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Home Economy

Russia: How will they retaliate against Western sanctions?

February 26, 2022
in Economy, Politics
Reading Time: 2 mins read
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These are the only 2 countries in Europe that ‘support’ Russia
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There is a lot of current discussion about the types of severe sanctions that the US and Europe should place on Russia because of the invasion of Ukraine. But there is very little discussion on how Russia can hit back at the US and European economies in response.

So what can Russia do in response? Well, in addition to petroleum products, Russia (and Ukraine to some extent) is a huge exporter of a variety of commodities that are critical to the global economy.

The US semiconductor industry imports 90% of neon supplies from Ukraine, which Russia could prevent. Also, 35% of palladium used in automotive sector, electronics and medicine comes from Russia.

Commercial jet engines use titanium, much of it comes from Russia. Boeing, which relies heavily on Russian titanium giant VSMPO-AVISMA, is “protected for quite a while, but not forever,” CEO David Calhoun said on Wednesday.

On Feb 2, Russia banned export of ammonium nitrate, which is used as fertilizer in agriculture. It represents 2/3rd of global production and can cause a significant rise in global food prices.

And when it comes to oil and gas, it’s not just Europe that is very vulnerable. Russia is now #2 importer of oil into the US (after Canada), after US imposed sanctions on Venezuela’s oil.

Russia is currently sitting lush on $630b+ in foreign reserves so it can withstand export bans for some time.

In addition to direct economic pressures, you can also expect a rise in disruptive cyber attacks from Russia – both from non-state but potentially also state actors (GRU, FSB and SVR).

Finally, on the diplomatic front Russia might try to derail the ongoing talks with Iran about curtailing their nuclear program. So far, the Russians have been somewhat helpful in the negotiations. But if the West chokes their economy, expect their willingness to help to dissipate.

You might see them, for example, offer Iranians significant military aid, such as S-400 air defense systems, surface naval ships and submarines. Perhaps even further assistance and knowledge transfer with their civilian nuclear program.

We don’t know the exact response to severe economic sanctions that we might see from Russia but it is a good bet that it will be significant and we should be aware that they are not playing with a weak hand here.

The West could potentially find workarounds against most of these economic responses from Russia but, at a minimum, they should expect further spikes in inflation and pressures on supply chains across numerous critical industries.

Tags: EuropeUnited StatesWhite House
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