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Author Topic: Sanctions On Russia Will Cripple The Economy  (Read 65479 times)

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Offline NS1

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Re: Sanctions On Russia Will Cripple The Economy
« Reply #15 on: October 10, 2014, 03:30:06 AM »
The effect of US trade sanctions is minute as there total annual trade value was about $5-6 billion.  If this halved to $3 billion neither the US or Russia would notice.  That is pocket change...

The effect trade sanctions on Europe is much more severe.  Putin has always said that trade sanctions cut both ways.  It appears that these trade sanctions are now tipping continental Europe into a "triple dip" recession.  See this article -

http://news.yahoo.com/german-french-trade-data-hit-falling-exports-083943558.html

Europe has "shot it's bolt" on trade sanctions, but Russia has held back from further escalation.  IMHO Russia is waiting for mid-winter when the "gas weapon" has maximum effect.

Come December Ukraine will have no choice but to steal the gas flowing through its pipelines to Europe.  Russia will use this as a pretext for shutting off ALL gas supply running through Ukraine.  The effect on Europe will be devastating.  Expect a whole heap of back tracking by European leaders.  Cancellation of nearly all the current trade sanctions imposed by Europe will be part of Putin's price for switching on the gas supply...
If Putin tries to black mail the EU by shutting gas off in winter.
I would bet, it will backfire on him.
They will find alternate source of energy, so it could never happen again.
“You're not to be so blind with patriotism that you can't face reality. Wrong is wrong, no matter who does it or says it.”
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Offline MrMann

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Re: Sanctions On Russia Will Cripple The Economy
« Reply #16 on: October 10, 2014, 03:39:05 AM »
Europe wouldn't be able to find an alternative source of energy overnight.

It wouldn't be in Russia's interests to switch off the gas to Europe in winter. Aside from the cost to the already fragile Russian economy the political fallout would be significant.

A few days ago state media outlets were reporting on a suggestion that Gazprom was looking at ways to ensure that the gas issue is resolved, including using some of Ukraine's debt to pay for the transit costs to Europe. Medvedev seems to be a relatively moderate voice on this issue.

http://rbth.co.uk/business/2014/10/06/gazprom_proposes_to_pay_for_gas_transit_with_ukrainian_debt_40375.html

http://rt.com/business/193568-gas-ukraine-compromise-medvedev/

http://en.ria.ru/world/20141006/193723585/Russian-PM-Medvedev-Urges-Compromise-on-Gas-Dispute-With-Ukraine.html


Offline leslied

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Re: Sanctions On Russia Will Cripple The Economy
« Reply #17 on: October 10, 2014, 03:50:46 AM »

If Putin tries to black mail the EU by shutting gas off in winter.
I would bet, it will backfire on him.
They will find alternate source of energy, so it could never happen again.

It will take Europe at least 10 years to build alternatives to Russian gas.  There is no quick fix to this trade dependency.  I also think that Russia will use this threat to force a resolution before it actually uses it.

Medvedev is Putin's glove puppet.  He is playing good guy at the moment but like all marionettes he dances to his masters wishes.


Offline NS1

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Re: Sanctions On Russia Will Cripple The Economy
« Reply #18 on: October 10, 2014, 03:57:05 AM »

If Putin tries to black mail the EU by shutting gas off in winter.
I would bet, it will backfire on him.
They will find alternate source of energy, so it could never happen again.

It will take Europe at least 10 years to build alternatives to Russian gas.  There is no quick fix to this trade dependency.  I also think that Russia will use this threat to force a resolution before it actually uses it.

Medvedev is Putin's glove puppet.  He is playing good guy at the moment but like all marionettes he dances to his masters wishes.
Your right, which makes longer term affects on Russia.
I agree both sides will play the political side more, to try and end
sanctions for both, maybe a little more give and take.
Nobody can really afford this.
“You're not to be so blind with patriotism that you can't face reality. Wrong is wrong, no matter who does it or says it.”
Malcom X

Offline leslied

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Re: Sanctions On Russia Will Cripple The Economy
« Reply #19 on: October 10, 2014, 04:33:24 AM »
Your right, which makes longer term affects on Russia.
I agree both sides will play the political side more, to try and end
sanctions for both, maybe a little more give and take.
Nobody can really afford this.

