So as Russia thinks about moving more troops into Ukraine, Western leaders are getting ready for economic sanctions against Vladimir Putin for what he did.
These sanctions will be very different from the ones President Biden put forward yesterday. Legislators in the United States have said that if Russia invades, they’ll unleash the “mother of all sanctions.” The sanctions will cut off Russian businesses from using U.S. dollars and British pounds, which will hit them “very, very hard.”
During this time, Putin has had time to build fortifications. People call this strategy “Fortress Russia.” For the last few years, he has been making sure Russia’s economic defences were up to snuff in order to be ready for this exact moment.
Russia is building a fortress.
If you want to make your economy more resistant to sanctions, the first thing you should do is boost your foreign exchange reserves, which are stocks of foreign currencies held by your central bank. Foreign currency can also be used to keep money flowing during a recession.
In the last few years, Russia has increased its foreign currency reserves to $631 billion, which is good for fourth place in the world.
Because sanctions can hurt people, it’s done a lot of other things to make them less bad.
Russia has cut back on costs so that it can be more financially stable.
Because it might be blocked from the one used all over the world, called SWIFT, it built its own system for sending money.
It has started making things at home to cut down on imports from the West, like Russian Parmesan cheese (keeping an open mind about this).
Also, it’s worth noting that Europe gets 40% of its gas from Russia. So sanctions against Russia’s energy sector could backfire and hurt the West and destabilise the world’s energy markets, which would be bad for the West.
Big picture: Despite the sanctions, Putin’s Fortress Russia is not impenetrable. People who study geopolitics say that the types of sanctions that are being planned will be enough to get through Putin’s defences and cause a lot of damage to the Russian economy right away. These sanctions could stop Russia from getting critical tech materials or cut off Russian banks from getting access to the US dollar.
It turns out that investors are also preparing for the worst: For the first time since Russia took over Crimea in 2014, Russia’s main stock index closed down 11% yesterday.