Economic Policy of the Russia-Ukraine Conflict

By: Eva Kroh

Economic policy is the reasoning behind a government/state's actions to influence another state, city, or people. On Thursday, Feb 24, 2022 Russia invaded sovereign Ukrainian territory. Previous to this invasion USA intelligence had watched as hundreds of thousands Russian troops and blood banks lined the Ukraine-Russia border. It was clear that Russia was planning an invasion. Putin dissembled his reasoning for this aggression and escalation under the pretext of ‘saving ethnic Russians from genocide’ declaring the need that Russians and Ukrainians are ‘one people’. Russia’s occupation of Ukrainian territory such as Kherson and attempts to over take Kiev, Maripol, and Odessa have resulted in outrage in the international community. Many states have resulted in public condemnation of Russia’s actions and have implemented sanctions. While many politicians and aides argue the effect this will have of Putin’s actions, the economic total it has taken on the Russian economy is evident. 

  States such as the USA, EU, Japan, Canada, Taiwan, and New Zealand have all introduced sanctions targeting Russia’s import and exports of goods. Essentially these countries toil with Russia's balance of trade. Vital to any economy the balance of trade is the amount of money paid for imports and the amount of money received from exports. Each country aims to achieve a surplus of money from their exports, wanting a net gain that can be invested into other infrastructure or institutions within the state. Russia's main exports include oil, gas, and wheat. When states such as Germany freeze agreements like the Nord Stream Pipeline it hinders the Russian economy and the predicted 9.5 billion euros Russian’s sought to gain is lost as a result of military aggression. When countries work in unison all rallying sanctions against Russia, it effectively isolates and prevents them from accessing necessary materials such as motor parts/vehicles or electrical machinery causing for Russian consumers to be unable to buy what they desire, and causing the price of goods to sore making them inaccessible to average income Russians. Currently Russia’s balance of trade has been significantly weakened through sanctions prohibiting the selling of Russian products world wide. In a UN security council meeting this was most evident as Bloomberg reported “Russia’s veto was harshly criticized by U.S. Ambassador Linda Thomas-Greenfield. “You can veto this resolution, but you cannot veto our voices,” Thomas-Greenfield said. U.K. Ambassador Barbara Woodward added, “Make no mistake, Russia is isolated.” Aside from states abstaining from the conflict such as China, UAE and India, Russia has been barred from importing and exporting internationally. Additionally the country has been restricted in their use of the SWIFT  (Society for Worldwide Interbank Financial Telecommunication)  messaging system, a secure international banking system. So far, seven major Russian banks are banned from SWIFT and do not have access to international markets. Making individual Russian companies limited in the ability to receive money from exports or investing money in international cooperations. Russia’s restrictions on trade have resulted in the value of the ruble plummeting. Since the invasion, the ruble’s value has decreased by 30% (in comparison to the USD) and continues to fall. 

However, economic policy can easily become twisted and intertwined with what may seem like unrelated issues/policy. For example, not all Russian banks have been banned from SWIFT. Russian banks related to the energy sector have been spared. Clear to most is the EU’s dependence on Russia oil and gas. As the New York Times states “Russia provides the European Union with nearly 40 percent of its natural gas and more than 25 percent of its crude oil.” This highlights the EU’s need for Russian natural resources. By sparing the energy sector the EU continues to receive vital energy. As Russian forces continue to advance into Ukraine, tensions continue to rise, fears that Putin will halt natural resources to Europe build which could be catastrophic to European economies, having ripple effects across the world. 

The Russia-Ukraine conflict evinces reciprocity in daily international relations. As a result of Russia’s aggression western countries use economic sanctions as a form of deterrence in hopes of slowing and preventing further advancement into Ukrainian sovereign territory. Overall, Putin's attempts to demonstrate Russia’s social and military dominance has been met with fierce resistance from alliances like NATO supplying lethal weaponry and funds, domestic and international outcry to stop the invasion, and an array of economic sanctions. However, simultaneously western government continues to look after their own. In the coming days the world watches eager to see the next steps in the conflict and the economic aspects of the Russian-Ukraine invasion.