Agreed.  These sanctions are bad for both sides.  They also do nothing to help Ukraine.

Offline Isthmus

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Re: Sanctions On Russia Will Cripple The Economy
« Reply #20 on: October 10, 2014, 07:00:14 AM »
Switching off the gas valves is the proverbial cutting off the nose to spite the face. I mean what does Russia produce of value in the global economy other than extract natural resources? What do they actually live off in the global economy?

Their industrial/technological capacity is so atrophied that they need France to build them aircraft carriers!  :laugh:

Europe did invest in storage infrastructure and LNG terminals after the last Kremlin induced supply shock so that it is less vulnerable than last time. Another Kremlin supply shock will kill Russia as a realistic, reliable source for a generation or two. The Kremlin better factor that in when they want to play games that could potentially smash their economy to smithereens.


Online yankee

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Re: Sanctions On Russia Will Cripple The Economy
« Reply #21 on: October 10, 2014, 07:53:40 AM »
Another Kremlin supply shock will kill Russia as a realistic, reliable source for a generation or two. The Kremlin better factor that in when they want to play games that could potentially smash their economy to smithereens.

If I read your statement correctly you are implying that the EU and US can impose sanctions to try and cripple the Russian economy with impunity.  If Russia responds with  their own sanctions (like GAS for example) this will kill Russia as a realistic, reliable source for a generation or two.

This is really dumb logic.
What is worse than not being able to get what you don't even want?

Offline Manny

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Re: Sanctions On Russia Will Cripple The Economy
« Reply #22 on: October 10, 2014, 08:01:42 AM »
The effect of US trade sanctions is minute as there total annual trade value was about $5-6 billion.  If this halved to $3 billion neither the US or Russia would notice.  That is pocket change...

The effect trade sanctions on Europe is much more severe.  Putin has always said that trade sanctions cut both ways.  It appears that these trade sanctions are now tipping continental Europe into a "triple dip" recession.  See this article -

http://news.yahoo.com/german-french-trade-data-hit-falling-exports-083943558.html

Europe has "shot it's bolt" on trade sanctions, but Russia has held back from further escalation.  IMHO Russia is waiting for mid-winter when the "gas weapon" has maximum effect.

Come December Ukraine will have no choice but to steal the gas flowing through its pipelines to Europe.  Russia will use this as a pretext for shutting off ALL gas supply running through Ukraine.  The effect on Europe will be devastating.  Expect a whole heap of back tracking by European leaders.  Cancellation of nearly all the current trade sanctions imposed by Europe will be part of Putin's price for switching on the gas supply...

Exactly this. Putin will have the last laugh here, sanctions will be cancelled and then Europe will look to who had the dumb idea in the first place.

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I apologise.
And so he should.........

Online andrewfi

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Re: Sanctions On Russia Will Cripple The Economy
« Reply #23 on: October 10, 2014, 08:21:34 AM »
Gazprom and the Russian government have made it clear that they have no intention of breaking sales and supply contracts, not from their side. There's all sorts of reasons to not do so. But if customers insist on breaking their contracts then the supplier might choose to agree that the contract has been broken by the buyer and cease supply prior to re-negotiating a new contract.

As for the economy as a whole, while the accelerated fall in value of the ruble was a concern and addressed by the Central Bank there's good evidence that the ruble was over valued. The currency has been on a consistent trajectory for many months, a year or so before the current silliness, interrupted only by a short blip in February of this year. In 2015 the ruble will become  fully convertible currency moving away from its currently managed 'dirty float' to a full floating currency, that is why the ruble has been allowed, encouraged even, to fall to its true value now rather than after the full float takes over.

