Russia’s ties to the global economy are rapidly dissipating as crushing sanctions and the Kremlin’s response upend decades of post-Soviet reforms.
The Kremlin announced tough limits on banking and exports intended to support its currency’s fall in value this week at the expense of foreigners. Moscow has also pledged to seize the assets of any company leaving Russia and allow its companies to steal Western patents.
Experts say the fallout could last long after the war in Ukraine ends and tarnish Russia’s reputation for decades, even if sanctions are eased.
“Measures like this are going to stay in place for a long time. I think this will cut Russia off from access to Western finance, trade and investment for years, if not decades to come,” said Edward Alden, senior fellow at the Council on Foreign Relations.
“The conclusion now will be that Russia is both an immediate and long-term threat to European and American security, and economic ties with Russia will strengthen Russia, and anything that strengthens Russia is dangerous to Russia. West,” he added.
President BidenJoe Biden Blinken Authorizes 0M Defense Aid for Ukraine Following Biden Request Trump Tears Biden Amid Ukraine Conflict Five Things to Know About .5T Spending Bill Congress Just Got to Know adopt MORE announced that the United States and Europe would end normal trade relations with Moscow and demand its withdrawal from the World Trade Organization (WTO), the latest blow to the Russian economy. He also announced that the United States would ban some iconic Russian imports, such as vodka and seafood, under mounting pressure from lawmakers.
Expelling Russia from the WTO and ending normalized trade relations would subject Russian exports to higher tariffs and trade barriers.
Experts say the decision has limited economic impact, especially since the sanctions limit trade between nations, but sends an important message to the Kremlin.
“It’s not going to be a huge punch, frankly, just because of the nature of the trade flows and the actions we’ve already taken,” said Emily Kilcrease, senior fellow at the Center for a New American Security.
“Nevertheless, you do it with allies, which is going to increase the economic impact. And I think that’s a really important step to show that we’re not going to let Russia off the hook with a system based on rules without actually being constrained by it,” she added.
The decision to end normal trade relations follows weeks of growing economic difficulties in Russia.
The Kremlin and the Russian Central Bank have taken extreme measures to prevent further devaluation of the ruble and to retaliate against crushing Western sanctions. Russia has announced that it will end its foreign grain exports, ban the purchase of dollars and other foreign currencies, and limit the amount of foreign currency Russians can withdraw from their bank accounts.
Russia has frozen its battered stock market since the start of the invasion to prevent investors from withdrawing their funds. Russia has also started to default on its bonds, causing its credit rating to plummet amid a mass exodus of foreign companies.
In response to the sanctions and public outcry, more than 300 multinational companies have suspended all or part of their operations in Russia, including iconic American brands such as Apple, Visa, McDonald’s, Disney and Coca-Cola. Russian citizens can no longer use many of their credit cards, watch Netflix shows or even buy new electronics.
“It’s pretty clear that Russia will become poorer and more technologically backward, the choices for its citizens will be drastically reduced, and for many, many years to come,” Alden said.
“It’s an amazing series of penalties in a very short time,” added Alden.
Putin has pledged to seek “legal solutions” to seize the assets of Western companies leaving the country. The Kremlin aims to take control of companies that are 25% or more foreign-owned and then auction them off to Russian investors.
Moscow is already refusing to return hundreds of planes leased from Western companies, which have a combined value of $10 billion. Russian lawmakers are also considering taking over auto factories owned by Ford, Stellantis, General Motors, Volkswagen and Toyota, among others, and multi-billion dollar energy projects partly owned by ExxonMobil and BP.
American business leaders and even one of Russia’s wealthiest oligarchs say the move will effectively end international investment in Russia, potentially causing permanent damage to the country that would persist even if sanctions were eventually lifted.
“It would take us back a hundred years, to 1917, and the consequences of such a step would be global distrust of Russia on the part of investors, this would be felt for many decades,” Russian billionaire Vladimir said on Friday. Potanin in a press release. on the Telegram messaging app.
Neil Bradley, director of policy at the U.S. Chamber of Commerce, the nation’s leading business lobby group, said in a statement that such a move “would only add to Russia’s growing isolation. , would show his contempt for the rule of law and ultimately inflict more pain on the Russian people.
The Kremlin has only deepened investor fears by giving the green light to a rule that allows Russian companies to steal intellectual property from companies that harbor ‘unfriendly’ countries such as the United States and its allies. . According to Kremlin plans, Russian oligarchs could take over assets such as Coca-Cola’s bottling plants or Ford’s commercial van manufacturing plant and attempt to continue manufacturing and selling these products under the existing brand. .
Steven Fox, founder and CEO of Veracity Worldwide, an advisory firm that advises companies on geopolitical and regulatory risks, said the controversial moves were a “nail in the coffin” for foreign investor appetite in Russia.
“There have always been questions about the rule of law in Russia from an investment perspective, and intellectual property theft has long been a concern,” Fox said. “Now it’s all out in the open, there isn’t even a semblance of law.”
Experts do not believe that Russia will succeed in replicating the companies’ activities. Moreover, the Biden administration has pledged to respond with even more sanctions if Russia goes ahead with its nationalization and patent plans.
White House Press Secretary Jen PsakiJen PsakiRepublicans seize on rising gas prices amid conflict in Ukraine Five COVID-19 challenges on second anniversary of pandemic Officer who shot and killed 16-year-old Ma’Khia Bryant cleared of any wrongdoing MORE On Friday, the Kremlin warned the Kremlin against seizing company assets, repeating warnings of economic disaster from business leaders.
“Any anarchic move by Russia to seize the assets of these companies will ultimately cause even more economic suffering for Russia,” Psaki tweeted. “This will reinforce the clear message to the global business community that Russia is not a safe place to invest and do business.”