The Russia-Ukraine conflict has been one of the major leading forces in the economic downturn seen around the world at large. This comes at no surprise when considering the serious economic action taken against Russia by the United States and the west as a whole. Let’s explore how such sanctions and the tech integration with Software as a Service, often referred to as SaaS relate to each other below.
Sanctions are economic penalties that countries will enforce on one another to persuade or dissuade action. These can range from travel bans and import control to major embargos and asset seizures. It’s one of the most effective, non-military, options for influencing global events.
The downside is many sanctions end up being ineffective due to their lack of severity. This is a trade off when considering the damage done to the citizens of not only the sanctioned country, but the country sanctioning as well. The average citizen will be affected far more than the government at large during large-scale sanctions.
What has actually been done and sanctioned though? To start, the U.S, European Commision, France, Germany, Italy, Germany, and the U.K removed Russia from SWIFT. SWIFT is what allows countries to make large scale cross-border payments. Currently over 11,000 financial institutions across over 200 countries utilize SWIFT.
On top of this, these same countries and commissions froze Russian foreign reserves under their jurisdictions. Almost half of all of Russia’s foreign reserves are held in foreign banks, central or comercial, and although not all countries froze Russian reserves, this still represented a major dent in Russia's savings.
The U.S also took it upon itself to enact some of its own independent sanctions. Russia’s major banks were banned from almost all forms of interactions and from accessing any U.S assets. The U.S also restricted the domestic purchase of Russian bonds, reduced the exportation of profitable or war-positive materials and products to Russia, and completely banned the import of Russian oil.
The EU has even begun to consider a ban of Russian oil, a move far more devastating when considering that 33% of natural oil and 10% of gas for the EU comes from Russia. The U.K itself has already pledged to phase out oil and gas imports from Russia by the end of 2022.
These are all pretty major sanctions that have started to have a major effect on the Russian economy. By the end of 2022 the Russian economy is predicted to contract by 15%, something that makes sense when considering the power of the U.S economy and how losing their economic support can affect a nation.
Half of all international trade is done in USD, 59% of the foreign global reserves are held in USD, the U.S sanctioning Russia not only hurts the nation directly, but also hurts Russia’s ability to interact with other nations. On top of this, and where SaaS starts to come into play, a multitude of companies are pulling out of Russia.
Companies as influential as Coca-Cola and Disney, to companies as pivotal as Google, Microsoft, and Visa have all suspended operations in Russia. For companies like Visa and Mastercard this means all international payments to and from Russia are completely blocked. Even foreign companies like BP have announced plans to reduce their investment in Russia.
What does this mean for SaaS, and maybe more importantly, what is it? As a really quick overview, SaaS is “Software as a Service ''. So basically, instead of companies or individuals spending on physical software to be installed and maintained. They will regularly pay for some sort of subscription to software that is hosted, maintained, updated, and regulated elsewhere.
When it comes to physical software, Russia is going to be struggling, some of the biggest players have completely suspended operations within Russia for PC’s in particular, but phones and cloud computing alike.
Lucky for Russia, SaaS is an industry that is much more domestic and fragmented. While the goliaths such as Microsoft and Salesforce have moved away, this represents a very small percentage of the SaaS operations within Russia. And considering how many companies, and consequently services, have completely suspended within Russia. SaaS is becoming a more and more appealing alternative to being an important part of their economy, even if it is in relative isolation from the rest of the global marketplace.
And while some industries shrink or stay steady in Russia, it’s important to recognize that Russia isn’t the only impacted by these financial sanctions. Russia is the second largest producer of oil in the world, and oil prices have only been going up and up globally, with prices at the pump in the United States certainly being no exception.
While the reasons behind this certainly cannot be blamed purely on Russia, it’s a major contributing factor. There’s also a major danger in rising grain prices as Russia and Ukraine alike are both major grain producers. They produce 14% of the world's grain together.
Gold has also been on the rise in Russia and the U.S alike as well as the overall global market rate. The rise of gold as a commodity is typically a sign of an unstable and insecure market, and it spells bad news for those all around. Potentially, this could be a good thing for the tech sector. For within the U.S, this means that SaaS services can expect both an increase in the long term, but possibly not the immediate term.
SaaS services are built and marketed on their increases to efficiency, lower upkeep, and lower direct costs. While it would make sense for companies and consumers to increase their reliance on SaaS in an economic time where uncertainty is at its peak, this is typically not how things work in practice.
The more realistic reality may be that there is a reluctant but gradual move towards SaaS and away from physical software. As in any economically volatile period though, it’s truly hard to say. What can be said is that the U.S, Russia, the West, and the world are in a period of struggle.
While economic and political turmoil continues to boil in the U.S, the Russia Ukraine conflict only continues to rage on. The financial sanctions set out against Russia only serve to further the rapid pace of a declining Russian and American economy, but they are enacted with a noble goal in mind.
Most humanitarian nations agree that Russia is at fault in the current world conflict. And while many companies continue to pull out and stunt Russia’s growth even further, the SaaS industry continues to hold strong. The U.S has also seen companies start to struggle especially in the tech sector and its recent layoffs, however SaaS represents an industry that could show a path to the future for the country and the world at large.
While it is hard to predict what will happen in the future, the longer the Russia / Ukraine conflict continues, the more dramatic the effects of it can be expected to be. Let us all hope that cooler heads will eventually prevail and the world can return to a more peaceful state of existence for all soon.