When Russia and Ukraine went to war, the United States and other countries announced financial sanctions against Russia, including kicking some Russian banks out of the SWIFT international settlement system.
Georgieva, managing director of the International Monetary Fund (IMF), said on February 25th that the situation in Ukraine has brought great economic risks to the region and the world, and the IMF is evaluating its potential impact and is ready to provide support to IMF members.
Why does "kicking out the SWIFT system" become an important game point in the financial war? How much deterrence does this have for Russia? What preparations has Russia made since 2014? What impact does this conflict have on Russia and the global economy?
Dr. Zhong Feiteng, director and researcher of the Research Office of Great Power Relations of China Academy of Social Sciences, has been devoted to the study of international political and economic order for a long time. The Paper interviewed Zhong Feiteng on relevant hot issues.
The Paper: Many countries in Europe and America have imposed sanctions on Russia, and many "heavy punches" have been made. Does Russia need to be afraid?
Zhong Feiteng:Western countries’ sanctions against Russia did not start from this Russian-Ukrainian conflict. In 2014, Russia had a conflict with Ukraine because of the Crimea issue. Russia was sanctioned and suffered some losses. But sanctions are actually a double-edged sword.
First, in the short term, the EU will suffer great losses due to sanctions against Russia. Second, there is no doubt that Russia will suffer as a result of financial sanctions imposed by many countries in the United States and Europe. Third, Russia and Ukraine are major exporters of agricultural products in the world, and Russia is also a major exporter of mineral resources and oil and gas. Energy and agriculture are very fragile commodities under the impact of COVID-19 epidemic, and they are already in the cycle of rising prices. Both oil and natural gas account for more than 10% of Russia’s global energy supply and demand map. Once the supply is interrupted, it will have a great impact on the global energy market, which will further promote the rise of commodity prices, which is also unfavorable to many developing countries under the impact of COVID-19 epidemic.
However, the sanctions are still in the supplementary stage, and even if the direct losses of Russia are estimated, it will take some time, not to mention the indirect losses and the subsequent losses brought by market confidence.
The Paper: If the conflict between Russia and Ukraine further evolves, will its negative economic impact spread to the whole world?
Zhong Feiteng:Whether it will evolve to this step depends on whether Europe can bear it and whether Russia will end the war quickly. Now Europe is still in winter, and if Europeans leave Russia’s energy supply, some families may freeze to death or frostbite. Many heating systems in Europe burn natural gas, and more than 50% of its natural gas comes from Russian pipeline natural gas. There is a term called "energy poverty", which means that some European families can’t afford expensive energy, so the indoor temperature after heating can’t meet the requirement of 18 degrees Celsius, which is a great challenge to the aging European society. Once Russia immediately cuts off pipeline transportation, insufficient heating will obviously pose a challenge to Europe and may aggravate energy poverty in Europe. This may also be one of the important reasons why Putin chose to send troops to Ukraine before the end of the European winter.
The Paper: Some analysts believe that the COVID-19 epidemic and the conflict between Russia and Ukraine continue to intensify, which may bring stagflation risks to the global economy. What do you think?
Zhong Feiteng:Before the Russian military attack on 24th, the World Development Report 2022 released by the World Bank showed that in developing countries, the risk of financial fragility caused by COVID-19 crisis and opaque debt was increasing, and inflation and rising interest rates also brought more challenges to economic recovery. Even if the conflict between Russia and Ukraine ends soon on the military level, in terms of economic diplomacy, because of its important influence on American hegemony and its international prestige, although the United States says it will not send troops, its sanctions against Russia will be fast and large.
Russia and Ukraine are important suppliers of raw materials. Due to the war, it may be difficult to deliver and harvest these raw materials, which will have a certain impact on the corresponding industrial chain. Europe is actively promoting the clean energy transformation plan, and attaches great importance to the impact of climate change on the economy. The Russian-Ukrainian war will penetrate into the middle and lower reaches of product manufacturing, including product supply and price changes, by affecting energy prices and raw material supply. The deterioration of the security situation will eventually be reflected in the prices of related products, so the war is undoubtedly worse for the European industrial adjustment under the influence of the epidemic.
The Paper: Is the impact on developed countries not as great as that on developing countries?
Zhong Feiteng:In the long run, Russia, as a major supplier of energy, will be sanctioned by the West, and many futures transactions involving oil or natural gas, as well as long-term energy contracts signed with some European countries, may not be delivered, which will definitely aggravate the turmoil in the energy market. Under the US dollar system, commodities are closely related to the trend of the US dollar, and are easily influenced by the US dollar exchange rate and the Federal Reserve’s monetary policy. In history, the fluctuation of commodity prices is much greater than that of manufactured goods. The fluctuation of commodity prices will affect the balance of payments of energy exporting countries and some importing countries, and then affect the fiscal expenditure of the whole year, affecting the progress of various long-term projects.
Since Russia and Ukraine are both important grain exporting countries in the world, especially Ukraine’s soybeans and rapeseed oil occupy a large share in the global market, the war will inevitably affect the planting, harvesting and trade of agricultural products, and the global food security will also be affected to some extent. From an economic point of view, food expenditure accounts for a relatively high proportion in the expenditure of low-and middle-income groups, while the proportion of food expenditure in the consumption of rich countries or rich people is actually very low. Therefore, the rise in food prices will definitely have the greatest impact on the poor, and many developing countries are poor countries. This is the first reason why wars, conflicts and the deterioration of the world economic situation are unfavorable to developing countries.
Second, the financial market turmoil has intensified, and the debts of many countries may not be repaid after maturity. In the case of a military conflict, the search for a safer market for funds may, in a high probability, lead to the accelerated flow of funds from some developing countries to the United States, which will not only lead to a greater shortage of funds in developing countries that originally lacked capital, but also lead to debt crises and economic crises in individual developing countries.
Therefore, the occurrence of a major conflict is definitely unfavorable to developing countries.
The Paper: There are some judgments that regard this Russian-Ukrainian conflict as the biggest geopolitical conflict in recent 20 years. Do you agree?
Zhong Feiteng:You could say that. I think the impact of this conflict between Russia and Ukraine may be greater than that of "911", because it involves the European security architecture that once shaped the cold war pattern and the security situation after the cold war. One of Putin’s goals is to reshape the European security framework. In the past 20 years, NATO has carried out five rounds of eastward expansion.
If Ukraine is included in NATO, NATO’s security forces will develop to Russia’s European border areas. Russia’s sending troops to Ukraine means that the two strategic forces of Russia and Europe are undergoing drastic adjustment more than 30 years after the disintegration of the Soviet Union. It must be a very important event, which has a great impact on the international order in Europe after World War II or after the Cold War, and may also have a great impact on the international order in the Asia-Pacific region.
Under such a pattern, the economic power of Europe will also change greatly, because this conflict will lead to the rupture of the industrial chain supply chain.