The West Is Imposing Sanctions, Russia Shifting Trade Towards China

If there is any escalation or military activity in Ukraine by Russia, the United States will impose a much broader range of sanctions against Moscow, with the goal of preventing critical Russian financial institutions and companies from using the US dollar for transactions, as well as their access to global markets for trade, energy exports, and financing.

This would be the first time the United States and its Western allies attempted to isolate Russia’s $1.5 trillion economy from global trade. However, it is unclear how much influence united Western penalties would have on Moscow, as well as the scope of those measures.

According to a review of World Bank and United Nations trade figures, China has surpassed the United States as Russia’s top export partner after less severe sanctions were imposed in 2014 in response to Moscow’s annexation of Ukraine’s Crimea.

According to Harry Broadman, a former US trade negotiator and World Bank official with expertise in China and Russia, additional sanctions may force Russia to try to establish non-dollar denominated business relations with Beijing in order to avoid the constraints.

“The problem with sanctions, especially involving an oil producer, which is what Russia is, will be leakage in the system,” Broadman said. “China may say, ‘We’re going to buy oil on the open market and if it’s Russian oil, so be it.'”

According to the White House, any establishment in Russia’s financial services sector is a target for additional sanctions under an executive order signed by President Joe Biden on Monday, noting that more than 80% of Russia’s daily foreign exchange transactions and half of its trade are conducted in dollars.

On Tuesday, Biden announced the first round of sanctions on Russia for ordering forces into two rebel areas in eastern Ukraine, saying that he would “take robust efforts to guarantee that the impact of our sanctions is focused on the Russian economy, not ours.”

Given Russia’s position as one of the world’s main exporters of oil, natural gas, copper, aluminium, palladium, and other critical commodities, this may be easier said than done.

Because of Russia-Ukraine hostilities, oil prices reached new highs not seen since 2014.

According to World Bank data, Russia will contribute 1.9 percent of global trade in 2020, down from 2.8 percent in 2013. Its GDP for 2020 was ranked 11th in the world, sandwiched between Brazil and South Korea.

Russia’s reliance on trade has reduced over the last 20 years, according to a review of Russian trade figures in the World Bank’s World International Trade Solution database.

Russia’s export destinations have altered as well. The Netherlands was the primary export destination a decade ago due to the oil trade, but it has since been eclipsed by China. The purchases of Germany and the United Kingdom from Russia have stayed largely consistent, while Belarus’ imports have surged.

China is Russia’s biggest importer, with mobile phones, computers, telecommunications equipment, toys, textiles, clothing, and electronics components among the most popular items. It has grown its proportion of Russian imports while lowering its share of German imports since 2014. Ukraine’s exports to China have fallen dramatically in the last decade, whereas Belarus’ sales have stayed consistent.

According to World Bank estimates, aluminium oxide, railway equipment, coal, steel, and uranium will be among Ukraine’s key exports to Russia in 2020.

(Adapted from Reuters.com)



Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability

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