, and processed wood exported to Europe. Combined, they made up just 11.7 percent of Russias exports. Consequently, the effect was not as damaging as it could have been. On the other hand, these restrictions put tremendous economic pressure on specific regions of Russia where the mines, processing, and manufacturing plants are located.
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Moscow mitigated the impact on the domestic economy by increasing public expenditure by <a href="https://www.aljazeera.com/opinions/2023/2/28/russia-after-a-year-of-sanctions">32 percent</a>. During 2022, the Kremlin increased planned budgetary spending by $113 billion, roughly half of which went to the military. The rest of the money went to increased social payments, including aid to families with children. This spending created a budget deficit of about $50 billion which was covered by withdrawals from the <a href="https://www.aljazeera.com/opinions/2023/2/28/russia-after-a-year-of-sanctions">National Wealth Fund</a>.
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The year ended not as badly for Russia as had been predicted by Western experts, but much worse than the Kremlin had hoped. New car production <a href="https://www.aljazeera.com/opinions/2023/2/28/russia-after-a-year-of-sanctions">decreased 59</a> <a href="https://www.aljazeera.com/opinions/2023/2/28/russia-after-a-year-of-sanctions">percent</a>, while <a href="https://www.csis.org/analysis/russia-sanctions-one-year">airplane production</a> is down at least 25 percent. Only about 30 percent of machine tools are manufactured in Russia, and the <a href="https://www.csis.org/analysis/russia-sanctions-one-year">machine building</a> industry is believed to have contracted by 10 percent last year. The pharmaceutical industry is roughly 80 percent dependent on imported raw materials. Consequently, medicines are in short supply. Spare parts are running out, and as repairs are needed more and more vehicles and machines will have to be taken out of commission. Western restrictions on the sale of <a href="https://www.csis.org/analysis/russia-sanctions-one-year">dual-use technology</a> have impacted the manufacture of military equipment. For now, Russia may still be using up its Soviet-era surplus, but once that runs out, it will be difficult to manufacture more modern weapons and equipment. GPS modules and microchips are among the items which can no longer be sold to Russia and which they will find it hard to manufacture themselves. Unmanned aerial vehicles (UAVs), which have played a large role in the Ukraine war, will be difficult to build without Western technological inputs. Drones, such as the KUB-BLA “kamikaze” UAV, the E95M, and the Orlan-10 UAV, all rely on imported technology.
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Oil production is <a href="https://www.aljazeera.com/opinions/2023/2/28/russia-after-a-year-of-sanctions">up 7 percent</a> since the beginning of the year, but this may be due to increased demand from the Russian military. However, with reduced exports to Europe, production is expected to decrease by 7 to 8 percent by the end of 2023. The European oil price cap is in place, meaning that no oil can be sold to Europe for more than <a href="https://www.csis.org/analysis/russia-sanctions-one-year">$60 per barrel</a>. European and allied insurers and merchant vessels will not carry Russian oil which is priced higher than $60. Since the cap was put in place in December 2022, Russian oil revenues have fallen by 17 percent. Russia is now relegated to trading with countries not participating in the price cap, India and China being the largest buyers. To attract buyers, Russian oil has to be priced below the market price for oil. At the same time, global gas and oil prices have decreased <a href="https://www.aljazeera.com/opinions/2023/2/28/russia-after-a-year-of-sanctions">by 43 percent</a> since their 2022 peak. Now, not only does Russia have to sell below this lower global price, but in order to bypass sanctions, gas and oil have to travel the long way round to India. This adds one month and <a href="https://www.csis.org/analysis/russia-sanctions-one-year">about $10 per barrel</a> to the cost.
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According to most analysts, the economy is expected to <a href="https://www.csis.org/analysis/russia-sanctions-one-year">decline 2.3 percent</a>. However, this contraction could be worse if Russia does not find additional markets for its exports. Professor Jeffrey Sonnenfeld from Yale School of Management told <a href="https://www.youtube.com/watch?v=QU0resswOds">Deutsche Welle</a> that much of the data used by the IMF, World Bank, and other international organizations to make their predictions is provided by the Kremlin. His independent research on the state of Russias economy suggests that the picture is much worse than that believed by many observers. One point he made is that there is <a href="https://www.youtube.com/watch?v=QU0resswOds">no market for rubles</a>, not even a black market. Consequently, there can be no price for rubles. The official rate is 75.4 rubles to the dollar, but since none of the exchanges are accepting rubles, where does this price exist?
