New U.S. sanctions put pressure on Russia’s economy

The US has announced new sanctions. This time the Moscow stock market was also affected. How does this affect Russia’s economy?

MOSCOW — “Russia’s war economy is isolated from the international financial system,” US Treasury Secretary Janet L. Yellen said. At the same time, he announced that the United States had imposed new sanctions. From the beginning of the war, the West tried to control Russia’s financial options. This, among other things, caused Chinese banks to distance themselves from their Russian business partners. Now the Moscow stock market is also affected.

Russia is “mortgaging its future” – new sanctions put pressure on Russia’s economy

Background: The latest U.S. sanctions build directly on measures introduced in December aimed at preventing foreign banks from supporting Vladimir Putin’s expansion of the war economy. “Today’s actions affect their (the Russians’, editor’s note) remaining capabilities for international material and equipment transport, including their dependence on critical supplies from third countries,” Yellen announced on June 12, 2024. “We are increasing the risk to financial institutions involved in Russia’s war economy, blocking escape routes, and reducing Russia’s usefulness through access to foreign technology, equipment, software, and IT services.”

According to Yellen, Russia is “mortgaging its future” every day to wage an “unjust war of will against Ukraine.” In response to the sanctions, the Moscow stock market suspended trading in US dollars and euros on Thursday (June 13).

The impact on the economy of Russia – “type of additional tax”

What does this mean for Russia’s economy? Experts believe that Russia should be ready as the US is considering this move from 2022. In Reaction to new constraints The Russian central bank announced that it would continue to return to the Chinese currency, the yuan. The yuan/ruble exchange rate will now determine the rate for other currency pairs due to “the diversion of trade flows and the shift of the settlement currency to the ruble, yuan and other currencies of allied countries.”

This price is now the benchmark for market participants. The bank has also announced that it will suspend trading in the Hong Kong dollar Newsweek.

However, Russia’s economy should not experience a major downturn. Instead, a “phase of transition” will take place, he cited Spiegel Janice Kluk, an expert on the Russian economy at the Berlin Foundation for Science and Politics (SWP), commented on this. The ruble will lose value against Western currencies, and sanctions will make foreign exchange transactions more complicated for Russian companies. Finally, the failure of the Russian stock market means increased costs to the national economy. According to Kluge, this should act as “a kind of additional tax on raw material exporters and importers”.

“Global financial embargo” – America restricts opportunities for Russia’s economy

Despite the high transaction costs that banks and companies will face when trading dollars and euros in the future, there should be no crisis. According to the Russian Central Bank itself, 58 percent of all foreign exchange transactions took place outside the stock market by May 2024 – and the trend is increasing. news agency Reuters According to the report, the sanctions have left a “trough” and are causing high volatility. However, it is still unclear how the sanctions will affect the Russian currency, the ruble, in the long run.

Peter Harrell, a former White House incoming and former senior director for international economics, was quoted by Reuters as saying that the US is moving towards “what looks like an attempt to impose global financial sanctions on Russia”.

In addition, the G7 countries have now agreed to provide new support to Ukraine. It is thought to have come directly from Russian assets frozen in the West. (Laernie with material from Reuters)