As the West announces more sanctions and decouples from Russia, The Hindu’s National and Diplomatic Affairs Editor Suhasini Haidar examines whether India should brace for impact.
As the West announces more sanctions and decouples from Russia, should India brace for impact?
Since February 21, when Russian President Vladimir Putin announced the recognition of sovereignty of two Ukraine states and February 24, when he announced military operations on Ukraine, a number of countries have announced a massive list of sanctions against Russia, aimed at “isolating” the Russian economy and cutting off their financial connections entirely.
1. United States was the first to announce a slew of measures from asset freezes, ban on banks and individuals, and then deeper financial sanctions
2. European Union followed the same day with similar actions, more targeted bans on hundreds of individuals, including freezing all European assets of President Putin and FM Lavrov, and snapping travel ties
3. Canada was part of the Western ban, announcing new sanctions on a dozen banks and more than 25 newly designated individuals
4. United Kingdom had a list of its own which is comprehensive
5. Other Non-EU European countries like Switzerland followed suit, saying they adopted EU sanctions
7. Japan joined G-7 countries
8. Singapore was perhaps the last to join on March 5, also banning Russian entities, trade and travel
9. Even Taiwan, not recognised as a country itself put out a list of sanctions joining the US and others
Let’s take a look at the number of measures adopted official and non official against Russia so far. Remember, the US and EU already had a number of sanctions in place since 2014, when Russia annexed Crimea. But the current round of sanctions is no doubt, unprecedented – bigger than ever before.
1. Economic sanctions on Banks- four major Russian banks, and about a dozen others can no longer be used by other countries for transactions- the EU has notably excluded banks like Gazprombank that are used for energy trade, but the US and UK are firm on these as well
2. Exclusion from the SWIFT messaging system for 7 Russian banks- means that Russian banks will be disconnected from banks in all other countries
3. Ban on trade and economic relations with Donetsk and Luhansk newly declared as Republics
4. Sanctions- asset freezes against Putin, Lavrov, members of the Russian parliament or Duma and the government
5. Ban on financial services to designated Russian companies
6. Ban on overflight of EU airspace, and access to Russian planes into western airports- which means no travel into and out of
7. Suspension of broadcast license of State owned Russian media Russia Today and Sputnik, but also cable operators have dropped Russian channels in many countries
8. Ban on Cryptocurrency transactions and NFTs- hard to implement but is there on paper
9. The US announced a ban on all oil and energy imports from Russia- while the US is self sufficient, European countries, especially Germany are not, and did not join. The EU and German however announced they were abandoning the Norstream 2 pipeline project with Russia. Energy companies Shell and BP also said they were withdrawing from Russian business and crude purchases.
10. While these are autonomous decisions, many US companies including McDonalds, Starbucks, Coca Cola Pepsi, also Mastercard, Visa and Amex—about 40 companies in all are either exiting Russia or considering it
11. Sanctions against Belarus as well, for supporting Russian military actions
12. And then there are the social and cultural decoupling- Although EU leaders have said they are not opposed to Russians- Russians in their countries are now facing the brunt of their anger against Mr. Putin: Munich Philharmonic fired chief conductor Valery Gergiev, and New York’s Metropolitan Opera let Russian Soprano Anna Netrebko go because they wouldn’t criticise the war, while the Bolshoi Ballet’s performances in London and Madrid were cancelled.
Put simply, Russia is now the world’s most sanctioned country- With more than 5,300 different sanctions- more than Iran, Syria, North Korea and others.
The hope is of course to put enough pressure on Russia to immediately stop its bombing of Ukraine, withdraw troops and so on… but the impact of this scale of decoupling is not short term, and will be long lasting.
1. Impact on Russian economy- GDP/ Stock Exchange frozen, Ruble dropped 30% to dollar, Inflation rising from 9%
2. Oil and gas Prices- the international oil market has been thrown into a tizzy and has been going up and down but it did hit a high of $139, and overall prices have jumped more than 30% since Feb 24. In 2020, Russia produced about 12% of the world’s oil and about 16% of the world’s natural gas. Russia is the world’s largest oil exporters- about 7million barrels of crude and petroleum products a day- a majority now goes to countries who are supporting sanctions
3. Agricultural exports – Russia is a major exporter- Ukraine also supplies about 12% of global wheat exports and 13% of global corn exports
4. Rare metal and mineral supply- Russia supplies over 40% of the world’s supply of palladium and Ukraine produces 70% of the global supply of neon, both much needed for semi conductor chips
5. Defence Exports: Russia is the world’s second-largest defence hardware exporter, second to the United States, and accounts for 20 percent of global weapons sales, selling to about 30 countries in all
So in which ways must India brace for the impact of the wide ranging sanctions we have spoken of:
1. Oil inflation: The price of oil will go up on the global market- Inflation and food prices have been soaring for some time- and with state elections over, the government is expected to begin raising oil prices again- and the overall domestic economy will be hit by consumer sentiment. In particular, with the US banning Russian oil and depending on its own reserves, US oil will also be more scarce. Now, India doesn’t get much of its energy from Russia at present, but will Russian discounts tempt New Delhi? And what would be the cost of that? In the past, the US succeeded in forcing India to stop taking Iranian oil which was cheaper and sweeter, so that becomes another question.
2. Amidst the uncertainties, the Rupee has crashed to its lowest ever – more than 77 rs to the dollar, and this is going to make imports more expensive. However, India’s non-weapon non-oil Trade with Russia is miniscule, and that will not be affected.
3. Citizens: Now that the government has helped facilitate the return of about 20,000 Indians from Ukraine, lets not forget that there are about 15,000 Indians in Russia as well, and any impact of India’s Foreign Policy choices during the conflict will be felt by them.
4. Choice on sanctions: There are also strategic costs to this sanction regime: Is the world going to be divided between those who follow sanctions and those who don’t? A dollar world and a non-dollar world? A swift bank transaction world and one which uses others – like China’s CIPS and the use of RMB for trade? India has already used banks and rupee ruble trade to pay advances on the S-400 missile systems, will this now be its MO?
5. We’ve dealt enough with the US choices on S-400, but those related to old CAATSA sanctions- what will the US do if India refuses to accept its new sanctions- given 60% of India’s military hardware is from Russia, and needs spare parts from sanctioned entities, that there are more deals in the pipeline, including those that require Russian investment in India, like the one for rifle production, and that India’s most salient defence export at present is the Brahmos missile- just sold to the phillipines.
6. With the West making it clear this is a “with us or against us” type of situation – which way will India go on the multilateral stage? On a previous Worldview we spoke of the impact of India’s abstentions at the UN- So far, India has abstained on 3 UNSC votes, 2 UNGA votes, 2 UN HRC votes, 1 at the IAEA. Will Europe and the US impost costs for this? Remember more and more have said openly that India’s abstention is not neutrality, but a vote for Russia?
7. With Russia more and more cornered, can India count on its traditional partner to have its back, particularly in its dealings with China, and now with Pakistan?
8. With the US, EU, UK more focused on the war with Russia, how much space will they have for cooperation in the Indo-Pacific? President Biden held a Quad summit, and the EU held an Indo-Pacific ministerial last week, but it was clear at both that discussions on Russia’s war in Ukraine were at the top of the agenda.
Clearly the new sanctions unveiled by the West are not just punitive measures- they are bringing down a new version of the Iron curtain that cut Russia and its allies from the West for four decades. India’s choices were easier then, as the world was not as interconnected, but can India continue to brave Western censure, or will it need to revisit its traditional defence and strategic dependence on Russia?