(by Sukhveer Singh, an IAS officer, 1st June, 2022)
Global stock markets are trading down 20-30 percent in concern about the economic slowdown. The cost of living has gone up. Food inflation has made life difficult for the poor. The Russo-Ukraine War and the supply chain disruption caused by Covid-19 have challenged the globalisation process. Many countries are moving towards self-reliance and adopting protectionism. The best example is Malaysia banning palm oil. India’s ‘self-reliant campaign’, imposing an export duty on steel and controlling sugar exports, is also inspired by this.
War and economic sanctions
Russian President Putin wanted Western countries and (North Atlantic Treaty Organisation) NATO not to spread their influence toward Russia. He also stressed that Ukraine should be a neutral state, and being a Russia-Europe corridor; it should be a buffer state. Western countries have consistently defended their ‘open-door policy’ for European states to join NATO. According to the history of the Ottoman Empire, Russia believes that eastern Ukraine is ancient Russian land. Russia has been threatened with war and economic sanctions in return by the US and Europe.
The ‘prisoner’s dilemma theory explains why two competing countries did not cooperate, even if it was clear that it was in the best interest of both of them. A classic example of this theory is when two suspects in a crime are kept in separate cells in a police station and given the option to confess and testify against the other if one of them confesses to the crime. If he agrees, he will be absolved of the charges. If both confess, then both will be punished. And if either of them does not accept, they will be penalised with a minimum penalty. It is found that they do not cooperate. And both face punishment.
Similarly, Western countries and Russia exchanged their opinions and threats through the media but did not meet at the table to discuss resolving them. Russia declared war on Ukraine, while the United States imposed sanctions against Russia for aggression in Ukraine to punish, coerce, and prevent it from combat. Economic sanctions are seen as a low-cost and low-risk alternative. However, it has had unintended consequences on people’s lives. But, how do we categorise economic sanctions?
In his book ‘On War’, General Karl von Clausewitz of Persia has said that war is a ‘means to an end’ rather than an ‘end’. He claims that war is ‘a politics in various ways. Therefore, war is nothing but a continuous process of pursuing political objectives, including economic sanctions, military conflict, and non-military means. Both parties are furthering their political and economic interests in such a situation. Military conflict and economic sanctions are both a type of war. Also, many countries see this entire conflict as between Russia and the West and not between Russia and Ukraine.
Effects of war and economic sanctions on Russia and Ukraine
The UNDP has warned that if the Russia-Ukraine conflict continues, it could ruin nearly two decades of economic development gains for Russia and Ukraine. The war is causing unimaginable human suffering, tragic loss of life, and displacement of millions of people. The United Nations estimates that about three out of ten people in Ukraine need life-saving humanitarian aid. Ukraine has a total population of about 45 million, of which more than 7 million people have already migrated, and 18 million are likely to be affected by the war. The United Nations says that as of April 16, 2022, 1982 have lost their lives, and 2651 have been injured. War is hurting.
Economists believe that the sanctions will have a devastating effect on the Russian economy. Many Russians will lose their jobs. The rise of inflation and the destabilising ruble will hurt the economy’s growth for an extended period. The research findings suggest that in 2022, Russia’s economy will shrink from 12 percent to 16.5 percent due to reductions in industrial production, investment, and consumption, and these sanctions will act as collective punishments. It would be difficult for average Russian citizens to buy daily necessities like food and clothes.
Impact of economic sanctions on emerging economies
America’s dependence on sanctions can be traced to the costly wars fought in Vietnam, Iraq, and Afghanistan. America has not won any of these wars, but domestic politics has been adversely affected due to high expenses. Economic sanctions are easy to impose and relatively free from the US point of view. The dollar’s centrality in global trade and finance makes it easy and practical to implement. Thus, imposing economic sanctions is not a sanction imposed by Western countries on moral or humanitarian grounds but a strategic choice on political and economic grounds. Thus, imposing economic sanctions is not a ‘crusade’ as claimed.
