In the twenty-four hours after the announcement that Vladimir Putin recognized the independence of two Ukrainian provinces, the US, the UK and the EU countries bought 3.5 million barrels of oil and refined products to Russia worth 350 million dollars, according to Javier Blas of Bloomberg. The journalist added the calculation of another 250 million for the Russian gas exported that day, in addition to tens of millions in other raw materials, such as aluminum, coal, nickel or titanium. Therefore, after Putin took a measure that violated international law and Europe’s borders, in addition to being a warning of impending war, the bill for Russia’s trade relations with the West was well over $700 million a day. . It is an almost impossible economic relationship to break.
It is difficult to impose economic sanctions on a country that is one of the main suppliers of raw materials to Europe, especially gas and oil. The funds obtained from its export have allowed Russia to increase the country’s reserves to over 600,000 million dollars, in addition to modernizing the Armed Forces, the same ones that are now advancing on Ukrainian territory. Putin is using these funds provided by the US and Europe to create the biggest international crisis in European territory since 1945. They are the rules of the market.
In the last decade, it has been repeated in several European cities that one of the factors that could contain the Putin government is that the Russian economy was totally connected to the rest of the world. You cannot attack the countries that are your best customers. In 2014, Putin demonstrated with the annexation of Crimea that this mutual dependence would not prevent him from taking the measures that he believed appropriate to defend Russia’s position. In 2022 it has happened again.RELATED
“These are tough sanctions,” Joe Biden said Thursday as he announced new measures against Moscow. “Let’s have this conversation in a month to see if they’re working.” By then, there may not be much of the Ukrainian Army left.
The most striking thing about the US president’s press conference was that he admitted that the sanctions did not directly affect the main source of income for the Russian economy. “In our sanctions package, we have specifically decided to allow energy export payments. We are closely monitoring energy supplies for disruption.”
Translation: we want to sanction Russia, but we also need the prices of fuel and gas for domestic and industrial use not to reach prohibitive levels. These are two objectives that are not easy to reconcile.
“The goal is to go after the big banks (Russians) without completely punishing the global energy markets”, said a senior official from the US State Department, who affirms that keeping the price of oil, one of the largest Russian exports, low, will serve so that Putin does not benefit of the price increase.Putin “I could sell half of your product, but at twice the price,” said Amos Hochstein. “It would not suffer the consequences, while the US and our allies would. That is not a victory. It’s a failure.”
It is a way of hiding that above all the priority is to defend one’s own interest. Obviously, preventing an escalation in the price of oil and gas benefits the governments of the US and Europe due to its foreseeable impact on inflation that is already reaching digits not seen in the last decade. The risk is not less: a second recession in the last three years.
On Thursday, the day the invasion began, the price of a barrel of Brent crude oil exceeded 100 dollars, but then fell and on Friday afternoon it was around 93 dollars, a similar figure to the days before the conflict. . The State budgets in Spain for 2022 are based on the premise of an average price of 60 dollars per barrel.
The US and the EU have focused the strongest sanctions on the two largest Russian banks, Sberbank and VTB Bank. The US Treasury Department stated that 80% of global financial transactions in currencies of Russian financial institutions are made in dollars, so the restrictions will have serious consequences. As the sanctions are designed so as not to damage Europe’s energy supply, payments for Russian gas imports are authorized to be made through non-US financial institutions that are not affected by the sanctions, for example, European banks. Putin will continue to charge for his oil and gas, though not through his banks.
On a symbolic level, European governments are very close to imposing personal sanctions against Putin and his Foreign Minister Lavrov with which to freeze their assets abroad. Both have enough assets in Russia so that this decision does not affect them too much. The personal fortune of the Russian president is impossible to quantify. If he has properties abroad, are registered in the name of relatives, friends or shell companies.
A more radical move would be to expel Russia from the international registry of Swift payments. That would prevent any payment for imports of Russian products. The French economy minister said on Friday that this would be the last punitive measure to be taken. Germany and Italy have not accepted it so far. The Foreign Minister, José Manuel Albares, stated that it is a decision that has not yet been thoroughly discussed and that Spain would be in favor of adopting it.
Ukraine demands Russia’s veto on Swift. “All who doubt now on whether Russia should be expelled from Swift have to understand that the innocent blood of men, women and children in Ukraine will also stain their hands,” the Ukrainian foreign minister wrote.
Swift’s expulsion had serious consequences for Iran’s ability to export oil and receive payment accordingly. Its impact on an economy the size of Russia’s, which could also count on the collaboration of China to organize its financial transactions, is not clear. But in practice it would make it impossible for European countries to pay for Russian gas imports. Its export would have to be stopped and that would have dramatic effects on the gas supply to European households. Europe receives 40% of its total gas consumption from Russia. Qatar, one of the major producers, has already warned that it is not in a position to fill the gap that the end of these imports would leave.
The move would also confirm that Swift, which is run from Belgium, can be easily converted a weapon of US foreign policy, as has already been proven with the sanctions on Iran. That would accelerate the consolidation of other payment systems that would not be made in dollars, something that is not convenient for Washington.
While on the surface the Russian troops try to put an end to the Ukrainian resistance, below the oil pipelines continue to do their job. As harsh as the European rhetoric against Putin is, the business does not stop. After the strong increase in the price of gas on the first day of the war, on Friday it had a clear drop, more than 30%, until it fell to 90 euros per megawatt hour. The forecast for Saturday is that the highest level of Russian supply to Europe in the last two months will be reached.
As Javier Blas says, “capitalism in times of war”. Europe says it will stand up to Putin, and it says it in the strongest terms, but in the end it needs his gas.