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Sanctions will set Russian economy back 30 years
McDonald's in Russia

Vladimir Putin’s unprovoked war on Ukraine and the resulting global response will set Russia’s economy back at least 30 years and lower its standard of living for at least the next five years, according to economists, investors and diplomats.

The sweeping Western sanctions are designed to inflict maximum pain on the country’s economy by expelling it from global markets and freezing assets around the world, according to a report from CNBC. From the moment they took effect three weeks ago, the sanctions have opened a new chapter in Russia’s economic history.

Its financial system and currency are collapsing on multiple fronts, forcing the Kremlin to close the stock market and artificially prop up the ruble inside its borders.

Since the start of the Feb. 24 invasion, more than 300 of the world’s most iconic brands have voluntarily halted or dialed back their business. This includes McDonald’s, which was the first American fast-food restaurant to enter the Soviet Union.

McDonald’s said in a statement, “At this juncture, it’s impossible to predict when we might be able to reopen our restaurants in Russia.” But it is continuing to pay its 62,500 Russian employees. The company said this week it expects the closure to cost around $50 million per month for its 850 Russian restaurants.

Other companies include global banks like Goldman Sachs, all Big Four accounting firms and popular consumer brands like Starbucks and Ford.

“A lot of these companies pulling out of Russia are not doing it for their reputational reasons,” said Hess. “It’s because they know they’re not going to be able to process payments and move money in and out of the country for the foreseeable future,” due to the sanctions, he said.

Several departures are likely to hit Russians harder than others.

For decades, PepsiCo, Levi Strauss and Coca-Cola symbolized freedom for young people behind the Iron Curtain. All three have announced they will suspend sales of their core products.

Another high impact exit is the three oil giants: Shell, BP, and Exxon, whose departures dealt a body blow to the petroleum-dependent economy.

Visa, Mastercard, PayPal and American Express also suspended services, leaving Russians outside the country unable to use their debit cards and Russian banks scrambling to shift to a Chinese card issuers.

Two economic sanctions in particular have wreaked considerable havoc for Russia. The first one expelled Russia’s largest banks from the global payments network known as SWIFT, making it very difficult for them to process overseas transactions.

The second measure froze hundreds of billions of euros held in reserve by Russia’s central bank. Without reserve funds to shore up the ruble, there is very little the Kremlin can do to prevent its value from collapsing.

Meanwhile, the United States and Britain are also halting imports of Russian oil and gas, the U.S. has imposed export controls on high tech equipment and luxury goods, and a growing list of countries have barred Russian ships from their ports.

“The problem you have now is we’re basically in a spiral where we don’t know how many unrealized losses there are left to realize,” said Maximillian Hess, a Central Asia fellow in the Eurasia program at the nonprofit Foreign Policy Research Institute.

“So we still can’t rule out that the ruble could collapse, collapse,” he stressed.

Already, the snowballing economic crisis in Russia threatens to wipe out decades of economic gains made by ordinary citizens, CNBC says.

In the past month, the ruble has lost 40% of its value against the dollar, rendering the currency effectively useless outside of Russia.

What’s more, sanctions on the largest banks have added yet another layer of uncertainty to everyday transactions, like buying a metro ticket in Moscow with Apple Pay, which is prohibited by U.S. sanctions, or exchanging rubles for dollars at a bank, which is prohibited by the Kremlin.

“There was an emerging middle class [in Russia] that is now going to be knocked back,” said Christopher Smart, chief global strategist and head of the Barings Investment Institute. “It’s going to be isolated. It’s going to have a currency that doesn’t really hold any value outside the country.”

Foreign policy experts also believe that Russia will default on its sovereign debt when more than $100 million in bond payments come due on Wednesday.

“Russia is defaulting, that’s guaranteed,” said Hess.