By Ciara Linnane
Talk that the international sanctions imposed on Russia in the wake of its unprovoked invasion of Ukraine are creating the conditions for a global famine are entirely false, according to two leading academics at the Yale School of Management.
Tian and Jeffery Sonnenfeld, senior associate dean for leadership studies at the Yale School of Management, made that case at a Thursday briefing at the Washington Foreign Press Center, where they updated reporters on the dire state of the Russian economy following months of sanctions and an exodus of international companies from Russia.
On the subject of famine, Tian explained that, even if no wheat were able to be extracted from Ukraine this year, the global supply remains higher than it was last year. Wheat from Ukraine would only further increase supply. Reflecting that dynamic, wheat prices have actually fallen back to where they were before the Russian invasion, he noted, and wheat futures are in contango and not in backwardation, suggesting there is no supply shortage in spot markets right now
“So that goes to show that a lot of the initial spike in wheat prices in March and April, where [the price] nearly doubled, was driven more by financial markets pricing in a sense of Armageddon, which never came to pass,” he said. “It’s not reflecting actual fundamentals of supply and demand, because we have increasing supply.”
Sanctions are having a far more devastating impact on the Russia economy than is being claimed by President Vladimir Putin, said Sonnenfeld, referencing a recent Yale report on the subject.
The report, called “Business retreats and sanctions are crippling the Russian economy,” found that, far from the “prosperity” touted by the Kremlin and Putin, the sanctions — and the exodus of more than 1,000 global companies — are having a catastrophic effect.
Russia’s position as a commodities exporter “has irrevocably deteriorated,” as it has lost access to its former main markets and is facing challenges in pivoting to Asia with nonfungible exports such as piped gas.
And while China and India are willing to buy some of the oil and gas that’s no longer flowing to Western markets, they are demanding a $35-a-barrel discount, “and it takes 35 days for that oil to get transported to East Asia, contrary to just two to five days in Europe,” said Tian.
Putin also likes to boast about the strength of the ruble /zigman2/quotes/210561610/realtime/sampled RUBUSD -1.6944% /zigman2/quotes/210561584/realtime/sampled RUBEUR -2.0232% /zigman2/quotes/211337341/realtime/sampled RUBCHF -2.0212% , but that, too, is a myth.
“It’s an artificial exchange rate,” said Tian. ” It’s a reflection of capital controls. Simply put, if you live in Russia right now, there is no legal way for you to obtain dollars. You can’t access dollar deposit accounts; you can’t buy dollars from the bank.”
Yale researchers have also found by examining trade data from countries that neighbor Russia — Russia is not releasing its trade data — that they are the beneficiaries of net capital and talent inflows.
Tian and Sonnenfeld cited as examples Estonia and Uzbekistan, which are currently seeing hundreds of thousands of highly trained Russian tech workers flocking in.
“You have new financial centers being developed, for example in Tashkent, where the Tashkent IT park has tripled in size thanks to the influx of Russian migrants,” said Tian, of the Uzbek capital.
Asked how long the Russian economy can withstand the pressure from sanctions, Sonnenfeld said it’s hard to specify a date but noted that it’s already running deficits, which are impossible to finance given that capital markets are fully closed to Russia.
That means Putin has to draw down rainy-day funds, which total about $300 billion, with another $300 billion frozen by international governments.
“What this is, is it’s the structural erosion of Russia’s economy at every single level over the intermediate to long term. It’s not an overnight financial crisis or an overnight depletion of rainy-day funds.
“Budget deficits can be sustained in the short term, but they’re unsustainable in the intermediate to long term when you’re facing the crises that Russia is facing,” he said.
For the full list of companies: Visit the Yale School of Management website