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Isolated during the Cold War, Russia is once again experiencing the same fate during the conflict it started with Ukraine. Since Russia has a major role in the world’s energy production, agricultural commodities and metals, the country’s exclusion from global trade and finance due to the stifling Western sanctions has created a gaping hole in the world economy, according to data, experts.
Russia, which did not have a significant position in international trade during the Soviet Union period, was mostly trading with Eastern Europe at the time. However, the emergence of Mikhail Gorbachev as the Soviet leader in 1985 opened the door to international markets for the country.
According to the data of the United Nations Conference on Trade and Development (UNCTAD), after the collapse of the Soviet Union in 1991, Russia became one of the 25 largest trading countries in the world, accounting for approximately 1% of global exports. Later, this share reached about 3%.
In the beginning, Russia’s largest export destinations included Germany, the U.S. and Italy, which started trading mainly in oil and gas.
By 2002, the country had become a significant supplier of wheat to foreign markets, accounting for almost 6% of global exports, according to the Observatory of Economic Complexity data.
When agriculture became a smaller part of the U.S. economic output, Russia stepped in. The U.S. held 17% of the international fertilizer market in 1995. Russia supplied about 10% of it. While Russia took the lead after eight years, it became the top wheat exporter as of 2016.
According to the World Bank data, by 2020, global trade accounted for 46% of Russia’s gross domestic product (GDP). More than half of the country’s export income comes from oil and gas, with metals accounting for 11% of the total exports.
Another blow to global trade
After the war in Ukraine, the country’s trade took a new beating with the sanctions imposed on Russia.
While countries such as the U.S. and the United Kingdom announced that they would stop buying Russian oil, companies and countries began to avoid Russian goods due to restrictions and payment difficulties.
Russian President Vladimir Putin also imposed restrictions on the export of certain products in retaliation to Western countries. The Kremlin announced last week that it would ban the export of certain agricultural, automotive and medical products until the end of the year.
Since Russia leads in the production of energy, agricultural commodities and metals, the ongoing war and increasing sanctions every day have further pushed commodity prices up, a trend that had already started with the COVID-19 pandemic.
Meanwhile, according to reports, Russia already has willing customers such as China, which is its biggest export destination, while India can buy the country’s oil and other goods at a discount.
In addition, it is noteworthy that countries that makeup at least 35% of Russia’s global markets have not yet imposed sanctions or cut economic relations. Despite this, some of these countries seem to have difficulties in transporting goods from the Black Sea.
Western countries’ efforts to push Russia out of the global economy are also escalating a global struggle for alternative supplies of everything from gas to nickel and fertilizer.
Other commodity producers are also starting to benefit from the rise in prices. The Oxford Economics report revealed that more than a third of emerging markets have benefited from a 20% increase in export prices since the beginning of this year.
Financial collapse
Peterson Institute of International Economics (PIIE) head Adam S. Posen stated that the value of the ruble fell as a result of the Western sanctions imposed on Russia.
Pointing out that Russia will have difficulties in meeting defense and consumer needs as it will lack critical components, Posen said, “The reaction of the democratic world to Moscow’s aggression and war crimes is correct on both ethical and national security grounds. However, these actions are more important than economic efficiency. There are negative economic consequences that go far beyond Russia’s financial collapse.”
Noting that there have been trends that have eroded globalization in the last 20 years, Posen said the Russian occupation and the consequent sanctions will worsen this erosion.
Posen noted that this will not prevent many governments from retreating and trying to protect themselves by withdrawing from the global economy.
“The economic consequences for the world will be huge, and policymakers need to realize and balance them as much as possible,” Posen said.
