Russia launched its invasion by land, air, and sea on Thursday following a declaration of war by President Vladimir Putin. An estimated 100,000 people fled as explosions and gunfire rocked major cities. Dozens have been reported killed.
U.S. and Ukrainian officials say Russia aims to capture Kyiv and topple the government, which Putin regards as a puppet of the United States. Russian troops seized the Chernobyl former nuclear power plant north of Kyiv as they advanced along the shortest route to Kyiv from Belarus to the north.
Taiwan will join “democratic countries” in putting sanctions on Russia over the invasion of Ukraine, the government said on Friday, with the world’s largest contract chipmaker TMSC adding it would comply with all export control rules.
The crisis is being watched closely in Taiwan, which China claims as its own territory and which has faced increased military pressure from Beijing over the last two years.
“We very harshly condemn such an act of invasion and will join democratic countries to jointly impose sanctions,” Premier Su Tseng-chang told reporters in Taipei without giving details.
Taiwan Economy Minister Wang Mei-Hua said the island will “harshly scrutinize” exports to Russia and “coordinate” with unspecified allies on further actions. She also did not elaborate.
The foreign ministry said in a statement the island, which is key to the global semiconductor supply chain, will “coordinate closely with the United States and other like-minded countries to adopt appropriate measures in order to free Ukraine from the horrors of war.”
Asked about the sanctions, Taiwan Semiconductor Manufacturing Co Ltd (TSMC) 2330.TWTSM.N, a major Apple Inc AAPL.O supplier and Asia’s most valuable listed company, said it would follow export control rules.
“TSMC complies with all applicable laws and regulations and is fully committed to complying with the new export control rules announced,” it said in a statement.
“The company also has a rigorous export control system in place, including a robust assessment and review process to ensure export control restrictions are followed.”
Russia is not a major market for Taiwan’s goods. Taiwan’s trade with Ukraine and Russia each accounted for less than 1% of its total, government data showed.
The island’s natural gas contract with Russia is due to expire in March and Taiwan will diversify its supplies, the economic ministry said on Thursday.
Taiwan President Tsai Ing-wen, speaking at an event in the southern city of Tainan, reiterated that Taiwan and Ukraine’s situations were not the same and that the Taiwan Strait formed a “natural barrier”.
The Taiwan military’s continuous improvement in its combat power, as well as the high attention paid to the region by “friendly and allied countries” give strong confidence in maintaining security, she added.
“We must also consolidate our psychological defenses, strengthen preventive cognitive warfare operations, and prevent foreign forces and local collaborators from using false information to create panic and affect the morale of Taiwanese society by using Ukraine’s turbulent situation.”
Sanctions build
A democratic nation of 44 million people, Ukraine voted for independence at the fall of the Soviet Union and has recently stepped up efforts to join the NATO military alliance and the European Union, aspirations that infuriate Moscow.
The United States, Britain, Japan, Canada, Australia, and the EU unveiled more sanctions on Moscow on top of penalties earlier this week, including a move by Germany to halt an $11 billion gas pipeline from Russia.
EU foreign policy chief Josep Borrell described the bloc’s measures as “the harshest package of sanctions we have ever implemented”.
China came under pressure over its refusal to call Russia’s assault an invasion.
US President Joe Biden, speaking to reporters at the White House, said: “Any nation that countenances Russia’s naked aggression against Ukraine will be stained by association.” He declined to comment directly on China’s position.
Russia is one of the world’s biggest energy producers, and both it and Ukraine are among the top exporters of grain. War and sanctions will disrupt economies around the world.
Oil prices soared as much as $2 per barrel on Friday as markets brace for the impact of trade sanctions on major crude exporter Russia.
US wheat futures hit their highest in nearly 14 years, corn hovered near an eight-month peak and soybeans rebounded on fears of grain supply disruptions from the key Black Sea region.
Airlines were also facing disruptions, with Japan Airlines 9201.T cancelling its Thursday evening flight to Moscow and Britain closing its airspace to Russian carriers.
Russia’s economic defences likely to crumble over time under sanctions onslaught
Russia has spent the past seven years building up formidable financial defenses, yet in the long run, its economy is unlikely to withstand the onslaught of coordinated sanctions from the West.
Europe and the United States are raining down reprisals after President Vladimir Putin sent tanks into Ukraine, adding to sanctions already pledged in response to his decision to recognise the independence of two breakaway Ukrainian provinces.
“The view Russia will be unaffected is wrong. The negative effects may not be felt up front but sanctions will hobble Russia’s potential in the longer run,” said Christopher Granville, managing director at consultancy TS Lombard and a veteran Russia watcher.
Steps by the West include sanctions and asset freezes on more Russian banks and businessmen, a halt to fundraising abroad, the freezing of an $11 billion gas pipeline project to Germany and limiting access to high-tech items such as semiconductors.
Russia has dismissed sanctions as counter to the interests of those who imposed them. And they won’t immediately dent an economy with $643 billion in currency reserves and booming oil and gas revenues.
Those metrics have earned Russia the “fortress” economy moniker, alongside a current account surplus of 5% of annual GDP and a 20% debt-to-GDP ratio, among the lowest in the world. Just half of Russian liabilities are in dollars, down from 80% two decades ago.
Those statistics result from years of saving since sanctions imposed after Putin’s 2014 Crimea annexation.
According to Granville, surging oil prices will offer Russia an extra 1.5 trillion rouble ($17.2 billion) windfall this year from taxes on energy companies’ profits.
But this kind of autarky has a price — deepening isolation from the world economy, markets and investment, he noted.
“Russia will essentially be treated as a hostile state cut off from global flows, investment and other normal economic interactions that build living standards, incomes, productivity and company profitability.”
Signs of economic vulnerability are already present. Russian household incomes are still below 2014 levels and in 2019, before the COVID-19 pandemic struck, annual economic output was valued at $1.66 trillion, according to the World Bank, far below the $2.2 trillion in 2013.
Sergei Guriev, economics professor at France’s Sciences Po and former European Bank for Reconstruction and Development chief economist, pointed out that Russian nominal per capita GDP, double China’s in 2013, was now behind.
“In 2013 Russia was a high-income country and was actively negotiating OECD accession. Russia is now back to the middle-income status,” he said.
DIMINISHING CLOUT
Foreign investors in Russia are a dwindling tribe too.
A JPMorgan client survey showed foreign holdings of rouble bonds at the lowest in two decades; equity investment has never returned to pre-Crimea levels in absolute terms, Copley Fund Research estimated.
The premium demanded by investors to hold Russian dollar debt surged on Thursday to over 13 percentage points above U.S. Treasuries, almost triple the emerging markets average .JPMEGDRUSR.
“Sanctions are going to force Russia to self-finance more and more activity, constraining investment in industry and the military,” said Jeffrey Schott, a trade and sanctions expert at the Peterson Institute for International Economics.
Bigger assaults could include ending Russian access to international payments system SWIFT and outright banning investment in Russia.
Losing access to SWIFT would complicate export and import payments, and could even prevent paying bond coupons, triggering technical default. JPMorgan projects sanctions will slice up to 3.5 percentage points from GDP growth in the second half of 2022.
Limited access to foreign capital leaves oil companies reliant on prepayment deals and facing significantly higher cost of capital, the bank added.
The slow erosion in living standards also risks fanning popular discontent, threatening an administration that has already faced sporadic protests. Spillover may be inevitable.
“Autarky is no recipe for progress,” analysts at investment bank Berenberg wrote. “Coping with a heavily armed Russia mired in relative economic decline will remain a key challenge for Europe and the United States for the foreseeable future.”
