Revisiting The Sanctions War

Until recently the general take on the Anglo-Zionist sanctions war against Russia was that it had turned out to be a spectacular failure. It had been envisioned as the magic bullet that would collapse the Russian economy in a matter of weeks, leading to Putin’s ouster and opening the way for the West to loot Russia once again. That didn’t happen—to say the least. However, over the past year a new wave of sanctions has made life more difficult for Russia. An RT article goes into this in depth, while Andrew Korybko offers commentary based on the RT article. The RT article is more financially technical than I can deal with, so I’ll try to provide an overview.

Has the US finally succeeded in choking off Russia’s biggest trade lifeline?

With the threat of secondary sanctions being felt acutely by Chinese banks, Washington may be winning a single battle – but in an economic war being decisively lost

First the overall view. It turned out that China—whose banking system has been closely integrated with the global dollar payment system during its economic rise—was the country most vulnerable to pressure. Tom Luongo has warned that the shift to BRICS would not be an overnight affair, and we’re seeing the truth of that:

The resilience of the Russian economy in the face of harsh Western sanctions sent those cheering the rise of multipolarity into victory laps. And it has been a huge embarrassment to the West. But Russia’s burgeoning problem settling payments with China demonstrates that this resilience isn’t without setbacks.

This past June, the US Treasury put the local banks of countries that trade with Russia in the crosshairs for secondary sanctions. The legal foundation for measures against companies or individuals found trading with sanctioned entities was originally implemented back in December, but it was in June that Washington expanded this framework and sent strong signals that this time it was serious. These threats were felt particularly acutely in China, Russia’s largest trade partner.

What happened and when

It started with the big state-owned Chinese banks, which began shying away from dealing with Russia at the beginning of the year. But there were always smaller, regional banks, which were seen as less exposed to the Western financial system, which would take their place. For a while, it seemed these banks would carry the day. But now even these institutions have followed suit.

By the summer, Chinese banks were rejecting and returning about 80% of Russian payments made in Chinese yuan, Kommersant reported in late July. An article in Izvestia from mid-August claimed that things were even worse: 98% of Chinese banks were refusing to take direct yuan payments from Russia.

Think about that. Chinese banks were refusing to take payments from Russia—in Chinese currency!

The result has been delayed and disrupted payments for many Russian importers. A Reuters report from last week discusses how transactions with Russia are being shut down “en masse” and billions of yuan worth of payments are being held up, according to a government source.

“At that moment, all cross-border payments to China stopped. We found solutions, but it took about three weeks, which is a very long time, trade volumes fell drastically during that time,” the government source told Reuters.

It sounds catastrophic, right? Well, workarounds have been found, although delays and added expenses were involved. In general, the sector most affected has been consumer goods, while the trade involving Russian commodity exports has been largely unaffected. Without attempting to get into the financial ins and outs:

The problems with payments this year have already affected imports, although the current figures come with a lag and do not reflect the most recent surge in yuan costs. Russian imports from China dropped by more than 1% to $62 billion over the first seven months of this year, according to official Chinese data. Russia’s central bank forecast that the country’s total imports of goods and services will fall by as much as 3% this year. But it will be important to watch how the figures for China’s exports to Russia – whether direct or transshipped through other countries – shape up the rest of the year in light of the surging transaction costs.

The Russian government, and the Russian financial press, has been very open about this problem. Korybko quotes Russian foreign minister Sergey Lavrov speaking quite frankly about the situation China finds itself in:

“Of course, everyone is now looking for those new opportunities. But the People’s Republic of China, with the size of its economy, with the volume of its trade relations with the United States and the West as a whole, is, of course, much more dependent on the West than the Russian economy was.

And I have no doubt that China will reduce this dependence and will gradually move toward those forms of communication with its partners that will not be associated with such a dictate.

But, given the Chinese mentality, the Chinese style, they do this slowly. They do not want any sudden movements. This topic is being discussed with our Chinese colleagues. They have a fairly well-developed banking system, and it is very deeply tied to global financial markets.”

