Russia has been under sanctions since it annexed Crimea in 2014. This time, after its invasion of Ukraine, the burden of sanctions is much bigger. The Crimean Peninsula is still part of the Russian empire, and the full-blown war that broke out on 24 February between Russia and Ukraine still shows no signs of ending.
The world is now calculating the losses and gains from the sanctions – an economic weapon that is now punishing the people all over the world instead of stopping a war.
Five years after the 2014 European Union's trade and finance sanctions on Russia, the German media DW concluded in a report: "They [sanctions] have not caused Vladimir Putin to change his ways; they have, however, hit the exports of German engineering companies and Russian farmers."
Now, how are the latest plethora of sanctions by the US and its European allies hurting Russia and helping the world's economies?
Sanctions will cripple Russia's economy – it seemed like an "open and shut case" for most of the global economists. But the effects of this much-used economic weapon this time will be much wider and uneven across the world, making queues longer at TCB trucks in Dhaka and cucumber dearer in London's superstores.
A Time magazine report tries to figure out the losers and gainers from the sanctions.
Who are going to be the surprise winners?
Keep the arms sales aside; defence industries in the USA and Europe will obviously prosper in the near term with stocks in aerospace and defence sectors rallying in anticipation of wartime profit boom.
Time identifies the US as the likely top candidate for the foreign money redirected away from Russia due to the war. It also lists the US and Europe as potential beneficiaries of "brain drains" from Russia and Ukraine which may see a Cold War era-like exodus of high-skill professionals, scientists and intellectuals.
Countries like Mexico and Turkey could also benefit from increased trade and act as a "go-between for Russia and the rest of the world", transshipping goods from non-sanctioning countries.
Erica Groshen, senior economic adviser at Cornell University, sees cybersecurity, fossil and renewable energy also among the areas to see an immediate trade boost. Oil exporting countries may have a longer period of boom.
Will gainers outnumber the losers?
Definitely not. The human cost of a war is uncountable. Only its economic cost can be assessed to some extent. Invaded Ukraine, which struggled to rebuild its economy in the past three decades since its separation from the former Soviet Union, is taking the full blow from the war. As an immediate result of sanctions, Russia, the attacker, has seen its foreign assets of $640 billion stuck in the West and its trade transactions with the rest of the world badly disrupted.
The economy of Ukraine will shrink 20% this year, according to the European Bank for Reconstruction and Development (EBRD). In an assessment of economic impacts over a month after the Russian invasion of Ukraine, it projects a 10% decline in the Russian economy.
While Ukraine's war-battered gross domestic product might rebound by 23% next year in case a ceasefire is brokered within a couple of months and reconstruction begins, Russia might see zero growth due to heavy and far-reaching economic sanctions with negative spillovers in its neighbours, the EBRD said.
The London-based lender warned that the war and the subsequent sanctions have triggered "the greatest supply shock since at least the early 1970s", and would have a severe effect on economies far beyond the immediate area of the conflict.
Food getting pricier
Pricier food is the most alarming among the myriad of downsides from the sanctions which disrupted supplies of grain and farm inputs.
Combined wheat exports from Ukraine and Russia, both global breadbaskets, make up 29% of the global export market and wheat future price already surged by 77%. The global fertiliser supplies may decrease as Russia and its ally Belarus supply over one-third of the world's potash, a key ingredient in fertiliser.
Russia alone controls 14% of nitrogen-based plant food production. Reduced supplies of these key inputs might push up farming costs and cause further food price hikes worldwide.
Sanctions will slash corporate profits in the US and Europe due to rising energy costs and technology firms pulling out of Russia, shaving off GDP growth – up to 0.5% in the US and 1% in Europe in the next year or 18 months, Milligan estimates.
Making the whole world pay
It reminds one of the old proverb: Burn not thy fingers to snuff another man's candle.
Though Europe's economy is more than 10 times the Russian economy, it depends heavily on Russian supplies. So impacts of sanctions would be worse for Europe because it trades more with Russia than the US does.
With a safer oil reserve, the US cannot also rest assured.
America's most formidable energy weapon may fall flat, too, warns a Bloomberg opinion piece as Washington is considering a plan to release about a million barrels a day of crude from the US reserves for several months to curb rising gasoline prices. Crude costs will not fall as OPEC+ members, who are benefiting from higher prices now, have shown little interest in helping Washington and harming Moscow by lifting the pace of output growth, it said, warning that higher release could rather put America's own crude reserve at risk.
Having been put under sanctions since 2014, Russia has developed some resilience. It was working on an alternative to SWIFT, a global system of transactions through banks. Within a couple of days of the Ukraine strike, the West froze much of Russia's $640b foreign exchange reserve. Russia acted fast to absorb the shock. It needs cash, while Europe needs Russian gas. Oil and gas exports make up a third of Russia's revenue, and Europe meets most of its gas needs from Russia. So, Russian President Vladimir Putin asked foreign buyers to pay energy export receipts in its own currency rouble effective from 1 April, or risk gas supplies being cut off to "unfriendly" countries. Meanwhile, the rouble proved its resilience, gaining much from its fall against the US dollar a month ago, trading at 83 roubles per dollar and 93 versus the euro on Thursday.
Europe, whose oil contracts were stipulated in euros, will now have to pay in rouble to get Russian gas through pipeline. Despite its plan to end dependence on energy imports, Germany still gets half of its gas from Russia. Dependence on Russian gas ranges from 10% to 100% of the needs of European countries and most countries do not have stocks to keep their rooms warm next winter.
Russia is taking up steps to raise oil sales. It is offering India steep discounts on the direct sale – as much as $35 a barrel on its flagship Urals grade – while Brent prices have risen further, reports Bloomberg.
Russian barrels have been flowing to Asia in greater volumes, and India and China have been the key buyers. Asia's No 2 oil importer, India is among countries that have been doubling down on Russian crude, defying international pressure and sanctions. Russia has also offered rupee-rouble-denominated payments using Russia's messaging system SPFS, the Russian alternative to SWIFT.
Sanctions on Russia are making the global trade complicated for countries with weaker stakes in the global context. Alternative payment systems will create tough choices for smaller economies. The OECD warns such alternatives could erode the US dollar's dominance in global trade payments.
The IMF also aired a similar warning. Financial sanctions imposed on Russia threaten to gradually dilute the dominance of the US dollar and could result in a more fragmented international monetary system, IMF's First Deputy Managing Director Gita Gopinath told The Financial Times. The situation could also spur the adoption of digital finance, from cryptocurrencies to stablecoins and central bank digital currencies, she added.
The victim of the disastrous invasion wanted "real sanctions" against Russia with full embargo on Russian energy, because, in the words of Ukrainian lawmaker Oleksiy Goncharenco, "every barrel of Russian oil and every cubic meter of Russian gas is now full of the blood of Ukrainians". But the sanctions have been selective, with the west weighing well the significance of their actions on their own economies. Western embargoes are painful for Russia; Europe and the rest of the world will have more to lose than to gain. And suffering from sanctions would be more unbearable for but he wouldn't feel their full effects for several years. In the short term – which is what counts during an invasion – Europe and the rest of the world have more to lose.
Putin might not feel the full effects of sanctions for several years, but the pinch is immediate and hard for an ageing man behind a long queue for subsidised rice in front of an open-sale truck in a Dhaka lane or a cucumber farmer in a south-east England village whose glasshouses stands empty due to soaring cost of energy. Weapons aimed at Putin will end up punishing growers and consumers all over the globe.