EUROPE: Western powers have realised Russia is largely immune to sanctions – Analysis

Analysis: Only the financial equivalent of unleashing a nuclear arsenal will dent Russia’s foreign assets war chest

A branch of VTB bank in Moscow
PHOTO: A VTB bank in Moscow. Economists have said sanctioning banks is largely ineffective. Photograph: Evgenia Novozhenina/Reuters
Economics editor –THE GUARDIANSat 26 Feb 2022 01.57 GMT

Russia’s conflict with Ukraine, despite its long gestation and planning by Vladimir Putin and his supporters in the Kremlin, was supposed to end quickly once financial retaliation began. Yes, there would be military skirmishes on the ground, but little more than a few casualties were expected once a range of penalties began to bite.

The western powers have quickly realised that unless they are willing to fire the financial equivalent of a nuclear arsenal, Putin has made sure Russia is largely immune, at least in the short term.         

RUSSIA FINANCIALLY PREPARED

Over a decade, Kremlin policy has carefully reduced domestic public and private sector debt and allowed the central bank time to build a war chest of foreign assets large enough to shore up the country’s finances for months, if not years.           

This means that the sanctions put in place over the past couple of days by the EU, US, UK, Japan and Canada are unlikely to have any significant effect on the Russian economy or its financial stability.

Only the full package of measures used against Iran – shutting Russia out of the international payments system, Swift, while also banning purchases of Russian oil and gas – will do the trick.

As Hosuk Lee-Makiyama, the head of the European Centre for International Political Economy, said, Europe has allowed itself to become more integrated with Russia, while Russia has separated itself from Europe.

He said EU countries owned a combined €300bn of Russian assets that would be vulnerable to confiscation if a full-blooded financial war broke out. The UK owns billions more via firms such as BP, which has a near-20% stake in the Russian oil company Rosneft.

“Sanctions are one of the few options that European countries have in a conflict situation like this. If you disconnect North Korea or Iran from the international financial system, you do not expose yourself to that much damage.”

Speaking on BBC News, he added: “But while I don’t say it is impossible to envisage Russia being barred from the Swift system, it is a nuclear option that means you exterminate yourself along with your enemy.”

Swift (the Society for Worldwide Interbank Financial Telecommunication) is the main secure messaging system that banks use to make rapid and secure cross-border payments, allowing international trade to flow smoothly.

It transmits trillions of dollars’ worth of deals every day, but is coming under pressure from a Chinese government-backed rival, Cips, which Russia could use to conduct its financial business deals supplemented by direct transactions with counterparties.

It is also possible for the G7 countries and EU to ban the purchase of Russian gas and oil, but commodities analysts agree that while there is spare capacity in oil markets to make up for the loss of Russian supplies with a price rise limited to $140 a barrel, there is no hope of boosting gas output to fill a gap created by a Russia ban.

Shortages would quickly force countries in Europe to ration gas and the price would be likely to rocket back to nine times normal levels, as seen before Christmas, stirring memories of the 1974 oil price shock.

Andrew Kenningham, the chief Europe economist at the consultancy Capital Economics, said that while some countries – the Czech Republic and the Baltic states – had pushed for bans on Russian gas, “others are more reluctant and it would presumably take much more devastating developments in the conflict to trigger such measures”.

Tom Mayne, a Russia expert at the thinktank Chatham House, said there was room to improve the current sanctions that allow a Russian kleptocracy access to London’s financial markets.

In a report last year, the thinktank said an effective anti-kleptocracy drive would “close legal loopholes, demand transparency from public institutions, deploy anti-corruption sanctions against post-Soviet elites and prosecute British professionals who enable money laundering by kleptocrats”.

Even the ramped-up sanctions announced by Boris Johnson fall short of this effective ban on illegal Russian money entering UK economic life. The UK is keen to go further than the EU with restrictions on Russian energy imports, but the EU has allowed itself to be much more dependent than the UK, limiting its appetite for further sanctions.

