Russia and its oligarchs big losers due to sanctions

Russia and its oligarchs are the big losers due to sanctions imposed by the EU, Switzerland, the US and the UK, targeting 907 individuals, 135 companies and 65 institutions. Russian inflation is now projected to reach 15% soon and its gross domestic product (GDP) will be reduced by 5% for 2022.

Oxford Economics also does not have good news for next year either, estimating that Russia’s economic output will be 7% less next year than it would have been if it did not invade Ukraine.

According to the World Bank, Russia’s $1.5 trillion economy is the 11th biggest in the world and according to the International Monetary Fund, its GDP is about 25% smaller than that of Italy and more than 20% smaller than Canada’s.

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Oligarchs’ losses

Fallout from the invasion last week was swift, with the rouble losing about 30% and its value falling to less than one US cent earlier in the week. Russia’s stock market also closed on Monday. The country’s oligarchs also did not get off scot-free whether they were personally sanctioned or not.

They lost a third of their net worth, according to the Bloomberg Billionaires Index. The US and EU sanctions against them, combined with the collapse of the rouble made their collective fortune shrink by $80 billion since the start of the invasion.

Some had their wealth halved, but the biggest loser in dollar terms was Gennady Timchenko from the Volga Group, an investment and asset management company, whose fortune fell from $22 billion to $10.3 billion.

Russia’s richest man, Vladimir Potanin, head of nickel producer Norilsk Nickel, who is 58th on the Bloomberg Billionaires Index, lost about a quarter of this wealth of $24.4 billion although he has not been sanctioned yet.

Leonid Mikhelson, CEO of Russian energy company Novatek, Russia’s second-richest person, lost $11 billion and has $21.6 billion left. Russia’s third-richest person, mining magnate Alexei Mordashov, who was sanctioned by the EU, lost over $5 billion and is left with $21.2 billion. Russia’s oligarchs collectively lost $39 billion in under 24 hours.

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EU sanctions

The EU sanctions included targeted restrictive measures with restrictions on economic relations with the non-government-controlled areas of the Donetsk and Luhansk oblasts and financial restrictions, followed by individual sanctions against Vladimir Putin, Sergey Lavrov and members of the Russian State Duma and economic sanctions.

A third package of sanctions included a ban on overflight of EU airspace and access to EU airports for all Russian carriers, a ban on transactions with the Russian Central Bank, a SWIFT ban for seven Russian banks, suspension of broadcasting of state-owned media Russia Today and Sputnik. Full blocking sanctions were also instituted on 22 Russian defence entities, as well as export controls targeting oil refining and restrictions on technology exports.

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UK and US sanctions

UK sanctions include excluding major Russian banks from the UK financial system, stopping them from accessing sterling and clearing payments, freezing the assets of all Russian banks, stopping major Russian companies and the state from raising finance or borrowing money and limiting Russian deposits at UK banks.

The US sanctions include cutting off Sberbank, Russia’s biggest bank, freezing the assets of Russia’s second-biggest bank, VTB Bank, freezing US assets of Bank Otkritie, Sovcombank OJSC and Novikombank and debt and equity restrictions on several enterprises and entities critical to the Russian economy.

The US is also cutting off Russia’s supply of technological goods, restricting its import of semiconductors, telecommunication, encryption security, lasers, sensors and maritime technologies.

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Companies leaving Russia

Many companies have also decided to move out from Russia or pause their operations there. These include Ford, General Motors, Toyota and Volkswagen, as well as Boeing, Airbus, Apple, Airbnb, BP, Exxon, Shell, TotalEnergies, Mastercard, Visa,

Various media and entertainment companies are also sanctioning Russia, with many streaming services cutting ties with state-backed Russia Today, while Disney will not release the latest Batman movie in Russia.

Facebook parent company Meta is also blocking access to Russia Today and Sputnik, while Twitter announced plans to “reduce the visibility and amplification” of Russian state media content. Netflix and YouTube are also refusing to air Russian state TV channels and Spotify closed its Russia office.

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Consequences of sanctions

Economists say that Russia is facing economic collapse that will be as bad as or even worse than the 1998 slump. The Russian economy shrank 5.3% in 1998. Economists at PMorgan Chase & Co. said on Friday they expect a 7% contraction in gross domestic product this year in a report to clients.

“The longer sanctions are upheld and especially if they are expanded to include gas and oil exports, the more likely Russia is to become an untouchable capital market for years to come. The currency weakness we see now will inevitably be inflationary, particularly if the economy remains closed off from the rest of the world,” Tim Graf, head of EMEA macro strategy at State Street Global Markets, says.

Bloomberg Economics says that blocking oil and gas exports could cause the Russian economy to contract around 14% this year.

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