Conflict in Ukraine: Russia will occupy part of Ukraine and the sanctions will be few

In this interview with Cyba Audi from Asharq Business Bloomberg, Christof Rühl, member of the Advisory Board of Crystol Energy and a Senior Fellow at the Center on Global Energy Policy at Columbia University, comments on the escalations over the Ukrainian borders.

According to Christof, Putin is in a slow-moving crisis. He is watching the situation but he does not know how to prevent it. To date, Russia’ economy proved to be resilient against the wave of sanctions in 2014, after the annexation of the Crimean Peninsula. Russia currently holds enough foreign reserves, its transactions in US dollars and its foreign debt are relatively low, and was able to replace imported food commodities by domestic ones. Moreover, its economy can withstand a drop in oil prices to around $40 per barrel.

Overall, Russia’s economic situation is in a good position. However, it came at the expense of the population. Levels of income and wealth remain relatively low compared to the world’s average. Between 2014 and 2019 (before the Covid-19 pandemic), the real GDP grew at an average of 0.8% year on year, still low compared to the world average of 3%. The influence of sanctions and high military spending were the driving factors for these stagnant growth levels.

Christof adds that Russia’s economy suffers from endemic corruption and isolation from the outside world and the uncertainty over the Ukrainian dilemma. It is hard not to perceive that Russia does not have ambitions to annex other parts of Ukraine which it claims belong to the former Soviet colleague.

War is not the only outcome; the type of sanctions will determine the way forward. The US stated it will impose harmful sanctions, and this will mean two things. The first being the separation of Russia from the SWIFT payment system, and the second being depriving European states from importing Russian oil and gas. The latter will submerge Europe into a deep energy crisis. In contrast, the US can solely withstand the disruption in energy supplies due to its domestic oil and gas production. The most probable scenario is that Russia will occupy parts of Ukraine and be subject to mild sanctions, and more problems will emerge underway.

It is hard to achieve the intention of both the Americans and the Europeans. Russia under Putin’s rule has a long-term strategy to achieve maximum gains from the dispute on Ukraine. It is not in the interest of Russia to have an economically and institutionally strong Ukraine as it will affect its national security. The West cannot act in the same approach as that of the Russian regime. It’s a lose-lose situation in all cases.

Watch the full discussion (in Arabic):

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Global Economy and Energy Markets Weekly Commentary – 23rd Jan ’22“, Christof Rühl, Jan 2022

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