Although the Russian army has suffered hundreds of thousands of casualties in the war in Ukraine, and Moscow has lost tens of billions from the loss of the energy market in Europe, Putin is paranoidly continuing the conflict. Now, US retaliation on Russian trade is coming full circle as the Kremlin leader struggles to fund his war.
Washington has tightened sanctions against Russia’s partners – China, Turkey, the United Arab Emirates and Austria, the last 3 American allies, who use underground channels to continue business that helps Moscow’s defense industry, according to Business Insider.
Trade with Russia fell in the first quarter of 2024 amid tightening US sanctions. Moscow’s key trading partners are faltering and export volumes are falling as US sanctions spark fears of retaliation among those doing business with the Kremlin.
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According to the Financial Times, shipments from Turkey and China fell significantly in the first quarter. For example, exports from Ankara have fallen by a third compared to the past year, while “high priority” items sent to the region have fallen by 40%. These are consumer goods that are essential to Moscow’s war machine.
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Behind the decline is the US Treasury Department. After an executive order in December strengthened its sanctions power, the department stepped up warnings against foreign lenders that facilitate trade with Russia.
Banks from other countries such as the United Arab Emirates and Austria are also included. To avoid Western repercussions, most have tightened their exposure to Russian counterparts, repercussions now being felt by traders and investors.
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In China, underground channels are emerging as domestic companies look for alternative ways to access the Russian consumer. As many banks no longer have an option, currency and cryptocurrency brokers – a banned asset in China – are gaining popularity.
Russia ends up like Iran
“It’s getting harder and harder every month. One month it’s dollars, the next month it’s euros; within six months you won’t be able to do anything. The logical end of this is turning Russia into Iran,” said one investor Russian, referring to the sanctions imposed on Tehran.
Russia’s difficulty moving either money or goods is a growing threat as the country escalated its wartime spending to keep its economy afloat.
On the Russian side, the growth of middlemen reduces profits. According to the FT, the oligarch of the metallurgical group Vladimir Potanin recently blamed these mediators for decreasing his company’s revenues, citing their commissions of 5% to 7%.
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But while such middlemen add both complexity and cost to those still trying to trade with Russia, they could also end up adding difficulty to Western efforts to track the trade, experts said.
At the same time, the US crackdown has proliferated trading in the Russian ruble, as other currencies increasingly fall in Moscow deals. For example, rubles are now the base currency for Indian traders buying crude oil from Moscow after dealers in the United Arab Emirates stopped payments in dirhams, a Russian banking source said.
That’s because foreigners are still free to buy rubles on the Moscow Stock Exchange when settling payments with Russian parties. In fact, the share of Russian exports paid for in rubles rose to 40% in February, down from 15% in the pre-war years. Imports also saw an increase.
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