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Analysis News

Sanctions imposed on Russia: a big change to daily life

Introduction

This year, on the 24th of February, the world witnessed the Russian invasion of Ukraine. After rising tensions, the Russian Government decided to start the ‘special military operation’ which has since claimed thousands of lives. As a result of this conflict, many countries were quick to impose strict economic sanctions on Russia, which have already had their effect on the Russian economy. But what are the consequences of such sanctions on daily life in Russia?

What sanctions have been imposed?

Many countries, among them the US, UK, New Zealand, and the EU member countries, immediately imposed different sanctions to try and stop Russia from further military actions. The more or less immediate reaction of the US government was to ban the export of certain technologies to Russia, which would “make it harder… to modernize [Russia’s] oil refineries.” (Al Jazeera) However, one of the most significant actions the US took was banning Russian oil, which is one of Russia’s biggest exports. Among many others, the EU froze the European assets of Russian President Vladimir Putin and his foreign minister Sergey Lavrov. Russia’s ally country, Belarus, also suffered some consequences as the EU banned imports of products from tobacco, mineral fuels, cement, steel, iron, etc. Many different companies such as IKEA, Spotify, and Apple have also decided to leave Russia. Among them are also Visa and Mastercard who have suspended operations in Russia. This has already had its effects on the Russian economy because people are unable to complete transactions.

Impacts on daily life in Russia

When the war started and the sanctions were imposed, the Russian rouble “plummeted…, leading many retailers to raise their prices.” People living in Moscow believe that while food may not disappear, prices will probably rise exponentially. “On 20 February I ordered groceries for 5,500 roubles [about $57; £44] and now the same basket costs 8,000,” says an EU citizen living in Moscow. While certain retailers are simply limiting the amount of products people can buy, others have “agreed to limit price rises on some staples to 5%”. Moreover, there has been a more than 10% increase in the prices of smartphones and televisions, but many of them quickly sold out before the companies left the Russian market.

International impacts

Perhaps one of the most significant sanctions was one imposed by the US when it banned imports of oil and gas from Russia. The UK has also followed in the US’s steps and has started to “phase out oil imports”. The European Union said it would “move to end its reliance on Russian gas”. 

Why is this important? Along with Iran and Qatar, Russia is home to the largest reserves of natural gas. Half of the world’s natural gas reserves in 2020 were accounted for by the three aforementioned countries. In 2021, 45% of the EU’s gas imports and 40% of its entire gas consumption came from Russia. Despite the EU and other countries announcing plans for ending their reliance on Russian oil and gas, it seems as though these sanctions will have certain long-lasting consequences. As soon as the US stopped such imports from Russia, oil and gas prices started to rise and the same is expected in other countries that have imposed similar bans.

Conclusion

Sanctions imposed on Russia have so far affected its citizens much more than the people with the power to stop the war in Ukraine. However, their long-lasting effects on the conflict remain to be seen. It is true though, that bans on Russian oil and gas from some of the major countries in the world will have great consequences for the world’s economy as people are realizing their economic dependence on Russia and governments who support Ukraine will try to distance themselves from such policies and trade in the future. Daily life in Russia, although already hard, is expected to get harder, as products disappear and soon enough, jobs might also vanish. In this case, Russia will have a very hard time getting its economy back on track and the lives of its citizens back to normal.

Sources

Al Jazeera Staff. “Infographic: How Much of Your Country’s Gas Comes from Russia?” Www.aljazeera.com, 17 Mar. 2022, http://www.aljazeera.com/news/2022/3/17/infographic-how-much-of-your-countrys-gas-comes-from-russia-interactive. Accessed 19 Mar. 2022.

—. “List of Sanctions against Russia after Ukraine’s Invasion.” Www.aljazeera.com, 3 Mar. 2022, http://www.aljazeera.com/news/2022/2/25/list-of-sanctions-on-russia-after-invasion.

—. “US Bans Russian Oil: What Is next for Oil and Gas Prices?” Aljazeera.com, Al Jazeera, 9 Mar. 2022, http://www.aljazeera.com/news/2022/3/9/us-bans-russian-oil-what-does-this-mean-for-oil-prices.

