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Rus­sia and the West are mov­ing to­wards all out eco­nom­ic war

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Russia and the West have been engaged in a sporadically escalating series of economic skirmishes for eight years. So far, this economic tug of war had some notable effects on Russia, but barely affected the wider global economy. With Russia’s unprovoked war of aggression on Ukraine unfolding at a devastatingly rapid pace, however, that is likely to change.

The first move in this war was made by Russia and involved Ukraine. In December 2013, at the height of the Euromaidan protests, Moscow presented the pro-Russia government of Viktor Yanukovych with a highly complex $3bn loan, which was laden with unique clauses that gave it significant economic leverage over Ukraine’s future.

Just a few months later, in February 2014, protesters deposed Yanukovych’s regime, and a new debate emerged about whether Ukraine should pay Russia back.

When Russia launched its initial invasion of Ukraine, seizing Crimea that March, the Obama administration blacklisted a host of Kremlin officials and announced a tailored new sectoral sanctions regime. It aimed to impose direct economic costs on the Russian state and key enterprises. Although slightly less stringent and expansive, the European Union imposed similar restrictions.

The United States also moved to help economically rescue Ukraine and manage its post-war debt restructuring, with the International Monetary Fund adjusting its rules in a way that defanged Russia’s earlier loan chicanery. Russia’s then-Prime Minister Dmitri Medvedev likened the move to “opening Pandora’s box” for the global financial framework.

The new US measures included limitations on Western investment in Russia’s oil and gas industry but more significantly restricted the ability of affected companies to raise Western financing. Russia’s state-owned oil company Rosneft went from being among the largest emerging market creditors to Western banks to being all-but cut-off from such loans. It had to be bailed out by the end of 2014, an action that was taken with the complicity of Russia’s Central Bank, despite it sending the ruble into free fall. Credit for other Russian entities declined as well, and the previous spate of Russian IPOs on London’s Stock Exchange........

© Al Jazeera

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