The suggestion is that the currency against the dollar may now be slightly undervalued, having overshot slightly. Which might explain the choice to intervene. How can one understand that the ruble was overvalued? Inflation. You see inflation is a reflection of the value of the currency, its price if you will. If a currency is over valued then national prices will rise until the currency has been devalued to its 'correct' price. The same effect occurs in the exchange rate, another reflect of the currency's 'price'.
Thus we can understand that, unless the decline continues for an extended period, that there is no problem here. If the 'correct or market sustainable price has been reached then inflation will start to fall as well.

Of course a declining ruble has advantages, for example, Russia imports fewer consumer goods from the rest of the world than most other advanced economies, that's because Russia has a very robust (believe it or not) manufacturing base and can substitute many manufactures with local goods, but that base suffers from low productivity per dollar of inputs. As the dollar becomes relatively more expensive then the relative productivity per dollar of input goes up and local manufacturers move into profit at the same ruble prices, thus they become more competitive than potential imports from other countries such as China. This seems to be quite noticeable in the manufacture of clothing.

Also, the relative profit per unit of energy exported increases because the hydrocarbons in the ground cost very little to extract per unit, on a marginal cost basis, but their price in rubles is actually going up meaning more profit for the country. Also, because Russian energy is relatively cheap anyway, they mop up extra sales in comparison to more expensive producers. Oddly enough this benefit applies even is, as is suspected, the US and Saudis are conspiring to push the cost of oil down.
Access to credit has been pointed out as an issue affecting Russia, but not so much, in truth. You see Russia runs a balanced account in respect of its budget and has a huge amount of reserves of currencies of all reserve denominations plus a LOT of rubles stashed away. If necessary, and this has already been made clear, Russia will lend to Russian capital investment projects. Most countries could not do this but Russia can and will even make a profit from it because they can almost certainly obtain a better rate of return from such investment than they could from investing in the global markets with their current almost invisible rates of return.

Lastly, for this post at least, the issue of 'capital flight' this is something of an invention of western media and their handlers. It is normal for money to leave a country and to be replaced by other money. However what has been happening is that all forms of money leaving Russia, for whatever reason, have been allocated, incorrectly by western 'analysts' to the heading 'capital flight'. So, all money leaving the country for foreign investment, all purchases of currency by Russian tourists, all banking transactions between Russian banks and their foreign branches, all purchases have been lumped into the heading. IN truth in the current account the only money that should be labelled as 'capital flight' comes under a heading of 'errors and omissions' or similar and is a pretty small amount.

The reality is that import substitution of foodstuffs as a result of sanctions against the west will have had a one off hit on inflation but those prices will tend to fall anyway. Most of the effects upon Russia of sanctions upon them are, as the Russians have said, in fact, a stimulus to the economy. There is now a move toward sustainable autarky in some areas of the economy and given Russians unusual degree of vertical integration from energy and raw materials up to value added consumer goods there's no worry that they can not attain over a short time productivity increases independent of the dollar valuation of the ruble that become globally competitive manufactures.

If the US was faced with a similar set of issues to Russia could they react with equanimity? Not a chance, the manufacturing base does not exist, the vertical integration does not exist, the financial structure does not exist and the will of the people, almost certainly, does not exist. That's probably why it is easy for foreign (western) commentators to come up with these stories, because they might actually believe them due to their own cultural bias - they know the US (and EU) could not withstand what is going on in Russia and so they assume that Russia can not either. 

"For what else is the life of man but a kind of play in which men in various costumes perform until the director motions them offstage?" -Erasmus

Offline Manny

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Re: Sanctions On Russia Will Cripple The Economy
« Reply #24 on: October 11, 2014, 07:18:07 AM »
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I apologise.
And so he should.........

Offline AkMike

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Re: Sanctions On Russia Will Cripple The Economy
« Reply #25 on: October 14, 2014, 08:51:42 AM »

The Russian Central Bank Admits Defeat


Russian Central Bank head Elvira Nabiullina has admitted that if currency markets continue to turn against the ruble the bank "won?t be able to restrain them."