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The Moscow Stock Exchange (MOEX) is <a href="https://simplywall.st/markets/ru">down 38 percent</a> since last year. Sonnenfeld speculates that the only reason it has not declined more is because foreigners are not allowed to sell their holdings. In reaction to the restrictions put on sales by foreigners, the U.K. revoked <a href="https://www.rferl.org/a/moscow-stock-exchange-uk-status-revoked/31835607.html">MOEXs status</a> as a recognized exchange.
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The retail sector is down by <a href="https://tradingeconomics.com/russia/retail-sales-annual#:~:text=the%20prior%20month.-,In%202022%2C%20retail%20sales%20declined%20by%206.7%25%2C%20the%20most,Ukraine%20and%20enduring%20international%20sanctions.">at least 6.6 percent</a> overall while the <a href="https://re-russia.net/en/review/133/">non-food sector</a> is down 15 percent. But it is important to remember that these numbers are nominal sales revenues, so they are based on higher prices resulting from inflation. Accordingly, the total quantity of goods purchased and consumed by the average Russian has declined by even more than the sales figures suggest — and these numbers are expected to get worse.
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Between the oil price cap and the additional cost of shipping oil all the way to India, Russia is barely breaking even. Consequently, Sonnenfeld believes that there is very little money coming in, and a lot of money is being spent on the war and on job creation, as the public sector has absorbed people who were made redundant as a result of the slowing economy. Public sector employment has increased by <a href="https://fortune.com/2023/02/17/economy-economy-losing-190-billion-putin-ukraine-invasion/">300,000</a> since the war started, not counting the 300,000 called up to military service.
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In the second year of the war, Russian defense spending is expected to reach <a href="https://www.csis.org/analysis/russia-sanctions-one-year">5 percent of GDP</a>, while the deficit is expected to be <a href="https://www.csis.org/analysis/russia-sanctions-one-year">1.5 percentage points</a> above Moscows projections of 2.3 percent. The <a href="https://www.aljazeera.com/opinions/2023/2/28/russia-after-a-year-of-sanctions">2023 budget deficit</a> could be covered by withdrawals from the National Wealth Fund, but the Kremlin has already spent about a quarter of the fund, with only $87.2 billion remaining in liquid assets. With the international sale of Russian government bonds prohibited, raising taxes and cutting social programs may be the only options left. Last year, the government increased social spending, to placate the populace and make them more amenable to the war. Reversing those policies may cause a public backlash.
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<p>
Samuel Charap, a senior political scientist at the <a href="https://abcnews.go.com/Politics/ukraine-war-sanctions-russia-worked-gradually-increasing-weapons/story?id=97269335">RAND Corporation</a> and a former senior advisor at the U.S. State Department, said he believes that Russia has been able to withstand sanctions so far, because they have been imposed gradually, over a period of a year, providing Moscow with time to adjust. According to Brad Bowman, senior director of the Center on Military and Political Power at the Foundation for Defense of Democracies, sanctions have to be <a href="https://abcnews.go.com/Politics/ukraine-war-sanctions-russia-worked-gradually-increasing-weapons/story?id=97269335">comprehensive and consistent</a>; otherwise, if one entity is sanctioned, business will just shift to another. A black market is helping Russia bypass sanctions, with <a href="https://www.csis.org/analysis/russia-sanctions-one-year">semiconductors</a> coming in from Turkey, China, and Hong Kong. Mysterious <a href="https://foreignpolicy.com/2022/11/23/how-greek-companies-and-ghost-ships-are-helping-russia/">ghost ships</a>, with hidden registrations and origins, having been transporting Russian oil. And China is suspected of planning to provide Moscow with weapons.
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In his opening statement at the U.S. Senate <a href="https://www.scott.senate.gov/media-center/press-releases/scott-america-must-strengthen-national-security-with-economic-tools">Committee on Banking, Housing, and Urban Affairs</a> hearing on national security, Ranking Member Tim Scott (R-S.C.) said that existing, secondary sanctions need to be enforced against China, India, Iran, Turkey, and other countries which are known to be supporting the Russian economy.
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Rachel Ziemba, an adjunct senior fellow for economics and security at the Center for a New American Security, said that sanctions were never intended to be a “<a href="https://www.npr.org/2023/02/27/1159630187/since-russia-invaded-ukraine-allies-levied-more-than-11-000-sanctions-on-russia">silver bullet</a>” destroying Russia and ending the war. They were meant to weaken Russia, in combination with military action on the ground. The sanctions on Russia will not cause an outright collapse but will severely limit GDP growth and set the country back many years in terms of technological development. A final victory, however, will depend on the U.S. and its allies continuing to support Ukraine.
