Economics of Liberty

Global Financial Markets Are Punishing Russia

The economic cost of unilateral action

Keith Farrell

The United States and its western allies are preparing to impose economic sanctions on Russia in response to that nation’s military aggression in Ukraine. It appears that the economic costs of that intervention are already being felt in Russia, even without sanctions.

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In fact, because Western Europe gets nearly a quarter of its natural gas from the Russian company Gazprom, sanctions may be inadvertently damaging to European interests. The world markets, however, are already penalizing Russia for its actions.

Transactions in stocks, bonds and currency markets have forced Russia to face consequences for its unilateral action in Ukraine. While world leaders wring their hands concerning the best way to respond, world markets are already acting, as investors flee from an unstable situation created by Russian President Vladimir Putin’s actions.

The two main Moscow stock markets, RTS Index and Micex Index, have fallen off sharply since the rise of tensions.

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Russia’s economy was already weaker than they like to project, with runaway inflation posing a severe threat to the ruble. Russia had just recently managed to curb inflation to double digit inflation. In an effort to shore up the ruble amid economic downturn, Russia’s central bank raised interest rates today.

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The economic waves Russia is now having to navigate may serve as a more effective motivation than any tactics levied by Western leaders.

It is a potent reminder of the power of markets and the challenges free trade presents to autocratic control.

About the author: Keith Farrell is a political commentator and community organizer. He is a frequent contributor The Libertarian Republic and the founder and president of Spirits of ’76, a nonprofit service club dedicated to solving community problems with volunteer efforts.SFL black and white He graduated from the University of Connecticut and holds a BA in American Studies and Urban & Community Studies. Follow him on Facebook

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