Despite the central bank spending $6 billion of Russia's foreign exchange reserves in only 10 days to prop up the value of the ruble, it continued its slide against the dollar on Monday:

The admission that central bank is unable to defend a fixed exchange rate for the ruble against heavy selling of the currency by international investors demonstrates the extent of the country's problems as it battles falling oil prices and a weakening economy.

But it's unlikely to mark the end of state interventions in the market. Russian media report Nabiullina as saying:

I would like to stress that we?re not going to quit the foreign exchange market completely. We?re changing, so to speak, the nature of our participation in the foreign currency market. We?ll make interventions, if there are risks to financial stability.

The central bank is undergoing stress tests to gauge the effects of further sharp falls in oil prices after Brent crude oil traded on Monday as low as $87 a barrel, its lowest point in 18-months. Oil exports are crucial for the Russian economy, particularly with international sanctions on the country's financial and commodities sectors weighing on growth.


Falling commodity prices are helping to drive the flow of foreign capital out of the country as investors sell their ruble holdings pushing down the value of the ruble relative to other currencies.

So far in 2014, Russia has burned through over $55 billion of its international reserves, much of which has been spent buying rubles to prop up its value, leaving around $452 billion in the coffers. It looks like it will have to dip even further into this pot if it is to protect the country from economic disaster.

 http://www.businessinsider.com/russian-central-bank-admits-defeat-over-defending-the-ruble-2014-10#ixzz3G8Akc9Mq

Thomas Jefferson Quotation, "My reading of history convinces me that most bad government results from too much government."

Offline Ste

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Re: Sanctions On Russia Will Cripple The Economy
« Reply #26 on: October 14, 2014, 10:21:43 AM »

The Russian Central Bank Admits Defeat


Russian Central Bank head Elvira Nabiullina has admitted that if currency markets continue to turn against the ruble the bank "won?t be able to restrain them."

Despite the central bank spending $6 billion of Russia's foreign exchange reserves in only 10 days to prop up the value of the ruble, it continued its slide against the dollar on Monday:

The admission that central bank is unable to defend a fixed exchange rate for the ruble against heavy selling of the currency by international investors demonstrates the extent of the country's problems as it battles falling oil prices and a weakening economy.

But it's unlikely to mark the end of state interventions in the market. Russian media report Nabiullina as saying:

I would like to stress that we?re not going to quit the foreign exchange market completely. We?re changing, so to speak, the nature of our participation in the foreign currency market. We?ll make interventions, if there are risks to financial stability.

The central bank is undergoing stress tests to gauge the effects of further sharp falls in oil prices after Brent crude oil traded on Monday as low as $87 a barrel, its lowest point in 18-months. Oil exports are crucial for the Russian economy, particularly with international sanctions on the country's financial and commodities sectors weighing on growth.


Falling commodity prices are helping to drive the flow of foreign capital out of the country as investors sell their ruble holdings pushing down the value of the ruble relative to other currencies.

So far in 2014, Russia has burned through over $55 billion of its international reserves, much of which has been spent buying rubles to prop up its value, leaving around $452 billion in the coffers. It looks like it will have to dip even further into this pot if it is to protect the country from economic disaster.

 http://www.businessinsider.com/russian-central-bank-admits-defeat-over-defending-the-ruble-2014-10#ixzz3G8Akc9Mq

Was Skyping with Nadia to her family and we discussed the effects of the sanctions, Nadia generally unwilling to discuss to with her Dad since he generally goes off on one. Well he went off on one for bloody ages in dead hard Russian so Nadia had to translate it all with a 'why did you have to bring it up' look on her face, basically he said food etc, little effect, however several banks have closed in Chel, including the one that employed Nadia's SIL.

Anyway, I wowed everyone there by playing my 12-string Rickenbacker and singing rather well actually to great applause before getting over-confident and foolishly attempting a very loud Michael Caine impression to stunned silence. Everyone looked scared to death!