Badshah, Nadeem. “Visa and Mastercard Will Both Suspend Operations in Russia.” The Guardian, 5 Mar. 2022, http://www.theguardian.com/world/2022/mar/05/visa-and-mastercard-will-both-suspend-operations-in-russia. Accessed 19 Mar. 2022.

Hanbury, Mary, et al. “Here Are the Major US and European Companies Pulling out of Russia Following the Invasion of Ukraine.” Business Insider, 10 Mar. 2022, http://www.businessinsider.com/list-all-the-companies-pulling-out-of-russia-ukraine-war-2022-3#28-tiktok-28. Accessed 19 Mar. 2022.

Shamina, Olga, and Jessy Kaner. “Russia Sanctions: How the Measures Have Changed Daily Life.” BBC News, 13 Mar. 2022, http://www.bbc.com/news/world-europe-60647543.

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News

The Diplomatic Boycott of the Beijing 2022 Winter Olympics

Background Information

The Beijing 2022 Winter Olympics are set to take place this coming February, meaning that some countries have already begun planning out their delegations. However, things have taken an unexpected twist as in the last month, the United States, Great Britain, Canada, and Australia have all announced that they will be diplomatically boycotting the event. Notably, a diplomatic boycott’s major differentiation from a complete Olympic boycott is that in a diplomatic boycott, only government officials from the countries boycotting the games will be absent instead of all the athletes as well. Additionally, Japan has also proclaimed its intentions to not send an official government group to the Olympics, however, they have not formally stated this to be a flat-out diplomatic boycott. 

Why is this happening?

The United States, the first country to announce its decision to boycott the Olympics, stated that the decision comes in response to concerns over numerous human rights violations by China. Britain, Canada, and Australia’s reasoning for the boycotting echoed similar values, with Australia’s added notes of boycotting because of China’s hostility towards their imports and vocal criticism of Australia’s move to build new nuclear synonyms. 

China’s Response

As you can imagine, China has not responded favorably. It has denied all of the accusations made so far and has claimed that these countries are fabricating lies to make them look bad. They also stated the United States would pay for their actions and that they never wanted British or Australian government officials at the games in the first place. 

Impacts

The fallout with China has been mostly verbal for the United States, Britain, Canada, and Australia since their declaration to diplomatically boycott the games. However, as stated above, China has hinted at retribution, at least against the United States. Notably, both the United States and Australia are slated to host the Los Angeles 2028 and Brisbane 2032 Olympics respectively, so China’s retribution may come in the form of boycotting those games if nothing else. As for a more short-term impact of the diplomatic boycott of the games, it is evident that tensions have only continued to rise between China and the West, and with numerous powerful nations constantly at each others’ necks, who knows what’s to come for the international community?

Sources

https://www.nytimes.com/article/diplomatic-boycott-olympics.html 12/24/21

https://www.reuters.com/world/china/australia-joins-diplomatic-boycott-beijing-winter-games-2021-12-08/ 12/24/21

https://olympics.com/ioc/olympic-games 12/24/21

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Weekly Summaries

13th – 19th of December

Drastic Changes for the E.U.

Last week, the E.U. proposed some very drastic changes, which involve taking away the unfettered movement of people between E.U. countries. This is a hallmark sign of the E.U., but it could become a distant memory if both all national government and the E.U. Parliament approve of the change. If this would be the case, member countries could re-introduce border checks as frequently as they wish. The European Commission justified the proposal by stating that it would “help member countries better respond to troubles stemming from migration and the pandemic,” according to the New York Times.

