RUSSIAN SANCTIONS NEWS
From the Analyst
...the latest delightful news about how secondary sanctions are affecting the way Russia trades with China.
The impact in the past three months has been significant.
Chinese banks have been told that if they supply payment facilities to businesses or transactions that have any dealings with sanctioned individuals, sanctions companies, any business that is part of the Russian defence industry, the defence industrial base (subcomponent manufacturing), anything of any type that has even the potential for duel use, such as microchips, faces being blocked from the international payment system.
To put this into context, we have to remember that Russia is heavily dependent on China, for probably 80% of its effective imports. However, Russia to the Chinese, represents barely 4% of Chinese trade. If a bank in China is blocked from the international payments system then it’s blocked from the 96% of the rest of Chinese trading globally. No bank can afford to be blocked. More to the point, China as a state cannot afford to see significant parts of its banking sector shut off from international trade. China’s economy is in enough trouble as it is without jeopardising it any more.
This has resulted in Kommersant, the Russian business news producer, reporting a massive increase in obstructions to imports from China. Chinese banks have to go through deep investigations into the people they trade with and what their business is. Many Russian businesses are saying that components are being held up for six months or more if they can even be acquired at all. Many payments are simply blocked with no explanation and dealing with the Chinese banks is both a technical and linguistic challenge.
On top of that the depth of payment bans and currency transactions has reached new lows with previously easy to deal with nations such as the UAE and Turkey, let alone Pakistan and India, Indonesia and Singapore. Everywhere they turn, the US Treasury Department is shutting down each and every path as fast as Russia finds a way around it.
It’s been yet another wake up call for China and Russia who both loathe the power the US has over the global currency system and payments - but with 84% of world trade denominated in US$, they just don’t have any leverage to change the situation. So China is forced to play ball. And the Russian military economy is paying the price. Longer term, this has direct results. It means unrepaired oil refineries and pipelines, fewer missiles and bombs thrown at Ukraine. And it shuts down Russian options bit by creeping bit. Wherever they go, sanctions will follow, an ever tightening noose around Putin’s war machines proverbial neck.

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