A sanction is an action taken by a country or a group of countries to harm the economy of another country so that it corrects its behavior.
Since Russia invaded Ukraine, sanctions have been imposed on the nation. The sanctions range from the freezing of assets of the oligarchs; to the rich who have influence in the Kremlin. You might wonder how rich they are. The oligarch’s wealth combined (most of which is not in Russia) is equivalent to that of the entire nation with its citizens in it. How did they come by all this wealth in a communist state? When the Union of Soviet Socialist Republic broke, the oligarchs started to emerge having political connections and thus participated in markets through the corrupt that had been elected as the state transitioned to democracy.
This explains why the oligarchs are having their assets frozen. Britain has frozen over 150 Billion pounds worth of assets of Russians. This means their stock market will greatly suffer losses and thus the value of the pound goes down. The great beneficiary will be the United States as they will be an alternative resort in terms of trade. The dollar’s value has increased since the sanctions were imposed.
The following are the highlights of the effects of the sanctions.
Corporate Loses
Russia being a major energy and fuel supplier, have increased their prices. Thus energy and fuel in the US and Europe will increase. Energy and technology companies have pulled away from Russia and thus another cause of the increase. Major corporations and brands that have pulled from Russia will suffer losses as they have lost a big market.
Increase in food prices
Russia and Belarus control close to 30% of the world’s potash supply. Potash is a potassium-rich salt mined from underground deposits. Potassium is a key component in fertilizers and a decrease in supply means an increase in the overall cost of the commodity. The cost of food production goes up and in turn, food prices rise.
Russia is a big exporter of metals, ranging from aluminum to copper and thus the price of canned food will ridiculously increase.
Increased car prices
Vehicles are a basic need in the world today as people move from place to place every day. If Russia was to retaliate against the sanctions by cutting the supply of metals such as nickel that is used in lithium-iron batteries, this would make it costly and affect the overall price of owning a car.
Major car companies such as Toyota and Volkswagen have manufacturing hubs in Russia, production of vehicles has ceased and this affects the supply. There will be limited availability of new vehicles in the market and owing to this, car prices will soar.
Increase in the overall cost of living
Russia controls most of the world’s fuel and gas supply. 40% of Europe’s gas and fuel supply is from Russia. Due to the sanctions on them, they have retaliated by making demands in their favor. They are ready to trade but only if their currency (ruble) is used.
This will mean an increase in the ruble’s value. If their demands are not met, they will stop supply and thus oil and gas become expensive. The price of oil affects the price of every other commodity in the markets.
Together we stand with Ukraine and hope the war ends.
BY ERASTUS GACHACHA