Solutions of various sorts (utilizing cryptocurrencies, central bank digital currencies) are in the works:

In this context, a comment made by Russian economist and presidential aide Maksim Oreshkin this week at the Eastern Economic Forum in Vladivostok is important. Responding to a journalist’s questions about the payment issues, he said: “There is a problem with payments, but, as we have seen over the past years, any type of problem leads to new financial innovations, to the appearance of new payment methods.”

This is not just empty rhetoric or the face-saving cliché of a Russian official. It’s exactly what’s happening. As Business Insider admitted, the West’s tightening sanctions are pressuring Russia, “but Moscow keeps finding ways to keep the country’s economy going.“ A number of initiatives are afoot. 

Obviously, none of this has slowed down the Russian war effort. And not all countries have proven vulnerable to the pressure to the same extent as China—admittedly a very major player. The RT article concludes by arguing that this round of sanctions could prove to be a Pyrrhic victory in the long term. It will fail to deter Russia and will provide ever more incentive to the rest of the world to find alternatives to the dollar whenever possible. The continuing move to BRICS—most recently including NATO member Turkey—is a sign of that.

… Washington apparently feels that treading all over other nations’ sovereignty is a reasonable tradeoff for the benefit of pushing up the transaction costs for Russian businesses and proving that the yuan hasn't achieved the stature of the dollar.

... But those celebrating China ostensibly coming to heel over the sanctions don't want to acknowledge that it is a choice made under duress. ... The US is behaving like a jealous lover who has locked the object of his affection in the basement and then claims that her not fleeing is a sign of devotion.

... China is a sovereign nation that is naturally looking out for its interests, and Russia expects nothing less of it. There are no hard feelings. As cliché as it sounds, it really is a relationship defined by mutual respect for sovereignty. In the current situation, Beijing has to act pragmatically, but the erosion of goodwill toward the US this episode is producing in Beijing will find its outlet.

Nor has this led China to change its foreign policy in the least.

So are the travails with payments a victory for US sanctions? Yes, undeniably. But it is a rather short-sighted and ephemeral victory. It is a single battle won in an economic war being decisively lost. Far from a demonstration of strength, Washington’s overbearing meddling in the trade relations of sovereign nations across the globe is more akin to burning the furniture to keep warm. It will eventually be self-defeating.

The fading hegemon still has a few trump cards it can play with some effect – and it is playing them now. But every time it does, it brings closer the day in which those cards will be rendered obsolete.

Another factor in all this is that the rest of the West—Europe—is being hammered economically by the sanctions war. There will be reckoning and this should certainly be considered under the heading of “burning the furniture to keep warm.”

Now Andrew Korybko, in addition to the illuminating quote of Lavrov, provides a number of lessons learned. I’ll list three:

Russia & China's US-Provoked Payment Problems Caught Most BRICS Enthusiasts By Surprise

The dollar remains the world’s reserve currency despite the reputational damage caused by the US’ anti-Russian sanctions, Russia and China are mired in US-provoked payment problems, and multipolarity has yet to fully emerge since the legacy of America’s unipolar system is responsible for the aforesaid.

Third, the reality of BRICS is finally more apparent in light of these problems.

BRICS is a network, not a bloc. That is by design—it distinguishes BRICS from the Anglo-Zionist Empire—but that means that BRICS’s development and rise will be gradual rather than sudden.

The fourth lesson is an interesting one. Just the other day I was listening to Alexander Mercouris talking about the extent to which India’s Modi is pressured by the Indian diaspora—especially the high tech sector in the US, which has a large India expat presence that wants India to align with the US. Nevertheless:

The fourth lesson is that India proved more resilient to Western pressure than China. Many BRICS enthusiasts are suspicious of India’s close (but newly troubled) ties with the US, and a top Alt-Media influencer [Pepe Escobar] even described [India] as the West’s “Trojan Horse”. Sberbank’s Deputy CEO confirmed earlier this week though that “There are no restrictions on its operations” in India after it handled 70% of Russia’s $65 billion trade with that country last year, which was analyzed here. Folks should reflect on this point.  

Perhaps China is looking at India’s distinct path of economic development, which stressed maintaining its sovereignty and freedom of action, for lessons going forward. While most of the sanctions talk has centered on Russia - China, India has been a key enabler for Russia’s energy exports that remain central to Russia’s economic health.