Other News

  • Storms across 6 U.S. states killed at least 90 people. One of the tornadoes will become the “longest tornado in U.S.,” according to Kentucky’s governor.
  • The first official visit by an Israeli leader to the UAE took place on Tuesday the 14th of December. Israel’s prime minister Naftali Bennett met with the crown prince of the United Arab Emirates, Mohammed bin Zayed.
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News

Biden Releases Reserves to Pump Oil Supply

Introduction

President Joe Biden recently announced the release of strategic oil reserves to alleviate the global lack of supply and ease soaring gas prices. In parallel with nations such as China, India, Japan, South Korea, and the United Kingdom, the US Department of Energy has decided to release 50 million barrels of oil from the “Strategic Petroleum Reserve” to assist in lowering energy prices and address the current pandemic-induced mismatch between oil demand and supply.

Context

Going back to basics, we can see how this move would help slow down rising gas prices for Americans: an increase in the supply of oil will put downward pressure on oil prices and cause an extension in the quantity demanded. The shortage of oil that is occurring due to economic recovery from the pandemic worldwide is risky for economic growth. Since oil is an input in numerous industrial activities, energy prices are a very important economic indicator. Oil prices directly affect the prices of goods made with petroleum products, and they indirectly affect the cost of things such as transportation, manufacturing, and heating. Thus, rising oil prices are generally indicative of rising inflation, and vice versa. 

Biden’s announcement comes after producers in OPEC (The Organization of the Petroleum Exporting Countries) resisted calls to increase their supply in order to help cool down the market and ease rising inflationary pressures. It is important to note that around 30 million of these barrels are in fact an exchange, where companies and traders will take the oil now and return it over a specific time frame in the future. This allows the Department of Energy to leverage its Strategic Petroleum Reserve, which includes over 600 million barrels stored in Texas and Louisiana, during future economic crises. An additional 18 million barrels will be “an acceleration of a previously authorized sale.”

Outlook to the future

The President has been under a spotlight pressuring him to provide Americans with economic relief to combat high gas prices and inflation. He has been blamed for the current economic state of the country, namely the record-high inflation levels. In addition to his decision to release the reserves, he has called on federal regulators to investigate whether oil and gas companies are engaging in”illegal conduct” (anti-consumer or anti-competitive behaviour) by profiting from skyrocketing energy prices during the pandemic. 

As inflation in the States remains exorbitantly high, we can only wait and see what impact Biden’s current plans will have on domestic consumers and how they impact the macroeconomy.

Sources

  1. https://www.whitehouse.gov/briefing-room/statements-releases/2021/11/23/president-biden-announces-release-from-the-strategic-petroleum-reserve-as-part-of-ongoing-efforts-to-lower-prices-and-address-lack-of-supply-around-the-world/
  2. https://www.cnbc.com/2021/11/29/biden-ready-to-release-more-oil-reserves-to-cool-price-amos-hochstein.html
  3. https://www.usatoday.com/story/news/politics/2021/11/23/gas-prices-biden-release-50-m-barrels-strategic-oil-reserve/8722649002/
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Analysis

The Economics of “Black Friday”

Introduction

Black Friday is always on the Friday after American Thanksgiving and fell on the 26th of November this year. Originally, Black Friday was an American tradition that started with New York’s apartment store “Macy’s” in the early 1900s. More recently, however, Black Friday has spread across the world and is very popular due to its characteristic low prices. This leads one to question how it is possible for Black Friday to still be so profitable for retailers.

Loss Leader Marketing

Loss Leader Marketing is a marketing tool that businesses use to gain brand loyalty and to attract new customers, especially on Black Friday. The strategy behind loss leader marketing is that customers are incentivized to enter a store through the promotion of a special discounted item. This discounted item is placed toward the back of the store so that customers walk past many other products (these often aren’t discounted) in order to reach the product. Customers often end up buying more than just the discounted item, which means that the total sales of all the products make up for the loss the store incurs through the discounted item. Consumable items — items with higher margins that are repeatedly purchased — are often marketed using this loss leader marketing strategy. 

For example, the retail giant Costco has established a reputation as being a low-price distributor among consumers. Costco achieved this reputation by selling some discounts on items such as gasoline, food, and in-store items. This brand image means that consumers often first think of Costco when considering whether or not to make a purchase, which increases the total sales Costco makes.