What’s different this time is that even private companies like Visa, McDonald’s, and Netflix pulled their business out of Russia. Perhaps they know that flouting US sanctions could result in fines exceeding the damage caused by shutting down companies in Russia. Some researchers believe that when a company encounters such a situation, it leads to ‘over-compliance’ or ‘de-risking’ – and companies choose to comply with more regulations than is required by law. For example, the Japanese company that sells ‘Uniqlo clothing has announced its withdrawal from Russia, which had previously promised to continue business after the 2014 conflict. It argued that clothing is ‘essential for life.’Participation of private companies increased the effects of sanctions.
The spillover effect of sanctions will hurt the rest of the world—mainly emerging economies. We have already experienced high prices in oil and commodities like aluminium, zinc, nickel, food grains, etc. An already skyrocketing annual inflation rate will worsen with a jump in prices. Due to the high prices of commodities, the central bank of these countries will have to increase the interest rates, which will make it more difficult for these economies to repay inflated loans.
Research on “Economic Sanctions as Collective Punishments: The Venezuelan Case” concluded that ‘the sanctions reduced the amount of public caloric intake, increased disease and mortality rates – for both adults and infants – and displaced millions of Venezuelans, who fled the country because of the worsening economy. The island nation of Sri Lanka is another example of the failure of ‘economic depression and hyperinflation’ economies. Sri Lanka defaulted on its foreign debt and now faces power cuts and acute shortages of food, fuel, medicine, and other essentials. Inflation is at an all-time high of 17.5 percent.
The human cost of conventional warfare is enormous in terms of civilian casualties, displacement, food shortages, infrastructure damage, declining working people, increased debt, and uncertainties. But the cost of economic warfare is also very high.
The IMF recently lowered the globe’s GDP growth forecast for 2022 and 2023. High inflation will likely engulf small developing economies, mainly in Africa, Latin America, and Asia. Weak economic growth and high inflation will make the poor very poor; many families will be pushed below the poverty line, crumbling economies will lead to migration, and people will fall prey to starvation.
The devastating economic impact of sanctions on people’s lives is noticeable, but there is no clear indication of their political or economic influence on the target country. The US has imposed sanctions on Iran for 40 years and Cuba for 60 years. North Korea has been under sanctions since 1950. In none of these cases has there been a fundamental change in the government’s decisions and ideology due to economic pressure. So, will the adverse effect of sanctions compel the Russians to demand Putin stop the war? Most experts view it with suspicion.
conclusion
Competing or cooperating is an essentially political choice between nations. Competition is believed to be necessary for economic and social progress, and cooperation is conducive to cohesion and inclusive growth. But, politically, in the present crisis, we have observed that one country tends to control another country and adopt an expansionist policy. The competitive nature of war and economic sanctions have dragged the world on a path of the decline of non-cooperation and mistrust.
The Russo-Ukraine War is active aggression, the horror of which will destroy the country’s infrastructure and threaten human values. Thousands of families will flee, the economies of both countries will collapse, humanitarian and moral aspects will be tested, and it will take decades to bring both warring countries to their current level of development. Economic sanctions present a different set of imperceptible and insidious challenges. The consequences of economic sanctions on emerging countries are disastrous, pushing economies into recession with high inflation. This will cause millions of families to migrate; poverty will increase, and people will suffer from malnutrition and starvation.
History shows that economic sanctions play no significant role in deterring aggressive states from war. In the present scenario, neither the fighting has stopped nor the series of economic sanctions has ended; both have come to the fore as a disaster. Ukraine and Russia have to face the immediate consequences of the war, while other countries have to fight the turmoil caused by economic sanctions. What is dangerous is that Russia’s unyielding insistence and Western countries’ – mainly the USA – supply of finance and weapons to Ukraine seem to increase the duration of the war. Also, the cost of these irrational decisions is being paid by those nations which are neutral.
