While the harsh international sanctions imposed by the West on Russia are causing a collapse in the ruble and the local banking system, Putin has put his military on high alert by using nuclear deterrents. Although Ukraine and Russia are holding talks on the Belarusian border, it is doubtful that this will progress. Although both sides decided to continue the second round of negotiations in Belarus, Russia began bombing the major cities of Ukraine.
Russia’s advance into Ukraine has increased geopolitical hostilities between Western allies and Russia and has resulted in sanctions designed to encourage behavior change. Russia-Ukraine tensions are definitely in mind; however, geopolitical tensions are pervasive around the world. China may be watching how things unfold, and depending on how the West reacts, it may feel emboldened to make its own advances. The West aims to exclude Russia from global financial markets by imposing heavy sanctions on the Russian Central Bank and many Russian banks. The ruble lost a significant portion of its value in the process. In addition, the Bank of Russia’s foreign exchange reserves held abroad are largely frozen and inaccessible. The Central Bank of Russia literally doubled the interest rates to 20% in order to defend the ruble and contain the effects of the economic turmoil.
Some energy companies are exiting their operations in Russia, but Western economies have not yet specifically sanctioned Russian oil and gas – making it questionable how the global energy flow will be affected by the consequences of Russia’s invasion of Ukraine. Sanctions on Russia by the US, EU, Japan and other economies have disrupted energy and commodity trade flows, despite penalties not directly targeting such goods. Russia’s position at the epicenter of global oil and gas markets – a leader within the OPEC+ alliance and the main exporter of oil to China and the US and natural gas to Europe – puts rising energy and commodity prices at risk. Removing some of Russia’s leading banks from the SWIFT messaging service could affect some crude trade and flows and make global buyers more hesitant to buy Russian oil and other commodities.
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