"You're only supposed to blow the bloody doors off!"
O pointy birds, o pointy pointy, Anoint my head, anointy-nointy.

Offline Donhollio

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Re: Sanctions On Russia Will Cripple The Economy
« Reply #27 on: October 14, 2014, 05:33:31 PM »

So far in 2014, Russia has burned through over $55 billion of its international reserves, much of which has been spent buying rubles to prop up its value, leaving around $452 billion in the coffers. It looks like it will have to dip even further into this pot if it is to protect the country from economic disaster.

 Don't tell Millia    :-X

Offline JayH

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Re: Sanctions On Russia Will Cripple The Economy
« Reply #28 on: October 14, 2014, 06:54:40 PM »
From the time Russia started invading  Ukraine( in the Crimea) the  wheels were turning on the oil issue( actually on the replacement of Russian gas also).In the same way a catalyst for the demise  of the former Soviet Union was precipitated by driving oil prices down and sending oil prices below the cost of production in the USSR thus depriving them of foreign currency to prop up the failing Soviet economies -- the idea was immediately revived to give sanctions ( & verbal warnings) some real bite.
              Where did  Obama go after his swing thru Europe discussing the Russian invasion- yep- to Saudi Arabia.
              A point on the Russian gas front that so many persist in believing is irreplacable--from the second they started invading the Crimea the writing was on the wall about Russian gas being replaced.Everyone knew Russia would attempt to use it as a weapon-- so the dependency will be short lived.
              The net affect of oil prices dropping will have a huge impact on the Russian economy-- along with the uncertainty about the gas future-- it will completely unhinge the Russian economy.
              Right now--Russia is on borrowed time to rejoin the world.Only getting rid of Huilo and his Kremlin cronies will save Russia now.It is not a good thing--but it is what the fools deserve and for the rest of the world--it is good in the sense that it will stop the current craziness.

Offline WestCoast

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Re: Sanctions On Russia Will Cripple The Economy
« Reply #29 on: October 14, 2014, 08:59:40 PM »
From the time Russia started invading  Ukraine( in the Crimea) the  wheels were turning on the oil issue( actually on the replacement of Russian gas also).In the same way a catalyst for the demise  of the former Soviet Union was precipitated by driving oil prices down and sending oil prices below the cost of production in the USSR thus depriving them of foreign currency to prop up the failing Soviet economies -- the idea was immediately revived to give sanctions ( & verbal warnings) some real bite.
              Where did  Obama go after his swing thru Europe discussing the Russian invasion- yep- to Saudi Arabia.
              A point on the Russian gas front that so many persist in believing is irreplacable--from the second they started invading the Crimea the writing was on the wall about Russian gas being replaced.Everyone knew Russia would attempt to use it as a weapon-- so the dependency will be short lived.
              The net affect of oil prices dropping will have a huge impact on the Russian economy-- along with the uncertainty about the gas future-- it will completely unhinge the Russian economy.
              Right now--Russia is on borrowed time to rejoin the world.Only getting rid of Huilo and his Kremlin cronies will save Russia now.It is not a good thing--but it is what the fools deserve and for the rest of the world--it is good in the sense that it will stop the current craziness.

This idea that the US, Saudi Arabia, the EU and maybe a few other countries are in on a conspiracy to bankrupt Russia by driving down the price of oil and natural gas is nuts. Why would Saudi Arabia agree to a deal that will cost it and its neighbours billions? Probably tens of billions of dollars? The US isn't going to secretly compensate Saudi Arabia by covertly flying in a couple of military cargo jets stuffed with billions of dollars in $100 bills.

Also Russia and Ukraine simply aren't that important to the US. Oil and natural gas are dropping in price because of reduced demand and a switch to natural gas in the US. The US could be independent of foreign sources of oil and gas by 2020, maybe even be an exporter of oil and/or natural gas. That alone means there's a huge excess of oil and gas in the world.
Ipsa scientia potestas est. Knowledge itself is power.   Sir Francis Bacon