Price Discrimination Strategies

Price discrimination is another marketing strategy that aims to make use of the various amounts consumers are willing and able to pay. In a retailer’s perfect world, every consumer would pay the maximum amount they are willing to pay for the product, meaning that producer surplus is maximised. This marketing strategy is also used on Black Friday by retailers to break into new markets and draw in new consumers. Companies may price discriminate by setting their products at different prices in different stores, depending on the income of people who are most likely to pass that store.

2021’s Black Friday

Early observations have revealed that there were most likely fewer people out physically shopping on Black Friday in 2021 than in previous years. Instead, more and more people seem to opt to shop online instead. The National Retail Federation predicted an increase in sales between 8.5% and 10.5% from 2020 while early data from Mastercard Spending Pulse revealed that Black Friday sales may have actually been up by 12.1% in the US.

Conclusion

Due to COVID-19, fewer and fewer consumers are shopping in physical stores and many have switched to online retailers instead. This is bad news for smaller firms who cannot compete with “super-retailers” like Amazon. As there is a shift towards online retail, shopping bots have also become more and more popular among consumers to ensure that they will be able to get a pair of those rare sneakers. Finally, there has also been a trend in recent years to not limit Black Friday Deals just to Black Friday. Increasingly, more and more retailers are offering Black Friday discounts much earlier, some as early as October.

Sources


Discussion Question: What is your experience with Black Friday discounts?

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Weekly Summaries

29th of November – 5th of December

Turkish Lira further loses value

After the Lira crashed last week, protests broke out across Turkey. The crash comes after months of worsening economic problems that already caused the currency to lose more than 45 percent of its value from the start of 2021. Last week alone, the currency devalued by around 20 percent. The police have responded by detaining protestors: last Wednesday the police detained at least 70 people in districts of Istanbul who were protesting the “government’s management of the economy,” according to the New York Times.

American delegates to boycott 2022 Winter Olympics

This weekend the Biden administration announced that no American delegates would be attending the 2022 Winter Olympics in Beijing. American athletes, however, are not affected by the boycott and will be allowed to compete in the Olympics. Since the announcement, New Zealand and Australia have joined the U.S. in the diplomatic boycott.

Other News

  • Four students died at the most recent school shooting at a high school in Michigan, United States. The suspect is a 15-year old who now faces murder and terrorirsm charges
  • Austria’s former chancellor, Sebastian Kurz, who is currently under investigation for accusations that include corruption, announced last week that he was quitting politics
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Weekly Summaries

22nd of November – 28th of November

Germany’s new government

Two months after elections took place at the end of September, the German parties Social Democrats, Greens, and Free Democrats announced last week that they have concluded their coalition talks. The leader of the Social Democrats party, Olaf Scholz, is expected to take over as chancellor from Angela Merkel. This means that Germany may finally have a new government. Some policies included in the new deal are raising the minimum wage to 12€, building 400,000 new apartments to fight the housing crisis, legalizing the sale of cannabis, and new plans to phase out the use of coal by 2030.

Other News

  • To help battle the skyrocketing oil prices worldwide, Britain, the U.S., China, India, Japan, and Korea have decided to release tens of millions of barrels of crude oil from their storage, according to the New York Times
  • A bus caught fire and crashed in Bulgaria, killing at least 45 people
  • A new variant of COVID-19 called Omicron that was first detected in South Africa has started to spread
  • 52 people were killed due to a gas buildup and explosion in a Siberian coal mine last week
  • There were clashes between the police and demonstrators in Honiara, the capital city of the Solomon Islands. The protestors demanded that the prime minister resign.
  • The cyberwar between Iran and Israel has reached new heights
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Weekly Summaries

15th of November – 22nd of November

Tensions at the Poland-Belarus border

Thousands of migrants were trapped at the border between Belarus and Poland for weeks. Poland, a member of the European Union, refused to open the border. Now, an increasing number of migrants have decided to seek asylum in Belarus instead. This could cause many problems for Belarus, a country that has few jobs and other opportunities. Towards the end of the week, Belarusian authorities then cleared the camps at the border and moved the migrants to a warehouse instead. The question of what will happen to the migrants now remains unanswered.