Without bans on gas and oil exports, and expulsion from international payments systems, the impact of sanctions will be limited.

———

Could This Explain The Russian Conflict?

By Neil Mc Coy Ward – Released February 21, 2022 — before the invasion of Ukraine 

 

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Comments

  • Bernard  On 02/26/2022 at 11:38 am

    WW3 has just started.

    The Russian Dictator Vladimir Putin must be stopped. But who is going to stop the madman?

    Don’t expect NATO, Biden, or the rest of the world. There’s a clear reason why Putin didn’t want Ukraine to join NATO.

    The eliminator of this tyrant will have to be someone who has access to him.

    Today the whole world is in danger of losing their freedoms and peace of mind because a madman has chosen to invade a sovereign nation on a barbaric mission of death and destruction.

    The United Nations is utterly useless. Their veto rule is a joke and a bad one at that. An offending nation must never be allowed to have a vote when it is the subject of such debate.

    • Kman  On 03/03/2022 at 4:24 pm

      Hey where were you when the US invaded Afghanistan, Iraq, Libya, Syria for instance?

      Putin has reasons for Ukraine not allowed to join NATO, by an earlier agreement, which the US and western media not talking about.

      This mess is not only about Putin, but also about Biden. I will not get into details, but remember every story has three sides.

      Hope all the war torn countries experience peace very soon.
      On a side note, where was the US and the rest of the world was when Israel was bombing the lives out of Palestinian civilians?

      • brandli62  On 03/03/2022 at 4:40 pm

        Kman, please provide a link to the agreement that NATO would not accept Eastern European countries? I am 100% sure that you’ll fail. However, Russia signed this agreement:

        Budapest Memorandum on Security Assurances
        https://en.wikipedia.org/wiki/Budapest_Memorandum_on_Security_Assurances

        Now you go and read the agreement. Then imagine you were Ukrainian living in Kiev. How would you feel?

        Finally, just a reminder to all Putin lover reading GO. Keep in mind that we have a neighbor to the west, who also believe that most of Guyana is hers. That’s the main reason, why the Guyanese government support the big majority of nations in condemning Russia for invading the Ukraine.

      • Bernard  On 03/03/2022 at 10:36 pm

        You are not too well-informed, Kman. How on earth do you figure that the US and Putin can decide whether or not a sovereign nation can join NATO? Are you insane?

        Ukraine has been interested in joining NATO since 1992.

        The wheels to join the alliance were set in motion in 2008. But, after the election of the pro-Russian puppet Viktor Janokovych in 2008, he canceled Ukraine’s plans for membership in 2010.

        Putin full-well understands that it would be virtually impossible to invade and annex Ukraine if it were to become a NATO member, as per Article Five – attack on one member is an attack in all members.

        One day, Ukraine will become a full member of NATO. But first, this unprovoked war has to end.

        Putin’s days are numbered. He’s destined to fall one way or another. Perhaps his own people will rise up to topple him.

  • wally n  On 02/26/2022 at 12:08 pm

    There are two reasons..main one is “while also banning purchases of Russian oil and gas – will do the trick” and illegal money movement in the Ukraine, that will be the major problems for the so called powers.If the illegal money movement is exposed it can destroy many important politicians around the world especially in the U S.
    How can any one expect Germany and the EU to choke themselves trying to resist Putin’s power grab, nothing but smoke and mirrors, I expect this will all be swept away,slowly and quietly, people of that county just pawns in a major power play.

  • wally n  On 02/26/2022 at 4:50 pm

    BTW when you guys are out there, if you notice covid anywhere, please let him know we wish him all the best, and, we are injecting Ukraine now, after effects not as bad.

    • Bernard  On 02/27/2022 at 1:19 am

      Covid, the fake pandemic, abruptly vanished the day Vladimir Putin crossed the border into Ukraine – February 24, 2022. Mark this date. When will this unprovoked war end? That’s the million dollar question. Will any country join Ukraine in their courageous defence against this evil dictator?

