The US miscalculated when it imposed harsh sanctions on Russia, and not only has Vladimir Putin’s economy weathered the impact, but the West is facing the negative effects of the economic restrictions it imposed.
That’s according to Jeff Rubin, an economist who thinks the West may have opened “Pandora’s box of unintended consequences” by enforcing tight restrictions after Russia’s invasion of Ukraine.
“The most obvious of those consequences is the resurrection of inflation, which had been long buried for more than four decades. Sanctions were the trigger for its dramatic revival,” Rubin wrote in an op-ed for The Globe and Mail on Friday.
The US and other Western nations have introduced a host of sanctions targeting Russian goods, including bans on Russian energy flows and a $60 price cap on Russian oil traded using Western shipping and insurance firms.
Those measures have helped crimp Moscow’s war revenue, but they’ve likely also resulted in higher prices for Western consumers, Rubin said. Food and energy prices have soared since the West imposed sanctions on Russia, he noted partly because Russia is one of the world’s largest exporters of oil and grain.
Inflation could worsen if US trade with Russia’s allies, like China, becomes impacted, Rubin said. US firms are at risk of shifting their operations to countries that are on more friendly terms with the US, but America’s closest allies are countries where workers earn high wages, which can push prices up for consumers.
“That, in turn, has forced a crippling rise in interest rates, as central banks such as the Federal Reserve Board and the Bank of Canada were reluctantly forced to respond by raising their target interest rates from near zero to the 5-per-cent range,” he added.
Rubin notes that Russia had quietly sanction-proofed much of its economy leading up to the invasion, while the BRICS bloc of nations expanded and became more intertwined. This helped insulate Russia against the measures, and rising economies in the global south helped Putin blunt the impact of sanctions.
“That proved to be a fatal miscalculation. Whereas in the past the loss of Western markets – particularly for Russian energy exports, the lifeblood of Moscow’s war machine – would have dealt a fatal blow to the Russian economy, that certainly is no longer the case.”
Even the US dollar may end up worse off due to sanctions, Rubin said. Russia has been coordinating with its allies to shift away from using the US dollar for trade. Russia’s trade with China, for instance, has nearly completely phased out the dollar, Russian officials said last year.
“Sanctioning the ruble and confiscating a third of the Russian central bank’s foreign reserves was supposed to cripple the Russian economy. Instead, it has cost the US dollar its five-decade status as the petrocurrency of the world and may soon cost it even more: its once unrivalled position as the sole reserve currency in the world,” Rubin wrote.
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