According to Harvard economist Jason Furman, Russia’s economy is ‘unimportant’ except for its natural gas resources.
His remarks come as the United States and Europe prepare to impose harsh sanctions on Russia if it invades Ukraine.
However, there are concerns that their plans to punish Moscow will also punish the rest of the world.
Russia’s economy is “incredibly insignificant in the global economy except for oil and gas,” according to Jason Furman, a Harvard economist and former adviser to former President Barack Obama.
“It’s essentially a big gas station,” he explained. His remarks come as the West prepares to impose severe sanctions on Russia if it invades Ukraine. While these measures have the potential to destabilize the entire Russian economy, they may also reverberate to further harm the US, Europe, and the rest of the world as they grapple with inflation and rising energy prices — a ripple effect that the West hopes to mitigate.
On Monday, Moscow declared the independence of two Ukrainian breakaway regions and dispatched troops there, raising the prospect of a major war. President Joe Biden has already imposed sanctions on the separatist regions of Donetsk and Luhansk, barring US citizens from conducting any exports, imports, or new investments in these areas.
Despite its size and wealth in raw materials, Russia’s economy is more comparable to Brazil than to Germany, France, and the United Kingdom, according to the World Bank’s most recent nominal GDP data. According to the World Bank, its economy is weaker than that of Italy and South Korea, both of which have less than half the population of Russia.
However, as Furman points out, Russia’s oil and gas exports are significant to the rest of the world.
According to the US Energy Information Administration, the European Union imports roughly 80% of the natural gases it uses, and Russia accounts for 41% of natural gas imports and 27% of oil imports on the continent, according to Eurostat. When combined with the fact that energy prices in the EU have risen from 20 euros to 180 euros per megawatt-hour in the last year, the loss of those gas and oil imports could spell disaster for the region and the interconnected global economy. Meanwhile, in the United States, gas prices have risen to a seven-year high of around $3.50 per gallon, while inflation has reached its highest level in 40 years, at 7.5 percent.
Ukraine, on the other hand, has been a major supplier of grain to other regions, sending 40% of its wheat and corn exports to the Middle East and Africa, according to The Times.
In response to a possible food crisis in those areas, US Secretary of Agriculture Tom Vilsack said on Saturday that American farmers would increase production and “step in and help our partners,” according to another newspaper.
According to a newspaper, Ukraine accounts for 12% of global grain exports and is expected to provide 16% of global corn exports this year. According to Vilsack, American consumers will be largely unaffected, but Europeans will face a “different story.”
“You have to look at the context,” Gregory Daco, chief economist at consulting firm EY-Parthenon, told The Times. “There is high inflation, strained supply chains and uncertainty about what central banks are going to do and how insistent price rises are.”