Turmoil in the Ukraine has been causing a clear revival of the World division found in the Cold War. With Russia backing pro-russian rebels in eastern Ukraine and the European Union and United States attempting to support and legitimise the new pro-western government. With both sides not backing down the US and the EU have decided to impose sanctions against Russia in an attempt to remove their presence and influence in eastern Ukraine. The estimated damage these sanctions are expected to cause on the Russian economy is quite drastic. An article in Opendemocracy has shown that the value of the Ruble has dropped over 20% to that of the dollar and that Foreign Direct Investment is estimated to decrease by 50% (2014). These sanctions now include not allowing Russia’s largest banks, oil companies and defense companies to access international finance and technology (Roberts, 2014).
However, in a world as globalised as ours where financial markets are increasingly integrated and complex, is it really possible to impose such hard sanctions without the West feeling the backlash of its actions?
As expressed by Ravenhill, following World War II the new world economy grew in transnational corporations and ‘private economic enterprises with international operations’ became a key characteristic in the modern economy (2005). This is an example of how the integration of national economies into the global economy has left countries extremely interlinked. As said by Stiglitz: ‘globalization has meant that the world economy has become integrated’, emphasizing the idea that if one major country is in crisis there will be an impact on all other countries (2009). Russia possesses almost a fifth of the world’s natural gas reserves and exports through the Ukraine to the rest of Europe (Henley, 2014). An article in the Financial Times reported that in 2013 alone, Russia supplied 30% of gas to Europe (2014). This means that come winter the demand of gas will increase in Europe and the reliance on Russian gas will come into play, surely Putin will choose this time to make an impact. Aside from the gas industry, the technological sanctions will have repercussions in the German economy as it is the main EU exporter of technological goods to Russia (Monaghan & Rankin, 2014). European countries will definitely feel the immediate consequences of their actions, whereas, the US will most likely be hit by the ripple effect coming from Europe.
As stated by The Guardian the countries getting the short end of the stick are ones such as Slovakia, Ukraine and Moldova (2014). Each of these countries rely excessively on Russian gas reserves and the pipelines that run through the Ukraine to receive it. Because of globalisation the crisis in the Ukraine is now effecting countries that are not directly involved. This also applies to the sanctions being applied to Russia. Less economically developed countries will be harmed because of the increased prices of gas. The market price of gas has already gone up by 10 percentage points as opposed to last year at this time (Henley, 2014). Whether this be because of market instability or a so-called “gas war”, smaller LEDCs are suffering the consequences. Whereas Western countries may be able to afford such a hit the lack of consideration for the others is once again exemplified.
Luísa H Castro
Foy, H., Oliver, C. (2014). Can Europe wean itself off Russian gas?.Available at: http://www.ft.com/cms/s/0/0078c61c-52d5-11e4-a236-00144feab7de.html#axzz3KBoewQnx. [Accessed 26 November 2014].
Henley, J. (2014). Is Europe’s gas supply threatened by the Ukraine crisis?. Available at: http://www.theguardian.com/world/2014/mar/03/europes-gas-supply-ukraine-crisis-russsia-pipelines. [Accessed on: 27 November 2014].
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Monaghan, A., Rankin, J. (2014). EU and US sanctions against Russia: which will they hurt more?. Available at: http://www.theguardian.com/business/2014/jul/30/eu-us-sanctions-against-russia-hurt. [Accessed 25 November 2014].
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