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Are Economic Sanctions Accelerating the Decline of Dollar Hegemony?

Travis Cunha

Sep 10, 2022

In late February of 2022, following the launch of Russia's special military operation, the European Union/NATO allies levied new economic sanctions against Russia that Joe Biden promised would devastate the country's economy and “reduce the ruble to rubble.” Half a year later, it is now obvious to most of the world that the president's prediction was incorrect. Russia has responded to the sanctions by positioning itself to create greater ties with fellow BRICS nations like India and China. Meanwhile, by foregoing cheap Russian gas and oil, countries across Europe from the UK to Germany face a winter of rising inflation, sky-high energy prices, and growing social unrest.

The EU might have learned this lesson the first time back in 2014, when it sanctioned Russia for recognizing the Crimean referendum, in which over 95% of voters elected to join the Russian Federation. Russia reciprocated in kind, imposing its own sanctions on foodstuffs from the European Union. Massive protests followed from farmers in countries like Poland, France, Spain, and Estonia, who were no longer able to sell their products on the large Russian market. These countries gradually found alternative markets in places like China and the United States to mitigate the negative impact to trade. But the present situation--with western sanctions and a "price cap" scheme roiling energy markets--is much more dire, since European industry up to now has relied on cheap Russian energy to remain competitive.

Like the sanctions the EU imposed on Russia in 2014 over Crimea, the eight or more sanctions packages levied against Russia in less than a year have utterly failed to disrupt Russia's special operation in Ukraine. Even hawkish European leaders are beginning to understand the unintended consequences of the failed sanctions blitz as winter quickly approaches. In Estonia, twenty-eight businesses including oil and railroad companies, recently requested exemptions from sanctions so as to continue importing Russian oil. One loophole for buying sanctioned Russian oil or natural gas has been to buy it indirectly, either from China or India, and at a considerable markup. Gazprom announced that its natural gas exports to China increased by 63% in the first half of 2022. BRICS member India threatened to rescind its alliance with the United States if the latter insisted that India enforce the sanctions and stop buying and selling cheap Russian natural gas and oil. India's defiance of the US and continued trade with Russia is a testament to the rapidly shifting geopolitical landscape toward multipolarity and the end of US hegemony.

While the United States continues to prop up the regime in Ukraine and protract the conflict with money and arms, while most European countries scramble to prepare for energy shortfalls amidst freezing temperatures, Russia and its allies have forged the path towards a new, fairer world order without the US dollar. The decline of the US dollar as the world's reserve currency has accelerated with the West's reckless sanctions on Russia. As BRICS International Forum President Purnima Anand recently stated, “We have implemented the mechanism of mutual settlements in rubles and rupees, and there is no need for our countries to use the dollar in mutual settlements. And today a similar mechanism of mutual settlements in rubles and yuan is being developed by China.”

Similar support for de-dollarization of international trade was expressed by Iranian Minister of Planning and Budget Committee Mohsen Zanganeh. In June, Iran requested to join BRICS and cooperation in development. The five current BRICS countries account for over 41% of the world's population. This percentage will of course increase with growing membership in the alliance; besides Iran, Argentina and Saudi Arabia have also declared interest in joining. Saudi Arabia has also openly mulled replacing the "petrodollar" with a "petroyuan," as well as allowing for countries to trade in their own currencies. Economic ties between the BRICS nations have only increased since the latest sanctions war on Russia, and this overreaction from the United States and NATO may prove to be the disastrous misstep that finally ended dollar hegemony. Joe Biden and other Western leaders somehow believed that their economic sanctions would turn the ruble into rubble when in fact they turned the dollar into dust.

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