- fuels from Russia can be done well before 2030”.[1] On the same day that the EU announced its REPowerEU plan, the US announced bans on the importation of Russian crude oil, LNG and coal. It also banned new investment in Russia’s energy sector and prohibitions on Americans financing or enabling foreign companies that are making investment to produce energy in Russia.[2]
- As for the potential impact on the Russian consumer, Mr Shearing told us that:
We have seen some evidence of what I would call mini bank runs. I think that happened last week, and we are seeing less evidence of that this week, so that seems to have been snuffed out quite quickly. In terms of how this will be felt by ordinary Russians, there will be a variety of ways but principally there is going to much higher inflation and a squeeze on real incomes as a result. It is going to be much more difficult to get access to credit because of what is happening in the financial system.[3]
- Dr Walker emphasised the impact for Russian citizens:
We are just seeing people—as in, ordinary citizens—desperately trying to move money. We are hearing from colleagues in Russia about the challenges that they are facing now to access money: the interest rates [which have gone from 9.5% to 20%][4] and the impact. So I think the short-term impact that is having is very clear.[5]
- Another potential consequence of sanctions could be Russia defaulting on its debts,
and the impact of that. Mr Shearing provided the following description of the seeming
resiliency of the Russian Government’s finances and the risk of a default:
Russia’s Government balance sheet is, in order of magnitude, much stronger now. There is much less debt in the system. It is running budget surpluses—partly because of the fortress Russia point that we talked about.[6] The risk of an enforced default because they simply cannot afford to pay is much lower. There is a question of whether there is a selective default out of choice. Indeed, we have started to see some signs that that might emerge—among local currency bonds to foreign investors I suspect we will see non-payment, certainly of coupons in that area. It is a relatively small part of global financial systems. I do not think it would have major financial contagion. Obviously, in 1998, there was contagion. LTCM, a big hedge fund in the US, collapsed partly as a result of taking big bets on Russian debt. There is less of a big contagion risk this time around, but there is also potential for unanticipated consequences.[7]
- ↑ European Commission, Press release: REPowerEU: Joint European action for more affordable, secure and sustainable energy, 8 March 2022
- ↑ White House, FACT SHEET: United States Bans Imports of Russian Oil, Liquefied Natural Gas, and Coal 8 March 2022
- ↑ Q35
- ↑ The Economist, The Rouble’s collapse compounds Russia’s isolation, 28 February 2022, accessed 16 March 2022
- ↑ Q65
- ↑ Mr Shearing had said in answer to Q32: “‘Since the Crimea annexation in 2014, Russia has been running a programme that people have called “fortress Russia” in terms of the economy—running large external surpluses, building up large stocks of foreign assets and cutting external liabilities, therefore diminishing vulnerability to measures like this.”
- ↑ Q49
