International Economics: IB Economics

A group of EU Finance minister have argued that EU sanctions on Russia are working, contrary to what Moscow is claiming, and that we should redouble them in attempting to limit the country's ability to prosecute the war in Ukraine. 

It seems as though the Russian economy is going to grow by more than the UK, France and Germany, with the IMF predicting that it will grow by 3.2%. 

So much for sanctions and the Ukraine war damaging the Russian economy in the short-term.

The EU's latest round of sanctions on Russia includes a compromise deal banning the majority of the bloc's Russian oil imports, although there are exemptions for pipeline oil imports for landlocked countries, like Hungary. 

It is hoped to reduce Europe's dependence upon oil - with the ban rising to 90% of Russian oil by the end of the year. 

And here come more sanctions, additional sanctions on Russian banks, and an EU embargo of Russian coal. It seems as though events in Bucha have, rightly, drawn a response. 

The latest UK sanctions on Russia are blocking the sale of luxury goods there; however, despite it being an eye catching headline, Nils Pratley writes in the same newspaper about the relative lack of significance of this move. 

To quote: "Total UK exports to Russia in the 12 months to the end of September 2021 amounted to £4.3bn, of which £2.6bn was goods. Cars, the biggest contributor at £386m, will be covered, one assumes, but pharmaceutical products, next in the list, probably won’t be. Either way, a focused hit to trade in the UK’s 26th largest export market, accounting for just 0.7% of total UK exports, is bearable." But designed to have a big economic impact, it ain't.

However, that's not to deny the importance of the symbolism.

The geopolitics of the Ukraine conflict laid bare: how has Asia responded to the conflict? It is notable that China and India haven't condemned the Russian invasion, but As the strapline says, Asian nations only account for 8% of Russia's trade.

Sanctions get serious - the West is looking to target the Russian energy sector by banning imports of oil, and banning or phasing out imports of natural gas. But look at how energy prices have spiked in the UK and EU as a result.

Is this the next stage in the sanctions package? And how will Russia respond? And what are the implications for the global economy? 

It seems like there are some tough choices to be made, and a lot of unintended consequences, not least for climate change, with fossil fuel use likely to continue in the years ahead as the West weans itself of its dependence upon Russian oil. The only saving grace is that the power of OPEC to control global supply has weakened, but in the short-term expect higher energy prices for some time yet. 

Tomorrow's Guardian editorial hits the nail on the head - in theory. But in practice, it's a lovely example of why policymaking isn't straightforward and another way of dispelling the myth that we're all in this together. 

The oligarchs will have their ways of avoiding our sanctions, almost irrespective of what we do; sanctions will inevitably hit the ordinary Riussian. We have to hope that they are able to draw the right conclusions - but given the state control of the media, I'd say that's also unlikely. 

Another lovely example of a policy pronouncement that means next to nothing. Canada has banned imports of crude oil - and yet, as the article notes: "Canada imported just C$289m (£170m) worth of energy products in 2021, according to Statistics Canada."

Much sound and fury....

It's really interesting to apply economic history to contemporary affairs - with this opinion piece in the Guardian suggesting that for all the bluster surrounding the situation on the Ukraine border, we'd be well-advised to follow Keynes teachings, and instead of imposing sanctions on our enemies, it would be better if we offered support to our friends. 

Geopolitics and economic history - ideal!

An interesting story in the Observer looking at how a new sanction being imposed on a military-controlled firm processing remittance payments from Cubans abroad. 

As a result, it's going to limit the ability of Cuban emigres to send money back to relatives on the island, damaging developmental prospects. Remittances are, in the case of Cuba, a significant source of income. 

More from the BBC, attempting to quantify the effect of the end of the Iran nuclear deal and the re-imposition of American sanctions. 

This excellent in-depth assessment of the Russian economy looks at whether or not the Ukraine related sanctions have harmed it. 

The conclusion? Not for now - but is this just storing up long-term problems for the Russian economy. Zhou En-Lai would be in his element. 

This BBC article looks at the state of the Russian economy and argues that the Russian war economy, after initially looking shaky at the start of the Ukraine war, has rebounded and pivoted to become a mobilised war economy. 

However, can it last? There are doubts but Russia will grow faster than any other G7 nations this year. 

The implications of sanctions on Russia for other economies are made clear in this brief peek at the Italian economy, which used to be a place that attracted numerous Russian visitors.

However, Italian luxury goods producers are feeling the pinch; unsurprisingly, given that Russian tourists spend 65% more per day than the average tourist. 

Thomas Piketty has a fairly punchy assessment of how we might go about tightening sanctions on Russia, starting with the super-rich, and an equally damning assessment of why we haven't done this already. 

He argues that the extent to which oligarchs have assets overseas makes tackling them relatively straightforward, but that wider measures, such as an international financial registry are being opposed because it runs contrary to the self-interest of the global elite.

If we all knew how little income tax the super-rich paid, we might think about readying the pitchforks!

Are more tariffs on the way for Russia? It would seem to be the case that the G7 nations are on the point of removing Russia's most favoured trading nation status and imposing tariffs on most Russian exports, further isolating Moscow.

Larry Elliot comments on the difference between the US ban on Russian oil - which will come at relatively little cost, given the small quantity of Russian oil that the US imports, and Europe's far greater dependence on Russian energy. He wonders whether it might split the Western alliance on the issue. 

He might  have a point - however, I would argue that with Spring just around the corner, and then Summer approaching, the real pinch point is likely to be more than 6 months away, and by then, I suspect, the West is banking on the war being over. 

A call to arms: Putin must fail, and here's how.

In short, Orysia Lutsevych asks for embargoes on oil and natural gas and a further ramping up of sanctions. And she's probably right in as much as it would bring the Russian economy to its knees. But what are the consequences of this? 

Larry Elliott looks at the impact of sanctions on the Russian economy and asks the question 'Who will blink first'?

It's clear that the Russian economy has been crippled by sanctions, but Europe's dependence upon Russian natural gas and oil, and the rising price of both means that Europe is going feel some of the pain too. 

This is an excellent little bit of economic history, with Larry Elliott highlighting the fact that previous instances where sanctions have been imposed on a nation with little effect. 

He looks at a number of countries that were faced with sanctions in various guises, noting that in the case of Cuba and Iran they seemed to have little obvious effect but that they did have more of an impact in South Africa, although the different context of the latter might have meant that their success was ever more likely.  

Faisal Islam writes about the purpose of sanctions on Russia, seeing their purpose as removing the ability of the Russian central bank to support its currency, and weaken the Russian economy, making it clear that the blame for the current set of circumstances lies with one man. 

The US and the UK have reacted to the military coup in Myanmar by imposing sanctions, targeting two conglomerates with links to the military junta.

However, it seems that there's little consistency of approach among the G8 nations. 

Another aspect of US trade policy is looked at in this BBC article that highlights the fact that the collapse of the Iran nuclear deal is going to see sanctions reimposed on Iran.

The US-led initiative is likely to see US allies stopping importing Iranian oil, which has driven up its price.