World powers, led by the US, have banned gold exports from Russia as the latest step in their efforts to punish Moscow and President Vladimir Putin for his invasion of Ukraine. The decision by the G-7, just days ahead of a major Nato summit, was painted as a show of resolve as existing sanctions on Russia and the five-month-long war itself have already wreaked havoc on the global economy. This is because, in times of economic upheaval, gold remains the go-to backup commodity, and Russia is the world’s third-largest gold producer and one of the biggest exporters of raw and processed gold products.
Sanctioning Russian gold is likely to create a global gold price bubble and cause further instability. However, it is also guaranteed to cause further hardship for Russia. There may still be some loopholes in the sanctions. Most significantly, about 90% of Russian gold is exported to G-7 countries, and if other countries do not follow the world powers’ lead, there are still hundreds of potential buyers, and even more on the black market. Also, Putin has largely ignored the impact of sanctions on his people and seems single-focused on emerging from Ukraine as the victor, even though that goal remains nowhere in sight as the war continues to drag on.
Meanwhile, the economic fallout of the war remains on top of the G7’s agenda, especially the impact on oil and other energy prices. Recent reports suggest that although China could easily fill several supply gaps created by the Russian sanctions and would be a strong anti-Moscow ally if wooed to the western cause, mistrust of Beijing for geopolitical and other reasons has led to G7 states looking elsewhere. This has given new importance to some Russia-friendly middle-income countries, especially India and South Africa, both of which abstained from the UN vote condemning the Russian invasion of Ukraine and have now been invited to the G7 summit. Interestingly, both are also among the countries hardest hit by the war’s impact on food supplies and prices, with India going as far as banning wheat exports to help control domestic prices.
Published in The Express Tribune, June 28th, 2022.
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