Russian Economy Could Face Strong Shocks In Market Resulting From Actions In The Ukraine

By Darren Smith, Weekend Contributor

Russian FlagFlag of The UkraineThe Group of Seven Nations (G7) agreed to impose new sanctions and move more swiftly against Russia for the state’s actions in The Ukraine. The group accused Moscow of violating the de-escalation measures mutually agreed to during the Geneva Accord designed to reduce tensions in the region.

The powers in North America, Europe, and Japan agreed Saturday to impose new targeted sanctions. In an official statement, the G7 announced:

“Given the urgency of securing the opportunity for a successful and peaceful democratic vote next month in Ukraine’s presidential elections, we have committed to act urgently to intensify targeted sanctions.”

G7 Finance Ministers
G7 Finance Ministers

The market is also beginning to deal blows to Russia’s increasingly perilous economy. Standard and Poors, a benchmark rating service for sovereign debt and other investments, announced that it was cutting the insurance rating due to the risk of Russia defaulting on its debt; lowering its rating to BBB- making it just one step above a junk rating. This is certain to affect large Russian government owned businesses such as Gasprom that supply the nation with hard currency. The reduction of this rating carries an 18% probably of default within the next three years. Russia defaulted on its sovereign domestic debt in 1998 and plunged the nation into a financial chrisis forstering a devaluation of the Rouble and an 84% rise in inflation.

Could Russia later be an example of hard sanctions working as opposed to a much more costly direct action by both sides militarily?

Standard and Poors last downgraded Russian Debt in 2008, after which Russia’s currency and bonds fell in value. S&P in a recently released statement declared:

“The tense geopolitical situation between Russian and Ukraine could see significant outflows of both foreign and domestic capital from the Russian economy and hence undermine already weakening growth prospects.”

How much the economic costs to Russia will be influential on the senior leadership of Russia, who are receiving a popular boost of confidence and support, or whether it could be spun into a scapegoat to the advantage of President Putin, remains to be seen.

But the actions of Russia, the G7, Ukraine and other stakeholders might find themselves in a multifaceted war of attrition in every sense of the word. But if economic warfare might prove to be formidable to deter and oust aggression in the world, it would be a welcome departure of the death and despair inherent in essentially all state conflicts in past history.

By Darren Smith

Sources:

Deutsche Welle
Standard & Poors
Wikipedia

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27 thoughts on “Russian Economy Could Face Strong Shocks In Market Resulting From Actions In The Ukraine

  1. My guess is all the hoopla from the US and G7 will do nothing and Ukraine will be spit. Too many pro russians in that part of the country.

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