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Russia and its oligarchs big losers from sanctions

Russia and its oligarchs are the big losers as a result of sanctions imposed by the EU, Switzerland, the US and the UK against 907 individuals, 135 companies and 65 institutions. Russian inflation is now expected to reach 15% quickly and gross domestic product (GDP) will be cut by 5% in 2022.

Oxford Economics also has no good news for next year, estimating that Russia’s economic output will be 7% less next year than it would have been had it not invaded Ukraine.

According to the World Bank, Russia’s $1.5 trillion economy is the 11th largest in the world, and according to the International Monetary Fund, its GDP is about 25% smaller than Italy’s and more than 20% smaller than Canada’s.

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The Losses of the Oligarchs

The fallout from last week’s invasion was rapid: the ruble lost about 30% and its value fell below one cent earlier in the week. The Russian stock exchange is also closed on Monday. The country’s oligarchs also did not get off the hook, whether they were personally sanctioned or not.

They lost a third of their net worth, according to the Bloomberg Billionaires Index. The US and EU sanctions against them, coupled with the ruble’s collapse, have reduced their collective fortunes by $80 billion since the invasion began.

Some saw their assets halved, but the biggest loser in dollar terms was Gennady Timchenko of the Volga Group, an investment and wealth management firm, whose fortunes fell from $22 billion to $10.3 billion.

Russia’s richest man Vladimir Potanin, head of nickel producer Norilsk Nickel, who is 58 years olde on the Bloomberg Billionaires Index, it lost about a quarter of this $24.4 billion worth, though it has not yet been sanctioned.

Leonid Mikhelson, CEO of Russian energy company Novatek, Russia’s second richest person, lost $11 billion and has $21.6 billion left. Russia’s third richest person, EU sanctioned mining magnate Alexei Mordashov, lost more than $5 billion and is left with $21.2 billion. Russian oligarchs lost $39 billion in less than 24 hours.

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EU sanctions

The EU sanctions include targeted restrictive measures with restrictions on economic relations with the non-government-controlled areas of the Donetsk and Luhansk Oblasts and financial restrictions, followed by individual sanctions against Vladimir Putin, Sergey Lavrov and members of the Russian State Duma and economic sanctions .

A third package of sanctions included a ban on overflights in EU airspace and access to EU airports for all Russian airlines, a ban on transactions with the Russian Central Bank, a SWIFT ban on seven Russian banks, suspension of state media broadcasts Russia Today and Sputnik. Full blocking sanctions were also imposed against 22 Russian defense entities, as well as export controls targeting oil refining and restrictions on technology exports.

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UK and US sanctions

The UK’s sanctions include excluding major Russian banks from the UK’s financial system, preventing them from accessing British pounds and clearing payments, freezing the assets of all Russian banks, stopping major Russian companies and the state to raise financing or borrow money and limit Russian deposits with British banks.

The US sanctions include shutting down Sberbank, Russia’s largest bank, freezing the assets of Russia’s second largest bank, VTB Bank, freezing the US assets of Bank Otkritie, Sovcombank OJSC and Novikombank and restrictions on debt and equity for various enterprises and entities critical to the Russian economy.

The US is also cutting off Russia’s supply of technology goods and restricting imports of semiconductors, telecommunications, encryption security, lasers, sensors and maritime technologies.

ALSO READ: Russia Today has been taken off DStv until further notice

Companies leaving Russia

Many companies have also decided to leave Russia or to suspend their activities there. These include Ford, General Motors, Toyota and Volkswagen, as well as Boeing, Airbus, Apple, Airbnb, BP, Exxon, Shell, TotalEnergies, Mastercard, Visa,

Several media and entertainment companies are also sanctioning Russia, with many streaming services cutting ties with state-sponsored Russia Today, while Disney will not release the latest Batman movie in Russia.

Facebook parent company Meta is also blocking access to Russia Today and Sputnik, while Twitter announced plans to reduce “the visibility and amplification” of Russian state media content. Netflix and YouTube also refuse to broadcast Russian state television channels and Spotify has closed its office in Russia.

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Consequences of sanctions

Economists say Russia is facing an economic collapse that will be as bad or worse than the slump of 1998. The Russian economy shrank by 5.3% in 1998. Economists at PMorgan Chase & Co. said in a report to customers Friday that they expect a 7% contraction in gross domestic product this year.

“The longer sanctions are enforced and especially if they are extended to gas and oil exports, the more likely Russia will become an untouchable capital market in the coming years. The currency weakness we are seeing now will inevitably be inflationary, especially if the economy remains cut off from the rest of the world,” said Tim Graf, head of EMEA macro strategy at State Street Global Markets.

Bloomberg Economics says blocking oil and gas exports could cause the Russian economy to shrink by about 14% this year.

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