Other News

  • Sudan’s prime minister, Abdalla Hamdok, was reinstated on Sunday after being in house arrest for four weeks
  • A new Portuguese law is considered revolutionary in its efforts to regulate remote work conditions. The law effectively prevents employers from contacting their employees outside of working hours and from monitoring their work.
  • President Biden of the U.S. and President Xi of China met virtually in a three-hour long summit to keep “communication lines open”
  • Germany “suspended approval of the Nord Stream 2 pipeline,” according to the New York Times. The move cause gas prices in Europe to rapidly increase
  • An explosion in Kampala, the capital city of Uganda, killed at least three civilians. The explosion was later described as an “extremist attack” with three suicide bombers also dying. 
  • A self-portrait of Frida Kahlo sold for $34.9 million last week, setting a new record for the most expensive artwork by a Latin American artist at the auction Sotheby’s
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News

The G20 Summit in Rome, Italy

Who attended?

These past few days, the political leaders of the G20 member countries met in Rome to discuss a handful of issues. Some of the politicians who were present are: 

  • Alberto Fernandez (Argentina)
  • Scott Morrison (Australia)
  • Jair Bolsonaro (Brazil)
  • Justin Trudeau (Canada)
  • Xi Jinping (China)
  • Emmanuel Macron (France)
  • Angela Merkel (Germany)
  • Mario Draghi (Italy)
  • Narendra Modi (India)
  • Joko Widodo (Indonesia)
  • Manuel Lopez Obrador (Mexico)
  • Moon Jae-in (South Korea)
  • Vladimir Putin (Russia)
  • Salman bin Abdulaziz Al Saud (Saudi Arabia)
  • Cyril Ramaphosa (South Africa)
  • Recep Tayyip Erdogan (Turkey)
  • Boris Johnson (United Kingdom)
  • Joe Biden (United States)

Joining these political leaders was the President of the European Commission of the European Union, Ursula von der Leyen, and President of the Council of the European Union, Charles Michel. Antonio Guterres, general director of OMS, specifically discussed financial issues relating to the health of the world population.

What was discussed?

So, first and foremost I want to say my thoughts on the possible solutions that will be discussed in the hopes of resolving some of the world’s current Economics problems.

  1. The European Union will invest in the eco-transaction for social enterprises, which are present in nations like Germany and Netherlands, but not in Turkey or in the United States at the moment. Mario Draghi was noted as saying that the Turkish president did not consider the political circular economy. Therefore, there will be no equality in the sense of financial economics in the future, and as a result there will be more discrepancies in terms of environmental sensibility. 
  2. The markets will be more open to Artificial Intelligence. This is especially important as AI is now considered fundamental for new inventions and innovations. 
  3. The United States will invest more on the prototype of financial democracy. In general, it has been noticed that Biden’s government is more concerned with solving population problems than Trump’s government. 
  4. China will be the first world power nation. Compared with all other international markets, China is one of the best markets for social capital that Chinese companies can invest with and also for AI (Artificial Intelligence).

Conclusion

In general, I believe there will be considerable investments in innovation, but I also think there will be areas that will see more progress than others.

I believe the central areas will be capital growth, new health solutions and eco transactions, with a greater focus on the rights of employees. Meanwhile , I think that the semi-peripheral areas will be capital growth, new health solutions but also more consideration of people’s rights on goods and services and on working issues of industries. In my opinion, the periferica areas will be debts and stagflation. It is also possible that there will be problems about having credits as paying back debts may become difficult to do. However, also inflation and financial stagnation are likely to lead to many problems, meaning that no investments will be made into sustainable finance. 

Let’s hope there will be a graduating consideration of nations that are in critical situations, like Perù, Mexico, Spain, and many African countries.

Sources

  1. https://www.consilium.europa.eu/en/
  2. di Taranto, Giuseppe. “The History of Economics.” (2012)
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Analysis News

AUKUS: Why is it such a big deal?

