Russia vulnerable to economic sanctions over Ukraine

Russia vulnerable to economic sanctions over Ukraine by Anders Åslund:

…Russia has only a 2.9 percent share of global gross domestic product. This is only 6 percent of NATO’s GDP. In 2012, Russian defense expenditures corresponded to one-tenth of NATO’s defense expenditures…

In particular, Russia is likely to be highly vulnerable to financial sanctions. One month ago, the Western discussion on possible sanctions against Russia focused on whether they could be effective. During the spring meeting of the International Monetary Fund in Washington April 12 to 13, the question was turned around: Do we really want to destroy Russia that fast? The dominant theme was that geopolitical risk is back, and Russia is seen as the main risk.


In an insightful article in Foreign Affairs magazine on April 10, Robert Kahn argued that “Russia’s relationship to global financial markets — integrated, highly leveraged and opaque — creates vulnerability, which sanctions could exploit to produce a Russian ‘ Lehman moment ‘: a sharp, rapid deleveraging with major consequences for Russian ability to trade and invest.”

That could mean a “sudden stop” of international finance to Russia, which would have devastating consequences for its economy. State banks and other state-controlled corporations are not creditors to the West but big borrowers. Companies such as Rosneft have larger debts than their market capitalization, and their debts are held abroad. If they are not able to roll over their large foreign debts, they will be starved of capital.

H/t: Marginal Revolution