  • guyaneseonline  On 02/27/2022 at 12:47 am

    Western allies agree to ‘Swift ban’ for some Russian banks

    (The Guardian – 26 February 2022) The US, Canada and key European countries, including Germany, have agreed to remove “selected Russian banks” from the Swift payment system, the countries announced on Saturday.

    “As Russian forces unleash their assault on Kyiv and other Ukrainian cities, we are resolved to continue imposing costs on Russia that will further isolate Russia from the international financial system and our economies. We will implement these measures within the coming days,” a statement from the leaders of the European Commission, France, Germany, Italy, the UK, Canada, and the US said.

    Swift is the world’s main international payments network. Several countries have already expressed support for locking Russia out of the platform, and Germany, which had previously opposed the measure, lent its support earlier today.

    The joint statement on Saturday made the move official, although few details were given as to when the Swift removal will take place, and which Russian banks will be targeted.

    “We commit to ensuring that selected Russian banks are removed from the SWIFT messaging system. This will ensure that these banks are disconnected from the international financial system and harm their ability to operate globally,” the countries said.

    “Second, we commit to imposing restrictive measures that will prevent the Russian Central Bank from deploying its international reserves in ways that undermine the impact of our sanctions.”

    The countries also said they would take measures “to limit the sale of citizenship – so called golden passports – that let wealthy Russians connected to the Russian government become citizens of our countries and gain access to our financial systems”.

    They also announced plans to launch a “transatlantic task force” which will ensure sanctions on Russians remain effective that will ensure the effective implementation of our financial sanctions by identifying and freezing the assets of sanctioned individuals and companies that exist within our jurisdictions.

    “As a part of this effort we are committed to employing sanctions and other financial and enforcement measures on additional Russian officials and elites close to the Russian government, as well as their families, and their enablers to identify and freeze the assets they hold in our jurisdictions.

    We will also engage other governments and work to detect and disrupt the movement of ill-gotten gains, and to deny these individuals the ability to hide their assets in jurisdictions across the world.”

  • brandli62  On 02/28/2022 at 6:24 am

    The EU and NATO have never been so united in repealing Russian aggression. The Ukrainians will win this war and Russia will be humiliated. Putin will be in serious trouble in Russia once the public realises the full extent of the debatable. In addition, the sanctions will cripple the country. The end game has started in Eastern Europe and liberal democracies will prevail.

    • wally n  On 03/04/2022 at 1:11 pm

      Is that fake news?????
      NATO allies rejected Ukraine’s demand for no-fly zones on Friday, saying they were increasing support but that stepping in directly would lead to a broader, even more brutal European war so far limited to Russia’s assault on its neighbour.
      Ukraine, a former Soviet republic, wants to join the European Union and Western military alliance NATO, whose members are bound in its founding treaty to defend each other from invasion.
      NATO Secretary-General Jens Stoltenberg announced on Friday the alliance of Western nations will not fight for Ukraine. NATO will not send in ground troops and will not close the Ukrainian air space.
      Whatever promises were made to Zelensky and the Ukrainians in the past were just tossed out a window.
      ???What is going on??

  • wally n  On 03/04/2022 at 11:52 am

    Maybe just maybe, Guyanese should do 5 to 10 percent Ukraine and the rest Guyana? ya gat bigger problems coming down!
    Don’t worry y’all …
    Liberals filled up their tanks with Russian fuel, drove to a liquor store in their Japanese cars, and poured out Russian vodka while wearing clothes, shoes, and hats made in China.
    Liberals have solved the Ukraine crisis??

  • Kman  On 03/04/2022 at 1:31 pm

    Brandi and Bernard, you know what you know, and l know what l know. I don’t have to provide any information or links unless l am in a debate.

    We all know of the wrongs the USA and Britain have done on the recent past.