Introduction

Before answering the question of why the AUKUS agreement is such a global issue, we must first understand its background and contents. Over the past couple of decades, ever since the end of the Cold War between the USSR and the USA, a new nation has been rapidly expanding its influence on the world. That nation is China. In response to China’s growing power, many alliances, notably the World War II-era “Five Eyes” alliance (consisting of the USA, UK, Australia, New Zealand & Canada), now seem to be overwhelmingly focused on Beijing. Announced on the 15th of September, 2021, the AUKUS agreement has become the newest addition to the long list of actions taken by the West to counter China.   

Motivations for AUKUS

AUKUS has been described by analysts as one of, if not the most significant security arrangement between the US, UK and Australia since World War II. According to the states involved in the agreement (USA, UK & Australia), the focus of AUKUS is to maintain “a free and open Indo-Pacific,” with the help of nuclear-powered submarines on patrol. The new security partnership will supply Australia with nuclear-powered submarine technology which will be provided by the USA and UK. While it may take over a decade for the Australian Navy to deploy the first submarine, the agreement represents the USA’s mission to form a stronger threat in Asia and the Indo-Pacific to offset China’s rapidly modernizing military. Even though Australia has tried to remain balanced concerning her ties with the USA and China, the recent barrage of disciplinary trade reprisals from Beijing has drastically shifted Australia’s stance on the matter.

China’s Reaction

What does China think of this agreement? Unsurprisingly, Beijing has consistently lashed out at what it calls a “Cold War mentality,” denouncing anti-China partnerships. Chinese officials have stated that the AUKUS agreement will cause an arms race in the Indo-Pacific. From the Chinese perspective, the agreement was not created for competitive purposes, but instead is a deliberate attempt to impede China’s development. Relations have become increasingly tense, even before AUKUS. President Joe Biden’s administration has continued to put effort into preventing China’s economy from pulling ahead. Furthermore, Beijing has sparred with the UK over Hong Kong and Canada over detained citizens while Europe has called China a “systemic rival”.

Reaction of other countries

China is not, however, the only nation that has been upset by AUKUS. France, and many other NATO member states, such as Germany, have denounced the agreement. France suffered the most, losing a $37 billion deal between France and Australia concerning diesel-powered submarines. Adding insult to injury, France – a very old ally of the West – found out about the new pact just a few hours before it was announced to the public. The Asia-Pacific is a key strategic and economic region for France as 1.65 million French citizens reside on islands including La Reunion, New Caledonia, and French Polynesia. The cancellation of a deal that would reinforce such a region is a great loss for France. The French Foreign Minister, Jean-Yves Le Drian described AUKUS as a “stab in the back”. As a response, France has recalled her ambassadors to Washington and Canberra for the time being.

Conclusion

All is not lost, however. In a joint statement, President Joe Biden of the USA and President Emmanuel Macron of France have agreed to work on creating “conditions for ensuring confidence and proposing concrete measures toward common objectives”. The two leaders have said they will meet in Europe towards the latter half of October to further mend the damaged diplomatic relations.

Sources

  1. BBC. “Aukus Pact: France and US Seek to Mend Rift.” BBC News, 23 Sept. 2021, http://www.bbc.com/news/world-europe-58659627.
  2. —. “UK, US and Australia Launch Pact to Counter China.” BBC News, 15 Sept. 2021, http://www.bbc.com/news/world-58564837.
  3. Chazan, Guy. “Aukus Security Pact Is ‘Insult to a Nato Partner’, Says Merkel’s Adviser.” Financial Times, 24 Sept. 2021, http://www.ft.com/content/dfc4f860-c178-4c2a-a46c-c5f4e5595b1a. Accessed 26 Sept. 2021.
  4. Prof. Nursin Atesoglu Guney. “ANALYSIS – Third Front of New Cold War Expanding in Asia-Pacific.” Www.aa.com.tr, 24 Sept. 2021, http://www.aa.com.tr/en/analysis/analysis-third-front-of-new-cold-war-expanding-in-asia-pacific/2373757. Accessed 26 Sept. 2021.