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This war can be seen as a battle of economic attrition between Russia and Ukraine. Whichever country collapses first will lose. Ukraines economy contracted <a href="https://www.nytimes.com/2023/01/06/world/europe/ukraine-economy-russia.html#:~:text=The%20country's%20economy%20shrank%20by,the%20Soviet%20Union%20in%201991.">by 30.4 percent</a> in the first year of the war. Around <a href="https://cream-migration.org/ukraine-detail.htm?article=3573#:~:text=People%20fleeing%20Ukraine&amp;text=Around%208.1%20million%20people%20have,since%20returned%20to%20the%20country.">8 million people</a> who have fled the country, while 5.4 million are <a href="https://www.migrationdataportal.org/ukraine/crisis-movements#:~:text=As%20of%2023%20January%202023,Ukraine%20(IOM%2C%202023).&amp;text=5.9%20million%20IDPs%20within%20Ukraine,2022%20IOM%2C%202022a).">internally displaced</a>. The electricity grids are threatened. Manufacturing is in contraction, plagued by uncertain logistics and transportation. There is no way that Kyiv could resurrect the economy, much less feed the entire population, without help from outside. And this brings us to the other aspect of the economic war. At the same time that the Western allies are breaking the Russian economy, they are propping up Ukraine. U.S. Treasury Secretary Janet Yellen stated that <a href="https://www.cbc.ca/news/politics/ukraine-russia-economy-gdp-electricity-grid-1.6761937">U.S. financial support</a> was necessary to keep the Ukrainian government afloat. So far, the U.S. has provided at least <a href="https://abcnews.go.com/Politics/ukraine-war-sanctions-russia-worked-gradually-increasing-weapons/story?id=97269335">$25 billion</a> in assistance, while President Joe Biden has asked congress to approve more. Yuliya Pavytska, an economic analyst at the <a href="https://www.cbc.ca/news/politics/ukraine-russia-economy-gdp-electricity-grid-1.6761937">Kyiv School of Economics</a>, confirmed that the Ukrainian economy was dependent on aid from the West, but she defiantly stated that it would not collapse.
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The economic war in Ukraine serves as a warning to Chinas Xi Jinping. Although this second year of sanctions will most likely be more damaging to Russia, the reason Russia has not collapsed yet is because it has unique advantages which China lacks. First off, Russias debt-to-GDP ratio was extremely low, <a href="https://www.aljazeera.com/opinions/2023/2/28/russia-after-a-year-of-sanctions">less than 20 percent</a>, whereas Chinas debt is around 300 percent of GDP. Next, much of Chinas exports are manufactured by foreign companies in China. If foreign companies exited China, as they did in Russia, this would severely slash Chinas manufacturing base, exports, and GDP. For example, if Nike pulled out of China tomorrow, the factory would still be there and a Chinese company could take it over, but what product would they manufacture and would the world agree to buy that product, as opposed to Nike products manufactured in India,Vietnam, or Indonesia?
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Sanctions on Russian imports were slow to be applied to Russias most important source of revenue, oil and gas. Europe could do without Russian manufactured goods, but was dependent on Russian energy. Chinas exports, however, mostly consist of consumer products which could be produced elsewhere. Even essential products from China, like pharmaceuticals, or essential services, such as processing of raw materials, can be done elsewhere. When the supplies from China are cut off, the price will increase, making manufacturing anywhere, even in the U.S. or Europe, more attractive.
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The first round of sanctions prevented Russia from importing foreign products and raw materials. And while these restrictions are making it more difficult for Russia to service and repair its existing infrastructure and equipment, Russia, unlike China, is a resource-rich country. Raw materials account <a href="https://wits.worldbank.org/CountryProfile/en/Country/CHN/Year/LTST/Summarytext#:~:text=China%20Raw%20materials%20imports%20were,%2C%20product%20share%20of%2014.95%25.">for over 25 percent</a> of Chinas total imports, while intermediate goods account for 19.25 percent. Without these, Chinas manufacturing sector would grind to a halt.
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The blueprint for economic war was developed over a period of centuries. The Ukraine war is serving as a lab test. The allies will adjust and tweak the technique, making it one of the most powerful weapons to be deployed in future wars.
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<span class="mvp-cd-cat left relative">Defense</span><span class="mvp-cd-date left relative">3 days ago</span>
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