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New Delhi, March 13 (IANS): As US President Joe Biden unveiled new sanctions on Friday against Russia, he made it clear that the totality of the sanctions and export controls is "crushing the Russian economy".
"The ruble has lost more than half its value. They tell me it takes about 200 rubles to equal 1 dollar these days. The Moscow stock exchange has been closed fully for two weeks because they know the moment it opens, it will probably collapse," Biden said.
Credit rating agencies have downgraded Russia to 'junk' status.
The list of businesses and international corporations leaving Russia is growing by the day, Biden said while listing the stark consequences for Russia and its economy that have unfolded since the Ukraine war.
"We will not fight a war against Russia in Ukraine. Direct confrontation between NATO and Russia is World War III, something we must strive to prevent," Biden said on not sending troops to Ukraine.
"And we're going to continue to squeeze (Vladimir) Putin. The G7 will seek to deny Russia the ability to borrow from leading multinational institutions, such as the International Monetary Fund and the World Bank. Putin is an aggressor...And Putin must pay the price," Biden said.
Zoltan Pozsar of Credit Suisse said in a report, "We are witnessing the birth of Bretton Woods III - a new world (monetary) order centred around commodity-based currencies in the East that will likely weaken the Eurodollar system and also contribute to inflationary forces in the West."
"A crisis is unfolding. A crisis of commodities. Commodities are collateral, and collateral is money, and this crisis is about the rising allure of outside money over inside money. Bretton Woods II was built on inside money, and its foundations crumbled a week ago when the G7 seized Russia's FX reserves," Credit Suisse said.
Pozsar said it is a perfect storm but that's precisely what happens when the West sanctions the single-largest commodity producer of the world, which sells virtually everything.
"What we are seeing at the 50-year anniversary of the 1973 OPEC supply shock is something similar but substantially worse -- the 2022 Russia supply shock, which isn't driven by the supplier but the consumer.
"The aggressor in the geopolitical arena is being punished by sanctions, and sanctions-driven commodity price moves threaten financial stability in the West. The commodities market is much more financialised and leveraged today than it was during the 1973 OPEC supply crisis, and today's Russian supply crisis is much bigger, much more broad-based, and much more correlated. It's scarier," Pozsar said.
There are Russian commodities that are collapsing in price and there are non-Russian commodities that are rallying -- this rally is due to the 2022 Russia supply shock.
"It's a buyers' strike. Not a seller's strike, to make things all the more absurd... Russian commodities today are like subprime CDOs were in 2008. Conversely, non-Russian commodities are like what US Treasury securities were back in 2008. One collapsing in price, and the other surging in price, with margin calls on both regardless of which side you are on," he added.
The ban on technology exports to Russia, in response to the war in Ukraine, could backfire on global manufacturers of computer processors and semiconductors, as many crucial components for their production are made exclusively in Russia, an industry expert warned.
"The ban on finished products for Russia will result in a retaliatory ban on the supply of production components and will cause an acute shortage of microprocessors for the whole world. By comparison, the end-of-2021 supply disruption situation will appear relatively light," Oleg Izumrudov, head of the Consortium of Russian Developers of Data Storage Systems (RosSHD), said, RT reported.
Following the sanctions, Russia may default on sovereign bonds for the first time since the Bolshevik revolution in 1917.
A leading ratings agency has warned that Russia is soon likely to default on its debts, as it downgraded the country's bonds further into 'junk' territory, BBC reported.
Fitch Ratings slashed its assessment of Russia to almost the bottom of its scale, just days after downgrading it from investment status.
If Russia does fail to make payments on its debt, it raises the possibility of the first major default on the country's sovereign bonds since the wake of the 1917 Bolshevik revolution, BBC reported.
It is the latest blow to the country's creditworthiness in the wake of its invasion of Ukraine. This week, Moscow said its bond payments may be affected by sanctions.
"The further ratcheting up of sanctions, and proposals that could limit trade in energy, increase the probability of a policy response by Russia that includes at least selective non-payment of its sovereign debt obligations," Fitch said, BBC reported.
Removing Russian oil from the market would make energy prices skyrocket to over $300 per barrel of oil, Russia's Deputy PM Aleksandr Novak said, adding that Russia is not dependent on the West and can "reroute" its supplies elsewhere.
The European officials are "once again seeking to put all the blame for their own recent energy policy shortfalls on Russia", Novak told journalists, adding that "Russia has nothing to do with the current price hike on market volatility", RT reported.
There are grave implications for food prices also. Energy and commodity prices-including wheat and other grains-have surged due to the war in Ukraine, adding to inflationary pressures from supply chain disruptions and the rebound from the Covid-19 pandemic, the IMF said.
Price shocks will have an impact worldwide, especially on poor households for whom food and fuel are a higher proportion of expenses.
Should the conflict escalate, the economic damage would be all the more devastating. The sanctions on Russia will also have a substantial impact on the global economy and financial markets, with significant spillovers to other countries, the IMF said.
In many countries, the crisis is creating an adverse shock for both inflation and activity, amid already elevated price pressures.
Added to that is the tensions around nuclear plants. Ukrainian intelligence has information that the Russian aggressors are preparing a terrorist attack on the "exclusion zone" in Chornobyl and plan to blame Ukraine.
Ukraine's Ministry of Defence officials said, "According to information available, Vladimir Putin has ordered the preparation of a terrorist attack on the Chernobyl nuclear power plant."
The Russia-controlled Chornobyl nuclear power plant plans to create a man-made catastrophe, for which the occupiers will try to shift responsibility on Ukraine, Ukrayinska Pravda reported.
To make matters worse, Russia has accused US of backing biological laboratories on the territory of Ukraine, experiments were carried out with samples of coronavirus from bats, said the official representative of the Russian Ministry of Defense, Major General Igor Konashenkov.
"In the biolaboratories created and funded in Ukraine, as the documents show, experiments were carried out with samples of bat coronavirus," he said, RT reported.
Konashenkov said the department would soon publish another package of documents on secret military biological activities of the United States on the territory of Ukraine and present the results of their examination.
US President Joe Biden leaves the White House in Washington, DC March 8, 2022. (Photo by Ting Shen/Xinhua/IANS)