he suspension of McDonald’s operations in Russia, along with Starbucks, Goldman Sachs, JPMorgan, Chase and Uniqio is the latest of a string of multinational companies withdrawing their business from Russia for its invasion of Ukraine. These companies join the sanctions imposed by the US and the European Union in a dramatic exodus by international brands including Netflix, Apple, PwC, American Express and many other companies. Petroleum giants Shell and BP have also started selling their Russian assets, while Britain and the US are banning Russian oil. The EU is slowly phasing out gas imports, on which it is heavily dependent. US President Joe Biden announced late last week the USA and its allies were revoking Russia’s “most favoured nation” status so as to damage the country’s economy further as a retaliatory measure. These moves are intended to cripple the Russian economy, but they will also have cascading effects on global business and commerce. The impact, which has already started to be felt, will be severe if the confrontation continues longer for the simple reason that the world has embraced globalisation since long.
India has to brace for difficult times as it has not joined the sanctions and abstained from voting for resolutions against Russia in the UN. This foreign policy adopted by the Modi government contravenes the earlier Indian policy of non-alignment. It is well known that India’s defence sector is highly dependent on Russian weaponry. However, Russia has to undergo terrible economic times in the future because it’s commercial connections with most of the world is being cut and will take a long time to be restored, if at all. In this situation, India has been clubbed by the rest of the world as being pro-Russia in the same bracket as North Korea. Interestingly, while everyone believed China will stand rock solid behind Russia and its invasion, Xi Jinping has played out a very smart foreign policy that is pleading for conciliation and immediate cessation of hostilities. The recent request for arms by Russia to China has not, yet, evoked any response from Beijing.
In the midst of a barrage of Western sanctions against Russia, a top inter-ministerial committee in India is examining measures to be taken to offset the negative impact on the country’s economy. It is in the process of setting up an alternative payments system by identifying a potential bank to keep its trade relations with Russia intact. Maximum priority is being given to edible oil and fertilizer imports from Russia. The country imports around 11-11.5 per cent of edible oil from the Russia-Ukraine region. Earlier, India used to import palm oil from Malaysia. Due to a diplomatic gaffe committed by India, Malaysia has stopped exporting palm oil to India. This obviously makes import of edible sunflower oil from Ukraine more important for India. Now, the position becomes even more precarious after the Ukraine crisis.
Since the Russian invasion of Ukraine, the US was the first to announce a slew of measures from asset freezes, ban on banks and individuals, and then deeper financial sanctions. The European Union followed with similar actions, more targeted bans on hundreds of individuals, including freezing all European assets of President Putin and some oligarchs and snapping travel ties. Singapore and Switzerland have also joined the sanctions. Even Taiwan, though not recognised as a country, put out a list of sanctions joining the US and others. All these sanctions are in addition to several others slapped on Russia since 2014 when Russia annexed Crimea. The ban on use of airspace by many countries against Russia is one of the most visible weapons in this current battle.
This is not enough. The USA and Europe have also started ostracising Russia socially and culturally, though they have clarified they are not opposed to Russians. The Munich Philharmonic fired chief conductor Valery Gergiev and New York’s Metropolitan Opera let Russian Soprano Anna Netrebko go because they wouldn’t criticise the war, while the Bolshoi Ballet’s performances in London and Madrid were cancelled. This means Russia is now the world’s most sanctioned country with more than 5,300 different types of sanctions. It is now ahead of Iran, Syria and North Korea in the list of countries facing sanctions. The economic impact of this scale of segregating Russia from the comity of nations will be long lasting.
The immediate impact on Russian economy is that the ruble has dropped 30 per cent to dollar, inflation is rising from 9 per cent. Oil and gas prices in the international oil market have been thrown into a tizzy. Oil has now hit a high of $139 a barrel, while overall prices have jumped more than 30 per cent since February 24. In 2020, Russia produced about 12 per cent of the world’s oil and about 16 per cent of the world’s natural gas. Russia is the world’s largest oil exporter – about 7 million barrels of crude and petroleum products a day – a majority of which now goes to countries that are supporting sanctions. Russia is a major exporter, while Ukraine supplies about 12 per cent of global wheat exports and 13 per cent of global corn exports. The flow of these commodities to world markets has now stopped. Russia is the world’s second-largest defence hardware exporter accounting for 20 per cent of global weapons sales. Its clients are spread over 30 countries.
Amidst the uncertainties, the rupee has crashed to its lowest ever – more than Rs 77 to the dollar, and this is going to make imports more expensive. India needs to be circumspect as the West is increasingly coming to a position of treating countries, which join the sanction regime, favourably and those, that directly or indirectly side with Russia, with suspicion. India’s abstentions from voting on resolutions against Russia in the UN are being viewed as a tacit support to Russia. India needs to balance its dependence on Russia with the prospect of being isolated and punished by the West. India can ill afford it.