    Did you read about how the Ukrainians are giving non whites a hard time to leave Ukraine?

    So much attention is now being given to Ukraine, but where does the world stand on the recent slaughter, yes slaughter, on the Palestinians? And that is only one instance.

    I don’t know to what race you identify to, but all these wars, etc., are created by the white elite.

    Oh by the way, Biden just slipped up recently when he said that the US would stop testing nuclear weapons for now, as he doesn’t want to escalate things with Russia. Think about that for a moment. America signs agreements with the rest of the world, but reneges when it is not on their interest.
    America and the western countries may enjoy more freedom, etc., than the rest of the world, but hardly anyone look at their bad side.
    Enough for now, l am enjoying a coffee. Cheers,

  • Clyde Duncan  On 03/05/2022 at 12:37 am

    A message from a survivor of COVID-19 – COVID-19 is NOT a HOAX:

    I arrived home from Queens Park Center for rehab on March 3, 2022. While in a coma on a ventilator because of COVID 19, I developed muscle atrophy. Later, initially I could not feed myself for about two weeks. Most of that time nurses injected a protein, then further on, they had to spoon feed me. There are more details regarding events in a hospital. It is not that I had disregard for nurses, but the work they do is astounding; someone like that must have a heart to help people.

    I want to make the next point understood. Previously I have sent out emails about vitamins/minerals to take for health. NOT ONCE DID I EVER SAY THAT MY WIFE AND I ARE ANTI-VAXXERS REGARDING COVID 19 VACCINATION.

    In fact, I often argued for both pro and anti, intellectual positions about that vaccine. If anyone thinks otherwise that we are anti-vaxxers, you are mistaken.

    I have said it is up to the individual if they want to be vaccinated. Having said that, in intellectual honesty, I WISH I WOULD HAVE RECEIVED THE VACCINE SOONER, mostly because my symptoms would probably not have been as severe, according to one doctor I spoke with.

    However, even that doctor claimed there is no assurance that one will not contract COVID 19. That perhaps is the idea for the anti-vaxxers. If it doesn’t work in the long haul then why take it.

    However, here is the point they miss: if one enters the hospital due to COVID 19, it may bring additional health concerns. People who survive COVID 19 frequently become diabetic, which for now, may be my case. Also my bladder stopped (it functions as a muscle) working normal and taking Flomax to assist the bladder to function normal. I’m told in time the bladder will strengthen, which it has and further use of Flomax (an amazing drug also used for prostate difficulties) will not be necessary. The diabetes problem may not be permanent. Monday I attend a diabetic clinic for consultation.

    Today, Friday, I have an appointment with my doctor for another opinion about all the medications the hospital has for me. I told the doctor at the hospital that they have a particular standard for health that is not reality, and I’m unconvinced that I need to take 10 pills per day. The doctor advised to talk it over with my doctor since my doctor may recommend the removal of some meds.

    I walk with my right-side leg by the hip/muscle is weaker than the left side. I do stretch exercises for the right side to strengthen the muscles. There was nothing more to be accomplished in rehab that could not be more productive at home. So here I am, alive at home – three months later. Incidentally, Fraser Health Authority – an ominous title – deserves praise for how they function and the food is delicious.

    I thank God for the help given and for a future.

    • Bernard  On 03/05/2022 at 7:20 am

      Cherry-picking a few cases where coronavirus patients became seriously ill doesn’t make it a pandemic. It’s just a virus!

      Nice try!m though!

      In the two years of the virus circulating around the globe, approximately 5 million people have died- average age 80, many with underlying conditions – comorbidities. And we don’t live forever!

      The percentage of global fatalities to date is a negligible 00.01 percentage of the world’s population. Is that your definition of a pandemic? Not mine.

      In the history of pathogens- viruses and bacteria- the vast majority of the population’s natural immune system have protected them. It is very so the case with COVID-19.

      It’s time to stop being bamboozled by the media and a few medical alarmists and move past this fake pandemic.

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