Sanctions on Russia

imrussia.org

Sanctions

Financial sanctions predicted to be imposed on Russia have come true, just as much as Russia’s invasion of Ukraine has become an abominable reality. Western leaders (notably the US, the UK and the EU) have joined hands to “devastate Russia’s economy” by “imposing the highest costs on Russia to cut her off from the international financial system so long as this conflict [with Ukraine] persists”. 

Measures include:

  • Freezing assets of Russia’s central bank (£470bn of its dollar reserves)

  • Excluding Russian banks from SWIFT

  • Many multinational firms and law firms have ceased operations in Russia

  • Freezing assets and imposing travel bans on Oligarchs 

  • Banning Russian flights in airspace (Canada included)

  • Trade sanctions 

  • Nord Stream 2 gas pipeline talks on hold

Banking Industry

SWIFT

SWIFT is the world’s leading provider of secure financial messaging services. 11,000 financial institutions in over 200 countries relies on it to transfer trillions of money across borders through its instant messaging system. By banning Russian banks from SWIFT, payments for energy and agricultural products could be severely disrupted.

Western leaders are hoping for an impact similar to Iran’s ban. Having been cut off from the world’s financial system, Iran’s economy shrunk significantly. The IMF estimates that Iranians’ living standards are now a decade behind and inflation is predicted to remain above 25%. However, this SWIFT cut off was also accompanied by sanctions on Iran’s oil and gas exports which many argue was the more significant factor in destroying Iran’s economy. 

The EU’s crippling reliance on Russian natural gas (45% of EU gas imports) means such sanctions are highly unlikely. Furthermore, Russia has created Mir (a counterpart to SWIFT) to process card payments. China’s international payments system is also an alternative for Russia to receive payments. Thus, there are doubts on the long-term effectiveness of the SWIFT ban on Russia’s economy. 

Trade Sanctions

Canada leads the international stage for imposing a 35% tariff on Russian imports. It uses its exemption in the WTO legislation (“protect their security interests”) to withdraw Russia’s “most favoured nation” trade status. Canada has also banned crude oil imports from Russia by utilising its own oil reserves which ranks 3rd in the world. Belarus, Russia’s European supporter, is also set to face a tariff slap. 

Western nations are wary of imposing tariffs as the residual of China and USA’s trade war effects remains fresh. The risk of retaliation from Russia would be inevitable and protectionism policies lead to ordinary individuals, not the regimes, bearing the full-frontal cost of high prices and rising inflation. The UK is set to enter into a cost-of-living crisis is at a 30-year high of 5.5%. 

Perhaps, the exit of multinational companies and law firms is be the wiser approach. Energy firm BP has abandoned its near 20% stake in Russian state-owned Rosneft. Shell is leaving its joint venture with Gazprom and ending its involvement in the Nord Stream 2 pipeline. Apple is set to stop selling its devices inside Russia and Goggle has blocked Russian state media channels from its platforms. International law firms are also distancing themselves as Linklaters became the first major international firm to close down its Moscow office. All law firms are currently reviewing their work to minimise the commercial, reputational and ESG risks. 

Oligarchs

A list of Russian Oligarchs, allies of Mr Putin, are set to face global sanctions. Alisher Usmanov (estimated to be worth $17.6bn) has had his Beechwood House and Tudor mansion seized by UK authorities. Oleg Deripaksa (worth $3bn) is now sanctioned by the US.  Igor Sechin, former deputy prime minister, who now runs Rosneft is sanctioned by the US and the EU. UK foreign secretary Liz Truss is hoping to speed up the process of sanctions. 

by Ke Thie Kiew

 



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